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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[ X ]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934

                 For the Fiscal Year Ended December 31, 2001

[   ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                 For the transition period from _____________ to _______________

                         Commission file number 0-27227

                          ALLERGY RESEARCH GROUP, INC.
                 (Name of small business issuer in its charter)

         Florida                                              13-3940486
(State or other jurisdiction                             (I.R.S. Employer
of incorporation or organization)                         Identification number)

30806 Santana Street, Hayward, California                        94544
(Address of principal executive offices)                       (Zip Code)

Issuer's telephone number, including area code: (800) 545-9960

Securities registered under Section 12(b) of the Act:

                    Title of each class           Name of each exchange on which
                                                    Each class is registered

                          None.                     NASD OTC Bulletin Board

Securities to be registered under Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                (Title of Class)

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

         Yes [x]          No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]

State issuer's revenues for its most recent fiscal year: $11,749,199

The aggregate market value of the voting stock held by non affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock as of March 8, 2002 was $0.13, based on the last sale
price of $0.12 as reported by the NASD Over-The-Counter Bulletin Board.

As of March 8, 2002, Registrant had outstanding 15,105,355 shares of common
stock, its only class of common equity outstanding.

Transitional Small Business Disclosure Format  (Check one):    Yes [ ]    No [X]

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                                TABLE OF CONTENTS

PART I

ITEM 1.      DESCRIPTION OF BUSINESS...........................................1
   BACKGROUND..................................................................1
   THE COMPANY.................................................................1
   BUSINESS PLAN...............................................................2
   PRODUCTS AND SERVICES.......................................................3
   INDUSTRY OVERVIEW..........................................................10
   COMPETITION................................................................12
   MARKET STRATEGIES..........................................................13
   REGULATION.................................................................14
   EMPLOYEES..................................................................15
   INTELLECTUAL PROPERTY......................................................16
ITEM 2.      DESCRIPTION OF PROPERTY..........................................16

ITEM 3.      LEGAL PROCEEDINGS................................................16


ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............16


ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........17
   MARKET INFORMATION.........................................................17
   HOLDERS....................................................................17
   DIVIDENDS..................................................................17

ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........18
   GENERAL....................................................................18
   RESULTS OF OPERATIONS......................................................18
   LIQUIDITY AND CAPITAL RESOURCES............................................19
   RECENT ACCOUNTING PRONOUNCEMENTS...........................................21

ITEM 7.      FINANCIAL STATEMENTS.............................................22


ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS....................22


ITEM 9.      DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
             PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.......23
   KEY EMPLOYEES..............................................................24
   MEDICAL ADVISORY BOARD.....................................................25
   SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE....................26

ITEM 10.     EXECUTIVE COMPENSATION...........................................26
   REMUNERATION PAID TO EXECUTIVES............................................26
   REMUNERATION PAID TO DIRECTORS.............................................27
   EMPLOYMENT AGREEMENTS......................................................27
   EMPLOYEE BENEFITS..........................................................28

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...29


ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................29


ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K.................................30


SIGNATURES....................................................................31

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                                     PART I


ITEM 1. DESCRIPTION OF BUSINESS

BACKGROUND

      Allergy Research Group, Inc. (SYMBOL: ALRG) (the "Company" or "ARG"),
through its wholly owned subsidiary, Nutricology, Inc., strives to be an
innovative leader in nutraceutical research and product formulation. Since 1980,
the Company has produced quality, hypoallergenic nutritional supplements and
supplies products to approximately 4,000 physicians and health care
practitioners worldwide. For instance, ARG was the first in the U.S. to
introduce numerous specialty products including melatonin, a neurohormone,
germanium sesquioxide (a trace mineral), AntiOx(TM), a broad-spectrum
antioxidant and Buffered Vitamin C. Buffered Vitamin C was tested at the Haight
Ashbury Clinic in San Francisco as a nutritional supplement for its value
(associated with medical treatment) for opiate and stimulate abusers. Overall,
the tests indicate that Buffered Vitamin C is beneficial in detoxification and
aftercare programs, including discouragement of resumption of drug abuse.

THE COMPANY

      ARG, then Scottsdale Scientific, Inc., was incorporated under the laws of
the state of Florida on April 8, 1997 for the purpose of wholesale distribution
of health and nutritional supplements. On February 3, 1998, the Company entered
into an agreement to acquire Nutricology, Inc., a California corporation formed
on March 11, 1980 ("Nutricology"). Nutricology was engaged in the distribution
of hypoallergenic nutritional supplements under the guidance of Dr. Stephen
Levine.

      Nutricology, Inc. now operates as a wholly owned subsidiary of ARG. As
used herein, the "Company" means ARG and its subsidiaries, except where
indicated otherwise.

      Healthcare professionals worldwide recognize the Company for the quality,
purity and efficacy of its targeted nutritional supplement line. Currently, we
supply products to approximately 4,000 physicians and health care practitioners
world-wide, including accounts in the United States, Japan, Taiwan, the United
Kingdom, South Korea, Jamaica, New Zealand, Mexico, Turkey, Norway, Sweden,
Switzerland, Italy, Ireland, Philipines, Russia, South Africa and Singapore.

      We develop, contract manufacture, market and sell branded and private
label products, including vitamins and nutritional supplements, throughout the
world under the NutriCology and Allergy Research Group(R) labels. Our products
are distributed through distributors to medical and professional accounts and to
retailers. See "Market Strategies" below. We offer a line of approximately 200
products, including vitamins in both multivitamin and single-entity formulas,
minerals, and herbals. Our products are manufactured in various forms, including
capsules, tablets, softgels, powders (drink mixes) and liquids.

      The Company's principal executive offices are located at 30806 Santana
Street, Hayward, California 94544 and its telephone number is (800) 545-9960.

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BUSINESS PLAN

      COMPANY GROWTH STRATEGY

      We intend to expand the Company's position in the vitamin and nutritional
supplements markets. Specifically, our strategy continues to be: (i) develop new
brands and product line extensions, as well as new products, through our
commitment to research and development; (ii) continue the growth of our balanced
distribution network; (iii) build our execution skills through new operations
processes and decision support systems; (iv) achieve cost superiority through
formal productivity benchmarking and continuous improvement programs; and (v)
implement a comprehensive e-commerce plan. The Company believes that its history
and reputation in the field, multiple distribution channels, broad portfolio of
products and packaging and distribution capabilities position it to be a
long-term competitor in the vitamin and nutritional supplements industries.

      In addition, the Company is expanding into the field of research on
pharmaceuticals and nutraceuticals under the leadership and guidance of Dr.
Stephen Levine and Dr. Ba Hoang, MD, PhD. This process will be limited to
literature work, including patent submissions for potential products. The
research can be marketed to pharmaceutical companies either through direct sell
of the research to the pharmaceutical company, or through a joint venture
arrangement between the pharmaceutical company and ARG whereby the parties will
jointly own the patent and continue development of the products. It is our hope
that, during the process of research into possible pharmaceutical and
nutraceutical products, we will test new herbal products, or additional uses for
existing herbal products, that can be added to our current line of products as
health food or dietary supplements.

      PRODUCT RESEARCH AND DEVELOPMENT

      We strive to make the Company a leader in vitamin and nutritional
supplement product development and intend to continue our commitment to research
and development to create new products and existing product line extensions. In
2001 and 2000, respectively, we spent $195,471 and $132,885, respectively, on
research and development. The nutritional supplement industry is influenced by
products that become popular due to changing consumer interests in health,
appearance and longevity, new research coming out on existing compounds or new
compounds being discovered along with public and media attention to these same
interests. We believe it is important to develop new products in these
industries in order to capitalize on new market opportunities, to strengthen
relationships with customers by meeting demand and to increase market share. In
addition, we believe that continually introducing new products is important to
preserving and enhancing gross margins due to the relatively short life cycle of
some products. Our involvement in the research and development of
pharmaceuticals and nutraceuticals should enable us to expand our nutritional
supplement product line and open a new potential revenue stream through joint
ownership of patents.

      As a result of the Company's product development history, we believe that
it has built a reputation in the nutritional supplement industry for innovation
in both branded and private label products. Based on feedback from our
professional customers around the world, we believe Allergy Research
Group(R)/NutriCology, Inc. is recognized worldwide for the quality, purity and
efficacy of its targeted nutritional supplement line. In addition, the Company
was among the first U.S.-based companies to introduce numerous specialty
products, including melatonin and Buffered Vitamin C. The Company is in various
stages of development with respect to new product concepts that we anticipate
will augment both our existing domestic and international product lines.
Recently, through Dr. Levine, the Company has become more focused on researching
and developing broad-spectrum immune products. (A broad-spectrum immune product
is one that is varied in its ability to enhance a wide range of protective
mechanisms of immune function against pathogens, bacteria, virus, fungus,
protozoan and cancer.) Building from this focus on broad-spectrum immune
products the Company has expanded the market created for anti-angiogenics,
specifically with a bindweed-based product called VascuStatin.

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      MANUFACTURING AND PRODUCT QUALITY

      Our purpose is to improve the quality of life for our customers through
scientifically based innovation, purity of ingredients, education and
outstanding service. Our products are designed to be the purest and highest
quality obtainable and are generally made without yeast, corn, wheat, soy, dairy
products, flavorings, colors, salt, sugar, starch, common preservatives, binders
and excipents. To ensure optimal stability, our products are stored in a
humidity and temperature-controlled environment. We rely on scientific research
and collaboration with other experts in the biomedical field to insure state of
the art, hypoallergenic, when possible, formulations containing the purest,
highest quality ingredients.

      The Company currently does not have facilities for the manufacture of
encapsulated and liquid products, and we are using outside vendors for this
purpose. As of December 31, 2001, a concentration of approximately 56% of our
manufacturing was distributed among four separate vendors. Horizon Laboratories
acts as our largest manufacturer and supplier of raw materials at 30%, with M&L
Pharmaceuticals at 10%, and Softgel Technologies and ABCO Laboratories, Inc.
acting as our third and fourth largest vendors, both at 8%. We are committed to
providing the highest quality products, and require our manufacturers to provide
evidence that they have met our standards. Our outside vendors are required to
manufacture our products in accordance with the applicable Current Good
Manufacturing Practices ("CGMPs") of the United States Food and Drug
Administration ("FDA") applicable to food and other applicable regulatory and
compendial manufacturing standards, such as United States Pharmacopoeia ("USP").
Raw materials and finished products undergo random sample quality testing
procedures, including weight, purity, heavy metals and microbiological testing.
In order to assure that our products meet the high standards we require, we
randomly take raw materials and samples from our manufacturers to independent
laboratories for testing.

      Approximately 70% of our products, consisting of capsules and tablets, are
packaged at and distributed from the Company's 19,940 square foot warehousing
and packaging facility located in Hayward, California (the "Hayward Facility").
The Hayward Facility was leased by the Company for five years commencing June 1,
1998, and consists of approximately 5,500 square feet of office space. The lease
allows for an increase of 5% every 15 months. In 2001, the Company paid $29,548
per month for its facilities. The next scheduled rent increase is effective
April 1, 2002. The rental expense is offset by sublease income of $8,320 from
the sublease of one of our warehouse facilities. We continued in 2001 to upgrade
our facilities and enhance our packaging capabilities through new equipment and
technological improvements in order to meet the demands of our customers. Our
outside manufacturers package our liquid products and encapsulate our powder
products.

PRODUCTS AND SERVICES

      Our vitamin and nutritional supplement line consists of more than 200
products. The Company's product catalog includes the following categories: Amino
Acids, Antioxidant Formulas, Bioenergetic Nutrients, Bioflavonoids, Brain
Support Products, B Vitamins, Comprehensive Nutrient Formulas, Essential Fatty
Acids, Gastrointestinal Health Products, Immune Support, Liver Support Products,
Mulitple Vitamin / Mineral Products, Musculoskeletal Products, Organic
Glandulars, Selenium Products, Specialty Products, Vitamin C products. A brief
description of each of these categories appears below, including descriptions of
some of our most popular products.

      Approximately 75% of the products discussed below were formulated by
Allergy Research Group/NutriCology and are manufactured and distributed by the
Company. Another 25% of the products are produced by other companies in the
industry and distributed by the Company through licensing agreements. Most
notably, we license the distribution rights for ProGreens(R), a fresh,

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nutrient-rich whole food concentrate, which is gluten-free and contains no egg,
dairy or animal products, no yeast, malto-dextrin, barley malt or simple sugar,
no preservatives, and no artificial flavoring or coloring; OralMat, a product
based on an extract of the rye plant; Eurocel(R), a product made from Korean and
Chinese herbs that have been used historically in Oriental medicine; and
VascuStatin, a product made from bindweed, shown to potentially assist in
supporting the inhabitation of angiogenisis.

      The trademark to ProGreens(R) is owned by Jim Cassidy and is licensed to
Nutricology under an exclusive, worldwide license pursuant to which Mr. Cassidy
receives royalties based on the amount of ProGreens(R) products sold by the
Company. Mr. Cassidy acts as a consultant to the Company in relation to the
ProGreens(R) products and receives a fee for attending tradeshows on the
Company's behalf as well as commissions based on sales of the Company's products
made by him.

      AMINO ACIDS

      Amino acids exist in all living cells and chains of amino acids make up
protein. They make up a great portion of our skin, hair, nails, muscle tissue
and internal organs. Our brain and heart are especially high in protein. The
body uses amino acids in the production of neurotransmitters in the brain,
several hormones, a variety of enzyme and metabolic processes, the formation of
antibodies, as well as for the production of non-essential amino acids.
Essential amino acids are the amino acids the body does not produce and it is
necessary to get them from the diet or a supplement. Non-essential and
semi-essential amino acids are produced by the body; however, higher amounts may
be necessary during times of increased physical or emotional stress, illness or
imbalance. The amino acid products produced by Allergy Research Group(R) are
easily absorbed into the system.

      ANTIOXIDANT FORMULAS

      Under the leadership of Dr. Levine, the Company, through Nutricology, has
pioneered hypoallergenic, broad spectrum, mixed antioxidant formulations. Though
essential, oxygen has the potential to create metabolic toxicity. Antioxidant
nutrients are utilized in conjunction with antioxidant enzymes to help quench
oxygen free radical generation. Acting to impede free radical damage to cells
and tissues, the body's antioxidant defense system amounts to a metabolic
cooling and lubrication system. The antioxidant nutrients are the body's natural
antitoxins and are crucial to homeostasis, having regulatory roles in a
diversity of tissue functions. A variety of stressful environmental, genetic and
behavioral factors have been linked to increased free radical production in the
tissues. Good dietary habits help conserve the body's antioxidant stores, but
under the conditions of modern living it can be good "nutritional insurance" to
supplement the diet with natural antioxidants.

      BIOENERGETIC NUTRIENTS

      The production of energy begins in a particular organ inside of our cells.
That organ is known as the mitochondria. Inside the mitochondria, with
assistance of enzymes from the Krebs cycle, carbohydrates and fatty acids are
metabolized into Adenosine Triphosphate (ATP). ATP is considered a cofactor and
a modulator of activity of some enzymes and can be thought of as cellular
currency. Included in this category is the product ProGreens(R), which is
formulated with the highest quality green foods, premium adaptogenic herbs and
antioxidant bioflavonoids, to provide a broad-spectrum nutritional support from
natural food factors not found in isolated vitamins or mineral concentrates.
ProGreens(R) is marketed in a variety of forums under the Company's NutriCology
label.

      The Company produces a hypoallergenic product using germanium, which is a
semimetallic element in the same family as carbon, silicon, tin and lead.
Germanium sesquioxide may be used in the treatment of anemia, a blood condition
involving abnormal oxygen carrying potential. Allergy Research Group(R) was the
first company in the United States to introduce germanium sesquioxide. We
currently produce germanium in both powder and capsule form.

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      BIOFLAVONOIDS

      The bioflavonoids are the biologically active flavonoids. (A flavonoid is
any of a large group of plant substances that includes the anthocypanins, a
class of flower pigments.) Bioflavonoids are important nutritional factors, and
are part and parcel of just about every plant on Earth. They are important
protective and regulatory factors in plant metabolism, and from their widespread
distribution are likely to have been an integral part of the human diet ever
since humans appeared. We believe that this co-relationship with humans over the
course of evolution is consistent with the many benefits to homeostasis that
they seem to offer, although scientific research on this relationship is still
in development stages. Certainly, they are complex chemically, and can play a
variety of roles in human metabolism. They are potent antioxidants, and many
also display metal binding activity, a property that may contribute to their
antioxidant effects. Bioflavonoids are required for the proper absorption of
Vitamin C, and increase Vitamin C's effectiveness. They are also thought to
improve immunity, fight cancer, reduce inflammation and strengthen capillaries.

      BRAIN SUPPORT PRODUCTS

      The "brain support" formulas produced by the Company are designed to
enhance brain function, improving memory, supporting the central nervous system
and aiding in the production of neurotransmitters in the brain. Included in this
group of products is Melatonin, which was first introduced into the U.S. health
food and professional market by Allergy Research Group(R). Melatonin has many
nutritional benefits. However, its main function in the body is to support the
aspects of brain chemistry involved in sleep.

      The Company's newest "brain support" product, 200 mg of Zen, contains a
significant quantity of both gamma-aminobutyric acid (GABA) and theanine
(glutamic acid gamma-ethylamide), an amino acid derivative found naturally in
green tea (Camellia sinensis). 200 mg of Zen provides a source of dietary
ingredients that may provide stabilization of mood and a feeling of alert
relaxation.

      B VITAMINS

      B vitamins are water-soluble and not stored in the body very effectively,
therefore they need to be replenished daily. Insufficiencies may occur easily
during dieting for weight loss, fasting or consuming the Standard American Diet
(SAD), which usually includes too many processed foods and excess sugar. Alcohol
and drugs, including antibiotics, also deplete levels of B vitamins.

      The B vitamins function as co-enzymes: they assist the enzymes, our
biological catalysts, in implementing the tens of thousands of biochemical
reactions and metabolic pathways that make life possible. Some of those enzyme
functions include energy production, conversion of carbohydrates to glucose and
assisting other nutrients in the metabolism of fat and protein. In addition, B
vitamins are essential to optimal functioning of the central nervous system, as
the body uses B vitamins during physiological response to stress and fatigue.
Adequate levels of B vitamins are also especially important for the formation of
healthy hair and skin, and optimal functioning of the eyes and liver. The B
vitamins, potentially promoting efficient bowel functions, support the general
muscle tone of gastrointestinal tract.

      Included in the B vitamin group are the following: B1 (thiamin), B2
(riboflavin), B3 (niacin), B5 (pantothenic acid), B6 (pyridoxine), B12
(cyanocobalamin), chlorine, inositol, PABA, orotic acid, pangameic acid, and B17
(laetrile). Biotin and folic acid are intimately involved in many of the same
pathways, and are commonly regarded as quasi-B vitamins.

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      COMPREHENSIVE NUTRIENT FORMULAS

      The Company produces a family of products that it refers to as
"comprehensive" nutrient formulas. These products include: Complete Immune,
Complete Heart, Complete Heart II, and Complete Nerve. (These products are sold
as Wholly Immune, Take Heart, and Steady On under the Allergy Research Group(R)
label, which is marketed to professionals). Complete Immune is a blend of herbs
and nutrients designed to work synergistically to enhance the body's natural
immune system, decrease oxidative damage, promote liver detoxification, and to
regulate cell division. Complete Heart and Complete Heart II are comprehensive
cardiovascular support formulas and are prepared with or without hormones DHEA
and Pregnenolone (Complete Heart II does not contain these hormones). Both
formulas support general nutrition, ATP (adenosine triphosphate) production,
catabolism and homocysteine metabolism, anti-oxidant function and maintenance of
serum viscosity and cardiovascular health. Complete Nerve is a comprehensive
neurovasular support formula that provides nutrients that have been shown to
improve blood and oxygen supply to the brain, potentially improving brain
function. This formula provides general nutrition, precursors for the formation
of L-dopa and dopamine, support for the generation of neurotransmitters, support
of healthy emotional response, increased neuromuscular control and support
against oxidative degeneration of central neurons.

      ESSENTIAL FATTY ACIDS

      It has been clear for some time that many individuals in western
society consume far too many of their calories as fats. However, portions of the
fats we take in actually are important nutrients. These are the "essential fatty
acids." This group includes two fatty acids, namely--linoleic acid and
alpha-linolenic acid--which appear to have vitamin-like activity: they are
essential for metabolism and cannot be produced in the body from simpler
molecules. In addition, gamma-linolenic acid (GLA) is a fatty acid intermediate
which may help some individuals bypass a "weak-link" in fatty acid metabolism
(delta-6-desaturase), so can be classified as "semi-essential."

      High intakes of cholesterol, saturated fats and hydrogenated fats
("trans-fats") may be undesirable, but essential fatty acids are positive
factors in a personal program for good health. Allergy Research Group(R)
essential fatty acids are derived from the highest quality sources available and
every batch of each of the fish oil products is tested for mercury and other
potential contaminants.

      GASTROINTESTINAL HEALTH PRODUCTS

      The health and integrity of the epithelial lining of the gastrointestinal
tract is important for proper absorption of nutrients, for maintaining healthy
microbial balance in the gut, and a state of homeostasis throughout the body.
When increased intestinal permeability (also known as "leaky gut") exists within
the gastrointestinal tract, an environment conducive to inadequate absorption of
nutrients and increased absorption of toxins, pathogenic bacteria and
inflammatory substances exists, potentially leading to weakened immunity and
compromised health. Dietary supplementation with nutrients the body uses to
produce healthy epithelial tissue, regulate transit time and balance
microbiology may support gastrointestinal health. Digestive support may also
benefit individuals with increased intestinal permeability.

      Increased intestinal permeability is common among individuals with chronic
stress, allergies, and microbial infestations. Weakened immunity, including
conditions of hypo-immunity and auto-immunity, may involve "leaky gut."
Consumption of foods processed with chemical additives and preservatives, having
low levels of nutritional value, as well as caffeine and alcohol consumption may
lead to an increase in intestinal permeability. The overuse of drugs, both
prescription and over the counter, environmental contaminants such as car
exhaust, perfumes and cleaning chemicals are also potential avenues to
developing increased intestinal permeability.

                                       6
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      The Company's gastrointestinal (GI) health products include a variety of
products to support digestion and elimination, intestinal permeability and
microbiology. Perm A vite is a formula designed specifically to support the
body's production of healthy gastrointestinal lining, necessary in conditions of
"leaky gut." Several unique and potent probiotic formulas, as well as a variety
of microbial balancing formulas, such as Tricycline, which includes artemesinin,
black walnut hulls, citrus seed extract, and berberine sulfate all of which have
been shown to adversely affect unfriendly microbes. Probiotic is the term used
collectively to describe friendly intestinal bacteria, necessary for GI health.

      Another of the Company's gastrointestinal health products is Earth Dragon,
an herbal combination product developed by Dr. Ba Hoang and his family of three
generations of Vietnamese doctors. The product includes dried earthworms (Earth
Dragons), which are used traditionally in the Vietnamese diet to aid the human
digestive system. Recent studies by Professor Joel Weinstock, University of
Iowa, support the theory that certain microorganisms may play a key role in
modulating intestinal immunity. Weinstock believes that ingesting a very
specific species of parasitic worm may be highly effective in the treatment of
inflammatory bowel diseases such as ulcerative colitis and Crohn's disease,
which are believed to be caused by an overactive immune response to normal
intestinal bacteria. Earth Dragon is a proprietary product of Dr. Hoang and is
unique to the Company.

      IMMUNE SUPPORT

      The immune system is a complex system involving communication between
organs, tissues and chemicals. Its main purpose is to protect the body against
foreign invaders, infection, and disease processes. The primary functions of the
immune system have been understood for a relatively short period of time. As far
as is understood at this time it is thought that the thymus gland (master gland
of immunity) grows rapidly for the first two years of life. It continues to grow
at a slower rate until puberty. At that time the amount and strength of the
T-cells determines the strength of ones immune system. The thymus gland then
slowly shrinks with age, lessening the strength of ones immune system. Shrinkage
of the thymus (decreasing immunity) can be caused by stress, infection,
radiation, and drugs such as cortisone, malnutrition, chronic illness and
free-radical damage. Specific nutrients that support the thymus and immune
system as a whole may potentially increase ones immunity.

      The Company has some of the most unique products for immune support
available today. Lactoferrin, a specific component of bovine colostrum, having a
somewhat stimulating effect on the immune system, was introduced to the market
by Allergy Research Group(R). Cytolog(R) is a unique complex of peptides
selected from bovine colostrum for their molecular weight. These peptides are
referred to as "info-peptides" and rather than having direct biological activity
on the immune system they seem to inform the body as to what it needs to
regulate the immune system. Cytolog(R) is supportive for down regulating
auto-immunity as well as supporting conditions of lowered immunity.

      LIVER SUPPORT PRODUCTS

      The liver is a complex organ with a variety of functions. It plays a major
role in the detoxification of both endotoxins (metabolically produced toxins)
and xenobiotics (environmental toxins). Detoxification is a process involving
several different organs and occurs primarily in the liver where toxins,
chemicals, cholesterol and fat-soluble toxins are filtered from the blood, using
enzymes and the synthesis and secretion of bile. These products generally
support the phase I and phase II functions of liver detoxification. In phase I,
toxins are neutralized or transformed into intermediates which are then
neutralized by the phase II enzymes. In phase II, metabolic chemicals are
enzymatically attached (conjugation) to the toxins that are then either
neutralized or more easily excreted in the bile and urine. The liver's ability
to detoxify potentially harmful substances is directly related to optimal
health.

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      The Company recently obtained exclusive U.S. distribution rights for
Eurocel, a product made from Korean and Chinese herbs that have been used
historically in Oriental medicine. Testing done on Eurocel indicates positive
results in patients with Hepatitis C, indicating a significant decrease in viral
titers. Since Eurocel is only a recent addition to our product line, we cannot
yet predict what percentage of sales it will represent.

      MULTIPLE VITAMIN / MINERAL PRODUCTS

      The Company produces a multi-Vitamin complex, Multi-Vi-Min(R), formulated
by Dr. Levine. Multi-Vi-Min(R) was designed to be a hypoallergenic, and many
people who cannot tolerate a complex nutrient formula do well with the formula.
The formula comes in three varieties, one containing copper and iron, one
without those ingredients, and a formula especially for children. In addition,
the Company produces and markets a number of other multi-Vitamin and mineral
products on the premise that a quality multiple vitamin/mineral supplement is a
must for everyone. These products include calcium, magnesium, zinc and potassium
based products, as well as two forms of OcuDyne, a formula created exclusively
for Allergy Research Group(R) by Jonathan Wright, M.D. and Alan R. Gaby, M.D.
OcuDyne is a formula designed to support the structure and various functions of
the eye.

      MUSCULOSKELETAL PRODUCTS

      The Company produces a variety of musculoskeletal products designed to
support connective/joint tissue. Connective tissue is present in varying degrees
in all organs of the body. The term "connective tissue" refers to the various
types of tissue that make up the joints, tendons, ligaments, and even the web
that holds all cells together. As a part of this group of products, the Company
also produces a calcium product designed to support the production of healthy
bone tissue.

      A new product the Company has developed, InflaMed, aims to helps maintain
healthy joint tissue by supporting the reduction of pain associated with
inflammation, proinflammatory mediators (e.g. prostaglandins, thromboxanes,
etc.) and reduce inflammatory response by maintain detoxification systems as
well as reducing oxidative stress damage induced by inflammation.

      ORGANIC GLANDULARS

      Glandular tissues can be rich sources of nutrients, enzymes and other
factors that support specific gland-related metabolism and physiological
function. When prepared with sufficient technical sophistication and sensitivity
to their delicate nature, some of these glandulars can retain a significant
portion of their biological activity. Allergy Research Group(R) glandular
products are produced from government inspected, range-grazed animals raised in
New Zealand, without the use of pesticides, hormones and antibiotics, and are
BSE free. Our glandulars are lyophilized (freeze-dried), which means the
material is frozen, then subjected to a high vacuum that vaporizes moisture
directly from the solid state, thereby maintaining its biological activity. They
are highly potent and are generally well-tolerated.

      SELENIUM PRODUCTS

      The Company produces Selenium-based products. Selenium is an essential
trace element that is "redoxactive," (i.e., highly active in electron exchange
reactions.) Antioxidant enzymes specialize in electron exchange reactions that
help protect the cells and tissues from free radicals and other oxidative
"electron stealers." Selenium is an essential component of glutathione
peroxidase, being located at the "active site" of this major antioxidant enzyme.
Selenium products include a liquid sodium selenite and are encapsulated selenium
from kelp.

                                       8
<PAGE>

      SPECIALTY PRODUCTS

      We also produce and/or distribute a number of "specialty items" which do
not fall into our general product categories. These products include a
HomoCysteine Metabolism Formula, which provides a good source of folic acid and
B vitamins to facilitate the breakdown of homocysteine (a toxic amino acid that
can cause vascular disease, playing a role in stroke, myocardial infarction
(heart attack), and carotid artery damage among others) back into methionine and
other metabolites. Methionine is one of the sulfur-containing amino acids
(cysteine and cystine are others) and is important for many bodily functions.
Through its supply of sulfur, it helps prevent problems of the skin and nails.
It acts as a lipotropic agent to prevent excess fat buildup in the liver and the
body, is helpful in relieving or preventing fatigue, and may be useful in some
cases of allergy because it reduces histamine release. It also may help lower an
elevated serum copper level. Methionine is of concern mainly because it is the
limiting, or the least abundant, amino acid in most foods.

      The Company produces and distributes Mastica, an encapsulated product
which contains Mastic gum, a resinous exudate obtained from the stem and the
main leaves of the PISTACIA LENTISCUS tree indigenous to the Mediterranean (most
notably the Greek Island of Chios). The gum has been reported in the New England
Journal of Medicine to be effective against several strains of Helicobacter
pylori. Mastica has become one of our most popular products and we are aware of
only one other distributor in the United States.

      The Company has a new product developed by SoftGel Technologies called
Glucosol(TM). Glucosol(TM) is a unique standardized leaf extract of
Lagerstroemia speciosa L., a traditional herb from Asia. Processed by water
extraction and standardized to 1% corosolic acid per softgel, Glucosol(TM)
offers superior potency. Corosolic acid, the active triterpenoid, has been
studied for its blood sugar-lowering effects since the 1930's. Recent Japanese
and American Studies have shown that Glucosol(TM) regulates blood sugar by
supporting the body in improving glucose metabolism and activating glucose
transport and uptake. Our unique, all natural softgel formulation provides
optimum efficacy and enhanced absorption. Maximum effects occur within the first
15 days of supplementation, and blood glucose levels remain low for a period of
time after supplementation is discontinued. In addition, Glucosol(TM) has been
shown to support the body in improving carbohydrate metabolism, thereby
potentially being valuable in weight reduction programs.

      Other "specialty products" include three hypoallergenic products known as
NAC (N-Acetyl-L-Cysteine), an antioxidant closely related to L-cysteine but more
stable, Saw Palmetto Complex, which provides the highest quality standardized
Saw Palmetto extract available together with other active nutrients that
complement its action, and Super Immuno Complex(TM), a daily high-potency
nutritional supplement package designed to boost the body's immune system,
antioxidant and essential fatty acid status, and benefiting overall nutritional
intake. NAC, when taken orally, will raise blood and tissue cysteine levels.
Cysteine is important for homeostasis, being a key antioxidant, a glutathione
pre-cursor and a natural source of sulfur for metabolism. Saw Palmetto extract
is a lipophilic extract of saw palmetto berries, which act as an
anti-inflammatory in the treatment of benign prostate enlargement.

VITAMIN C PRODUCTS

      Vitamin C is the body's most important water-soluble antioxidant nutrient
and is involved in a wide variety of biochemical reactions throughout the body.
Included in its functions is the synthesis of collagen, the basis of connective
tissues, found in virtually every cell of the body. Vitamin C possesses
antioxidant properties and because of its molecular structure, is able to donate
hydrogen atoms from two hydroxyl positions to neutralize free radicals. In
addition, the body uses Vitamin C during detoxification and inflammation
processes, as well as immune system functions including: the production of white

                                       9
<PAGE>

blood cells, histamine release and degradation, the reduction of glutathione and
the metabolism and protection of several other nutrients. In combination with
other nutrients, Vitamin C also supports the production of some
neurotransmitters.

      Allergy Research Group(R) has pioneered the development of buffered
Vitamin C products, and continues to offer the purest and least allergenic
Vitamin C products available anywhere. In addition to its hefty content of
ascorbic acid, our buffered Vitamin C also supplies potassium and the
macrominerals calcium and magnesium at approximately one half of the RDI per
level teaspoon. Due to its generous complement of calcium (350 mg per teaspoon),
supplementation with our buffered Vitamin C may be desirable for individuals who
do not regularly consume dairy products. Developed by Dr. Levine, the unique
beet source makes Buffered Vitamin C well-tolerated by individuals unable to
tolerate other sources of Vitamin C. The latest addition to our Buffered Vitamin
C products is a unique cassava root (of the potato family) source Buffered
Vitamin C. Both the beet and cassava root sources are formulated with carbonates
of potassium, calcium and magnesium, giving it an acid-alkaline buffering action
(pH 7.0 in water), potentially improving bowel tolerance and minimizing
hyperacidity.

INDUSTRY OVERVIEW

      According to Packaged Facts, an independent research firm, the retail
market for vitamins, minerals and other supplements (excluding sports nutrition,
food bars and diet products; the "VMS Products") grew, through 1998, at a
compound annual rate of 15.4% from $5.0 billion in 1994 to $8.9 billion in 1998.
A large portion of this growth is attributable to an increase in sales of
supplements (primarily herbal products), which grew from $1.3 billion in 1994 to
$3.9 billion in 1998. Growth in this category was fueled by the widespread
publicity surrounding such herbs as echinacea, garlic, ginseng, gingko, Saw
Palmetto and St. John's Wort.

      Despite growth through 1998, industry sources indicate that the growth
rate in the nutritional supplement industry slowed significantly in 1999. We
believe this slowdown is partially due to a decline in sales at the retail level
of St. John's Wort and other herbal products that were in greater demand in the
first half of 1998, largely as a result of media attention, and to a more
generalized industry-wide slowing of growth across most product categories. As a
result, orders to manufacturers and suppliers were reduced in 1999.

      According to Nutritional Outlook, in 2000, overall sales of natural
products increased by 7.5%. The global demand for nutritional products in 2000
was $140 billion. Of that, $21 billion was attributable to sales of vitamins and
minerals. Sales of mineral products grew approximately 8% from 1999, while sales
of vitamins grew approximately 2%. In the United States, which represented the
most significant international market for nutritional products, vitamins were
the top item in supplement sales during 2000, representing 35% of the U.S.
supplement market.

      The Nutritional Business Journal reported that dietary supplements were
sold primarily through mass merchandisers and natural food stores, which each
accounted for one-third of the market. Sales by professionals accounted for 6.5%
of the market in 2000.

      According to the National Nutritional Foods Association and the
Nutritional Business Journal, the U.S. nutrition industry is a $48 billion
industry and is expected to grow 6.2% from 2001 to 2003. Of the $48 billion
nutrition industry, supplements account for 35% or $16.8 billion in 2000. Of
these, vitamins accounted for 36% while minerals accounted for 8%. Supplement
sales are expected to grow 10% from 2001 to 2003, with sales of minerals and
vitamins expected to grow 7.8% and 2%, respectively.

                                       10
<PAGE>

      We believe the historical industry growth through 1998 was caused by
several factors, including; (i) favorable demographic trends towards older
Americans, who are more likely to consume nutritional supplements; (ii) product
introductions in response to new scientific research findings supporting the
positive health effects of certain nutrients; (iii) the nationwide trend toward
preventive medicine in response to rising health care costs; (iv) increased
consumer interest in alternative health and herb-related supplements; and (v)
the heightened understanding and awareness of healthier lifestyles and the
connection between diet and health. Moreover, although the industry has grown
dramatically in recent years, there is still a large untapped domestic market as
only an estimated 56% of Americans currently consume vitamins, herbs and
nutritional supplements on a regular basis. According to Nutritional Outlook,
consumer confidence should continue to grow as production, quality control,
ingredients and packaging continue to improve, bringing on a heightened demand
for nutritional supplements.

      Vitamins and nutritional supplements are sold through several channels of
distribution: health and natural food stores, mass-market retailers (drug store
chains, supermarkets and other mass merchandisers), direct sales channels
(including network marketing and catalog distribution), and e-commerce via the
Internet. According to Packaged Facts, in 1998 the mass market channel accounted
for approximately 49% of the sales of vitamin, mineral and supplement products,
health and natural food stores accounted for approximately 39% of sales and
direct selling, mail order and the Internet accounted for approximately 12% of
sales.

      Over the past several years, public awareness of the positive effects of
vitamins and nutritional supplements on health has been heightened by widely
publicized reports of scientific findings supporting such claims. Many studies
have indicated a correlation between the regular consumption of selected
vitamins and nutritional supplements and reduced incidences of a wide range of
conditions, including cancer, heart disease, stroke, arthritis, osteoporosis,
mental fatigue, depression, declining immune function, macular degeneration,
memory loss and neural tube birth defects. Reports have indicated that the
United States government and universities have generally increased sponsorship
of research relating to vitamins and nutritional supplements. In addition,
Congress has established the Office of Alternative Medicine in the National
Institutes of Health to foster research into alternative medical treatments that
may include natural remedies and has also directed the Office of Dietary
Supplements in the National Institutes of Health to conduct and coordinate
research into the role of dietary supplements in maintaining health and
preventing disease.

      We expect that the aging of the United States population, together with a
corresponding increased focus on preventative health measures, should result in
increased demand for vitamins and nutritional supplement products. According to
the United States Census Bureau, through 2010, the 35-and-older age group of
consumers, which represents a substantial majority of regular users of vitamin
and nutritional supplements, is expected to grow significantly faster than the
general United States population. Based on information supplied by Packaged
Facts indicating that approximately 56% of Americans consumed vitamins and
nutritional supplements on a regular basis in 1998, we believe that there is a
large untapped domestic market for vitamins and nutritional supplements.

      While the retail channel of distribution for vitamins and nutritional
supplements has been consolidating, there has not yet been any significant
consolidation among the companies that manufacture and sell these products. The
vitamin and nutritional supplement industry remains fragmented, and we believe
that no company controls a significant share of the market.

      Our work with Dr. Ba Hoang, one of our Medical Advisors, has lead to
research into a number of herbal products that we plan to sell as supplements
and which may also be developed into strict pharmaceutical products with patent
protection. We have already submitted two patent applications, one for the
treatment of asthma and another for the treatment of ITP, idiopathic
thrombocytopenia, which is a common bleeding disease.

                                       11
<PAGE>

COMPETITION

      Strong interest in nutritional supplements has resulted in a large number
of competitors in the marketplace. The market has many growth companies with
strong marketing and sales abilities, quality products and sound management.
According to the trade magazine Whole Foods, health food store sales throughout
the nation grew in revenues from $9 billion to $17 billion in 1998. Nutritional
supplements represent approximately 25% of those revenues according to Whole
Foods. Vitamins and nutritional supplements are sold primarily through the
following channels of distribution: health and natural food stores, mass-market
retailers (drug store chains, supermarkets and other mass merchandisers), and
direct sales channels (including network marketing, catalog and Internet
distribution).

      A few of our competitors are listed below:

      THORNE RESEARCH. Thorne manufactures products similar to those of the
Company, in approximately the same price range, and markets its products only to
health care professionals. In fact, in marketing to professionals, Thorne is
probably our biggest competitor. However, Thorne tends to cater to Naturopathic
Doctors, while the Company markets to a broader range of professionals in the
medical field. In addition, our products are more generally available than those
of Thorne since they can be purchased directly or in stores.

      METAGENICS, INC. We have a broad spectrum of medical professionals who buy
our products, including, but not limited to, Chiropractors, medical doctors,
naturopathic doctors, osteopathic doctors, registered nurses, nurse
practitioners, oriental medical doctors, licensed acupuncturists, nutritional
counselors, dentists, and doctors of veterinary medicine. Metagenics primarily
targets Chiropractors, and, as a result, the two companies have different market
focuses, as ARG does not concentrate on courting Chiropractors.

      DOUGLAS LABS. This company manufactures some products that are similar to
ours and does a lot of private labeling for members of the health care
profession. Although we feel that our products are as good or better than those
of Douglas, we are not yet equipped to compete with their products in the
private labeling market.

      JARROW FORMULAS. Jarrow manufactures high quality products that are
marketed in the retail market. We believe their products are of a higher quality
than those of either TwinLab or KAL, and their products are generally priced a
little lower than ours. The retail market for Jarrow products seems to be
growing; while most of our sales are from the professional market.

      TWINLAB. This is a mass market-focused company, whereas ARG concentrates
on sales to medical professionals. The Company has plans to enter the mass
market in the next few years, and believes that scientifically-based products
such as the Company's will be sought after. There may be some overlap with the
TwinLab customer base at this time, but it is not expected to adversely impact
our current revenue stream.

      NATURE'S WAY. This company focuses on the private label business segment,
not on sales to medical professionals. We plan to increase our focus on the
private label segment. We received a favorable response to our products in the
EU marketplace at the European Private Label Exhibit. As the private label
customer looks to add products into its line, we believe scientifically-based
products will be sought-after. There will be some overlap with Nature's Way
customer-base, but this is not expected to adversely impact our current revenue
stream.

                                       12
<PAGE>

      KAL. This company produces herbal products. Currently we do not carry many
herbal products and do not view KAL as a direct competitor. Should we begin
producing and marketing herbal products as a result of our research on
nutraceuticals, there is a chance that we will be in direct competition with
products produced by KAL.

      SOLGAR VITAMIN AND HERB COMPANY. Solgar (acquired by American Home
Products, Inc. during 1998) has made in-roads into the international
marketplace, which is an arena we feel will be a viable growth avenue for the
Company. While competition with Solgar may cause some overlap, it is not
expected to adversely impact our current revenue stream.

      REXALL SUNDOWN, INC. develops, manufactures, markets and sells vitamins,
nutritional supplements and consumer health products through sales to retailers,
direct sales through independent distributors and mail order. It offers a line
of approximately 800 products, including vitamins in both multivitamin and
single-entity formulas, minerals, herbals, weight management products,
homeopathic remedies, sports nutrition products and personal care products, and
is in direct competition with some of the our vitamin and nutritional supplement
products.

      WEIDER NUTRITION INTERNATIONAL, INC. develops, manufactures, markets,
distributes and sells branded and private label vitamins, nutritional
supplements and sports nutrition products in the United States and throughout
the world. It offers a broad range of capsules and tablets, powdered drink
mixes, bottled beverages and nutrition bars. Its portfolio of recognized brands,
including Schiff, Weider Sports Nutrition, MetaForm and American Body Building,
are primarily marketed in four principal categories, sports nutrition, vitamins,
minerals and herbs, weight management and healthy snacks. Weider carries a
broader range of products than the Company, a few of which are in direct
competition with some of our products. However, Weider appears to focus its
marketing efforts on the sports sector.

      PURE ENCAPSULATIONS manufactures a line of hypo-allergenic nutritional
supplements (vitamins, minerals, standardized herbal extracts, amino acids,
protein powders, and other nutrients), which are marketed directly to
individuals in the health care industry. Some of these products are similar to
ours, and we will experience competition from Pure Encapsulations to varying
degrees.

      Some of the companies listed above, and many other corporations in the
health and nutritional supplement business, are better funded and possess
superior managerial and marketing resources. We plan to compete primarily on the
basis of superior service and differentiate the Company by marketing its high
quality products directly to professionals, allowing a greater percentage of
products to be distributed under private labeling, and producing products which
address needs that have not been met by our competitors' products.

      The Company is also expanding into the field of research on
pharmaceuticals and nutraceuticals. While we hope that this research will lead
to discovery of new uses for herbs that may be incorporated into our existing
products or used to develop new products, we will also market our research
results to pharmaceutical companies for further research and clinical trials. It
is our intention to obtain patents for our research, and to sell these patents
to interested pharmaceutical companies. Due to the limited nature of our
activities in the field of pharmaceutical and nutraceutical research - the
Company will not perform clinical trials - the identity and nature of our
competitors is uncertain. However, we anticipate competition from pharmaceutical
companies conducting internal research on new products as well as outside
research groups, such as ClinTrials, that are hired by pharmaceutical companies
to conduct research on their behalf.

                                       13
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MARKET STRATEGIES

      ARG has divided sales into multiple market channels:

                  o Professional accounts - Physicians, nutritionists,
                  chiropractors and health care professionals (42%).

                  o Distributor accounts - Sales to distributors (to be resold
                  to the professional or retail markets) (38%).

                  o Retail accounts - Healthfood stores and direct sales to
                  consumers (14%).

      The Company markets its products under both broadline brands
NutriCology(R) and Allergy Research Group(R), and private labeling. Broadline
brands offer a complete range of products under one brand name, including
multivitamins, single-entity vitamins, minerals and nutritional supplements,
including herbal products. Private label products which are usually marketed
under the retailer's store brand name also offer a wide product assortment,
albeit typically somewhat narrower in scope than broadline brands, including
national brand equivalent formulas positioned as lower-priced "compare and save"
products. We currently provide private labeling to a number of our physician
accounts.

      The Company markets its products through the use of trade shows, direct
marketing to physicians, nutritionists, chiropractors and health care
professionals, contractual arrangements with distributors (who market the
products themselves), advertising in trade magazines, radio shows in which Dr.
Levine participates, direct sales to health food stores and pharmacies, and
direct catalog sales to consumers. Our direct sales team currently consists of
two primary and one contracted sales representatives covering critical
territories and markets. These three sales representatives, combined with
internal support staff, are focused on informing existing customers of our
newest products. Through a combination of direct telemarketing, e-mail "blasts,"
the Company's newsletter "Focus," and extensive market specific mailings, we
anticipate increased sales over the next year.

REGULATION

      The manufacturing, processing, formulating, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the United States Food and Drug Administration (the
"FDA"), the Federal Trade Commission (the "FTC"), the United States Department
of Agriculture and the Environmental Protection Agency ("EPA"). These activities
are also regulated by various agencies of the states, localities and foreign
countries in which the Company's products are manufactured, distributed and
sold. The FDA, in particular, regulates the formulation, manufacture and
labeling of vitamin and other nutritional supplements in the United States.

      On October 25, 1994, the President signed into law the Dietary Supplement
Health and Education Act of 1994 ("DSHEA"). This new law revises the provisions
of the Federal Food, Drug and Cosmetic Act (the "FFDC Act") concerning the
composition and labeling of dietary supplements and, in our judgment, is
favorable to the dietary supplement industry. The legislation creates a new
statutory class of "dietary supplements." This new class includes vitamins,
minerals, herbs, amino acids and other dietary substances for human use to
supplement the diet, and the legislation grandfathers, with certain limitations,
dietary ingredients on the market before October 15, 1994. A dietary supplement
which contains a new dietary ingredient, one not on the market before October
15,1994, will require evidence of a history of use or other evidence of safety
establishing that it will reasonably be expected to be safe, such evidence to be
provided by the manufacturer or distributor to the FDA before it may be
marketed. The DSHEA also invalidates the FDA's prior enforcement theory that
dietary supplements are food additives requiring pre-market approval.

      Products marketed by the Company are classified as dietary supplements
under the FFDC Act. Advertising and label claims for dietary supplements have
been regulated by state and federal authorities under a number of disparate

                                       14
<PAGE>

regulatory schemes. There can be no assurance that a state will not interpret
claims presumptively valid under federal law as illegal under that state's
regulations, or that future FDA or FTC regulations or decisions will not
restrict the permissible scope of such claims.

      Both foods and dietary supplements are subject to the Nutrition Labeling
and Education Act of 1990 (the "NLEA"), which prohibits the use of any health
claim for foods, including dietary supplements, unless the health claim is
supported by significant scientific agreement and is either pre-approved by the
FDA or the subject of substantial government scientific publications and a
notification to the FDA. To date, the FDA has approved the use of only a limited
number of health claims for dietary supplements. However, among other things,
the DSHEA amends, for dietary supplements, the NLEA by providing that
"statements of nutritional support" may be used in labeling for dietary
supplements without FDA preapproval if certain requirements, including prominent
disclosure on the label of the lack of FDA review of the relevant statement,
possession by the marketer of substantiating evidence for the statement and
post- use notification to the FDA, are met. Such statements, commonly referred
to as "structure function" claims, may describe how particular nutritional
supplements affect the structure, function or general well being of the body
(e.g. "promotes your cardiovascular health").

      On November 18, 1998, the FTC published "Dietary Supplements: An
Advertising Guide for Industry," a guide describing FTC policy governing dietary
supplement advertising. The guide provides additional explanation but does not
substantively change the FTC's policy requiring that product claims be truthful
and supported by adequate substantiation as to the truthfulness of the claim.

      Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into the market or prevent
or delay the introduction, or require the reformulation, of certain our
products. Compliance with such foreign governmental regulations is generally the
responsibility of our distributors for those countries. These distributors are
independent contractors over whom we have limited control.

      We cannot predict the nature of any future laws, regulations,
interpretations or applications, nor can we determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on the Company's business in the future. They could, however, require
the reformulation of certain products to meet new standards, the recall or
discontinuance of certain products not capable of reformulation, additional
record keeping, expanded documentation of the properties of certain products,
expanded or different labeling, and/or scientific substantiation. Any or all of
such requirements could have a material adverse effect on our results of
operations and financial condition. Compliance with the provisions of national,
state and local environmental laws and regulations has not had a material
adverse effect upon the capital expenditures, earnings, financial position,
liquidity or competitive position of the Company.

      Because we do not intend to manufacture pharmaceuticals and nutraceutical
products itself, but will only conduct literature work and patent applications
for potential products, we do not anticipate application of regulations
governing our activities in those fields. With respect to the manufacture of our
vitamin and nutritional supplement products, our outside vendors are required to
manufacture our products in accordance with all applicable governmental
regulations, including Current Good Manufacturing Practices of the FDA.

EMPLOYEES

      As of the date of this report, the Company employs approximately 33
full-time and three part-time employees. The Company does not have any
collective bargaining agreements with its employees and we believe its employee
relations are good.

                                       15
<PAGE>

INTELLECTUAL PROPERTY

      The Company's trademarks are valuable assets that are very important to
the marketing of our products. Our policy is to pursue registrations for all of
the trademarks associated with our key products. The Company has approximately
13 trademark registrations with the United States Patent and Trademark Office,
including ones for both Allergy Research Group(R) and NutriCology(R). We rely on
common law trademark rights to protect our unregistered trademarks. Common law
trademark rights do not provide the Company with the same level of protection as
would U.S. federal registered trademarks. In addition, common law trademark
rights extend only to the geographic area in which the trademark is actually
used, while U.S. federal registration prohibits the use of the trademark by any
third party anywhere in the United States. Currently, the Company has obtained
no patents for its vitamin and nutritional supplement products.

ITEM 2. DESCRIPTION OF PROPERTY

      The Company's main administrative office and warehouse, located in
Hayward, California, is under a five-year lease, which commenced June 1, 1998.
The lease contains a provision allowing for an increase in rent of 5% per annum.
The property consists of approximately 25,440 square feet of office and
warehouse space, of which approximately 5,500 square feet is office space and
19,940 square feet consists of warehouse space. The Company previously
maintained a second warehouse for warehousing and packaging purposes, which was
sublet during the period ended December 31, 2001, for $8,320 per month. During
fiscal years ended 2001 and 2000, the Company paid rent on its facilities of
$354,576 and $331,152, respectively. For the period ended December 31, 2001, the
Company paid total rent of $354,576 on both facilities, offset by sublease
income of $100,740 for a total rent expense of $253,836.

ITEM 3. LEGAL PROCEEDINGS

      In 1993, a lawsuit was filed in the Circuit Court of the 15th Judicial
Circuit in and for Palm Beach County, Florida by NutriSupplies, Inc., successor
in the interest to rights of Robert H. Harris and the Earth Harvest, Inc.
against NutriCology, Inc. (which has since become a wholly-owned subsidiary of
the Company), Stephen A. Levine (officer, director and beneficial shareholder of
the Company) and Nicholas Gonzales, M.D. This matter is a contract dispute
between Dr. Gonzales and NutriSupplies, Inc., which alleges that Dr. Gonzales
violated their contract agreement and then returned to NutriCology to supply his
patients' needs. NutriCology and Dr. Levine were named in the suit only because
NutriCology had been Dr. Gonzales' supplier. Dr. Gonzales has fully indemnified
NutriCology and Dr. Levine from any wrongdoing. A motion for summary judgment
was granted in favor of NutriCology, but was appealed. On June 6, 2001, the
appellate court affirmed the grant of that motion, and NutriSupplies filed a
Motion for Rehearing and Request for Oral Argument. That motion was denied and
no further appeals have been filed. NutriCology had requested reimbursement of
attorneys' fees, which were denied. NutriCology appealed that decision, and won.
A hearing has been set to determine the amount of the fees the Company can
recover.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      At the Company's annual shareholders' meeting held October 31, 2001,
shareholders voted to reelect the directors, and to ratify Board approval of the
Company's auditors for purposes of auditing the Company's financial statements
for the fiscal year ended December 31, 2001.

                                       16
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

      The Company's Common Stock is traded on the Over-the-Counter Bulletin
Board under the symbol "ALRG." The following table sets forth the trading
history of the Common Stock on the Over the Counter Bulletin Board and the Pink
Sheets, from April 19, 2000 to April 24, 2001, for each quarter of fiscal year
end December 31, 2000 and 2001 as reported by Tradeline and Dow Jones
Interactive. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions.

 QUARTER ENDING           QUARTERLY HIGH                   QUARTERLY LOW
   3/31/2000          15/32           $0.47           13/64            $0.20
   6/30/2000          1/8             $0.125          1/8              $0.125
   9/29/2000          19/64           $0.30           7/64             $0.11
   12/29/2000         11/64           $0.171875       1/16             $0.0625
   3/5/2001*          3/16            $0.1875         1/16             $0.0625
   6/29/2001          15/64           $0.234375       3/32             $0.09375
   9/28/2001          13/64           $0.203125       7/64             $0.109375
   12/31/2001         13/64           $0.203125       3/32             $0.09375
   3/6/2002*          3/16            $0.1875         3/32             $0.09375
*Reflects partial period.

HOLDERS

      As of March 8, 2002, there were approximately 105 holders of record of
the Company's Common Stock. The Board of Directors believes that the number of
beneficial owners is substantially greater than the number of record holders
because a significant portion of our outstanding Common Stock is held in broker
"street names" for the benefit of individual investors.

DIVIDENDS

      The Company has never paid a cash dividend on its Common Stock. Payment
of dividends is at the discretion of the Board of Directors. The Board of
Directors plans to retain earnings, if any, for operations and does not intend
to pay dividends in the foreseeable future.

                                       17
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

GENERAL

      The following discussion should be read in conjunction with the Company's
financial statements and the notes thereto and the other financial information
appearing elsewhere in this document. In addition to historical information, the
following discussion and other parts of this document contain certain
forward-looking information. When used in this discussion, the words "believes,"
"anticipates," "expects," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected due to a number of factors beyond the Company's control. The Company
does not undertake to publicly update or revise any of its forward-looking
statements even if experience or future changes show that the indicated results
or events will not be realized. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. Readers are also urged to carefully review and consider the Company's
discussions regarding the various factors that affect its business included in
this section and elsewhere in this report.

RESULTS OF OPERATIONS

      Please refer to the financial statements, which are a part of this report
for further information regarding the results of operations of the Company.

      FISCAL YEAR ENDED DECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000

      During the fiscal year ended December 31, 2001, the Company had net sales
of $11,749,199, representing a decrease of $37,313 from net sales of $11,786,512
during fiscal year ended December 31, 2000. While overall there was an
approximately 5% decrease in sales to distributors, sales remained relatively
flat from 2000 to 2001 due to an approximately 10% increase in sales to health
care professionals and health food stores. The decrease in sales to distributors
can be attributed to the financial difficulties of two of our distributors. The
increase in sales to healthcare professionals and health food stores is the
result of increased marketing efforts that have been employed and the
introduction of new products.

      Cost of sales increased $70,566 to $7,107,779 for the year ended December
31, 2001, compared to $7,037,213 for the year ended December 31, 2000. Gross
profit margins decreased approximately .8%, approximating 39.5% for 2001. Cost
of materials as a percentage of sales increased approximately 2% compared to the
same period last year due to a closeout sale of discontinued product and because
the volume of capsules in each container of selected products was increased
without passing the cost on to the consumer. The volume change was made in an
effort to increase the value of the product in anticipation of generating
increased sales.

      During the period ended December 31, 2001, the Company experienced net
income of $326,557, as compared to net income of $264,976 for the period ended
December 31, 2000. The increase is primarily due to a reduction in selling and
general and administrative expenses, including salaries, from $4,277,239 in 2000
to $4,070,974 in 2001.

      Total operating expenses decreased by approximately $143,679 or 3% to
$4,266,445 for the year ended December 31, 2001 from $4,410,124 for the year
ended December 31, 2000, primarily attributable to a reduction of legal fees
associated with the resolution of outstanding litigation.

                                       18
<PAGE>

      Interest expense decreased approximately $26,475 for the year ended
December 31, 2001, as compared to December 31, 2000 because the Company
renegotiated its line of credit at more favorable rates, which significantly
reduced interest expense beginning in June 2001. The line of credit is used to
finance accounts receivable and inventory.

      As of December 31, 2001, the Company recorded a deferred tax asset of
$220,460 to be realized as a result of future taxable income offset by net
operating loss carryforwards. As of fiscal year ended December 31, 2001, the
Company had approximately $3,000,000 and $1,350,000, respectively, available in
federal and state net operating loss carryforwards to offset future taxable
income, which expire principally in the year 2020.

LIQUIDITY AND CAPITAL RESOURCES

      FISCAL YEAR ENDED DECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000

      At December 31, 2001, the Company had a positive working capital of
$825,365, compared to working capital at December 31, 2000 of $315,280. The
Company has been successful in paying down its outstanding debt as a result of
overall decreased operating expenses, and as evidenced by a decrease in the
outstanding line of credit to $570,064 at December 31, 2001 from $980,477 at
December 31, 2000. The Company finances its inventory and accounts receivable
under a line of credit and through its income from operations. If customer
demand should drop off due to such factors as pricing pressures imposed by
competitors, customer bankruptcies or some other unforeseen circumstances, our
availability to funds may be restricted.

      Net cash flow provided by operating activities was $485,410 for the year
ended December 31, 2001. This was primarily the result of net income of
$326,557, increased by deprecation expense of $225,002, a decrease in accounts
receivable of $363,098, a decrease in the cash surrender value of life insurance
of $45,290, and an increase in accounts payable of $167,840. These figures were
primarily offset by a decrease in the allowance for doubtful accounts of
$100,190, a decrease in the inventory reserve account of $64,685, an increase in
deferred tax assets of $96,910, an increase in inventory of $260,756, an
increase in prepaid expenses and other assets of $61,968 and a decrease in
accrued liabilities of $42,855. Net cash flow used in operating activities was
$134,100 for the year ended December 31, 2000, resulting primarily from a
decrease in accounts payable and accrued liabilities of $535,019 and an increase
in inventories of $182,105, offset by a decrease in accounts receivable of
$214,669 and depreciation and amortization of $224,316.

      Net cash flow used in investing activities was $16,400 for the year ended
December 31, 2001, primarily used to purchase fixed assets of $34,499 and offset
by repayments on officer loans of $18,749. Net cash flows used in investing
activities was $36,752 for the year ended December 31, 2000, primarily used to
purchase fixed assets of $63,383 and offset by repayments on officer loans of
$28,892.

      Net cash flow used in financing activities was $458,159 for the year ended
December 31, 2001, representing advances drawn on the line of credit of $77,604
and repayments under the line of credit and capital lease obligations of
$535,763. Net cash flow provided by financing activities was $304,144 for the
year ended December 31, 2000, representing advances drawn on the line of credit
of $372,472 and repayments under capital lease obligations of $68,328.

      During the next twelve months, the Company will continue to work with Dr.
Hoang on his proprietary herbal formulas with a view to developing additional
research that can be marketed to the pharmaceutical and nutraceutical
industries. In addition to our work in the pharmaceutical and nutraceutical
fields of research, we will continue to add new products to our existing product
line.

                                       19
<PAGE>

      Management believes that the Company has good relations with all of its
current manufacturers and suppliers. During 2001, we experienced a concentration
of approximately 56% of our manufacturing with four separate vendors. The
Company does not currently have written contracts with any of its manufacturers,
but relies on long-term personal and professional relationships with its four
largest vendors - Horizon Laboratories (30%), M&L Pharmaceuticals (10%), ABCO
Laboratories, Inc. (8%) and Softgel Technologies (8%). However, we believe that,
due to the large number of businesses performing this type of service in the
industry, the Company would have little difficulty in finding viable
alternatives in the event any one of these vendors became unable or determined
not to continue manufacturing the Company's products.

      Approximately 12% of our total sales in 2001 were attributable to a single
distributor. In the event we were to lose that account, we anticipate that we
would be able to convert the business to dealing directly with the customers of
that distributor. As converted sales would be at a higher margin, we do not
believe the loss of the account would have a material negative impact on sales.

      The Company's Contractual Obligations and Commercial Commitments are
detailed below:

                                     Payments Due by Period
                      -------------------------------------------------------
                                     Less
    Contractual                     Than 1       1-3       4 - 5     After 5
    Obligations          Total       Year       Years      Years      Years
--------------------- ----------- ---------- ---------- ---------- ----------
Line of Credit (1)      $570,064   $570,064
--------------------- ----------- ---------- ---------- ---------- ----------
Capital Lease
Obligations             $110,037    $60,021    $50,016
--------------------- ----------- ---------- ---------- ---------- ----------
Operating Leases        $578,031   $349,164   $225,597     $3,270
--------------------- ----------- ---------- ---------- ---------- ----------
Total Cash
Contractual
Obligations           $1,258,132   $979,249   $275,613     $3,270
--------------------- ----------- ---------- ---------- ---------- ----------

   (1)   This represents the Company's borrowings under its line of credit with
         City National Bank. The City National Bank line of credit provides for
         maximum financing of $1,200,000, bearing interest at prime plus two
         percent, computed on a monthly basis. As of December 2001, the interest
         rate on the line of credit was 6.75% per annum. The Company has been
         making monthly interest payments on the balance. Because the line of
         credit is secured by substantially all of the assets of the Company, if
         the Company were to fall into default under the terms of its agreement
         with City National Bank it could have material adverse impact on the
         Company's business and financial position. The Company would be
         considered to be in default based on the following financial
         conditions:
            o Failure to maintain a tangible net worth plus subordinated debt
              of not less than $1,100,000 at all times.
            o Failure to maintain a ratio of total liabilities to tangible net
              worth plus subordinated debt of not more than 3 to 1 at all times.
            o Failure to maintain after-tax profitability of not less than
              $400,000 each year.

         The Company satisfied all of the debt requirements except the
         requirement of after tax profitability of not less than $400,000. City
         National Bank has granted a waiver on the default and has indicated
         that it will not be calling the loan. Under the line of credit, we are
         required to make a pledge of Key Man Life Insurance on our Chief
         Executive Officer of up to $750,000. The officers of the Company have
         personally guaranteed the line of credit.

                                       20
<PAGE>

      Currently, our only real "critical" accounting policy that would be
affected by management judgments and/or uncertainties is the income tax policy.
We have a deferred tax asset of $220,460 on our balance sheet that is recognized
primarily as a result of net operating loss carryforwards. In the event we did
not generate any taxable income within the next year, the asset would be
overstated. Reducing the asset to zero would result in an additional expense of
$220,460 in the period in which it is determined that the asset cannot be
realized. This asset represents approximately 6.5% of our total assets.

      The Company's future funding requirements will depend on numerous factors,
some of which are beyond the Company's control. These factors include the
Company's ability to operate profitably, its ability to recruit and train
management and personnel, and its ability to compete with other, better
capitalized and more established competitors who offer alternative or similar
products to those of the Company. Management believes that, given its positive
working capital position, the Company can satisfy its cash requirements over the
next twelve months from operations if it continues to operate at a profit. The
Company's capital resources and liquidity are expected to be provided by the
Company's cash flow from operations, and in addition, the Company has available
net operating loss carryforwards of approximately $3,000,000 to offset future
taxable income, and continued repayment of notes are expected to act as
contributing factors to the Company's profitability.

RECENT ACCOUNTING PRONOUNCEMENTS

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141 "Business Combinations." SFAS No. 141 requires that all business
combinations be accounted for under the purchase method of accounting. SFAS No.
141 also changes the criteria for the separate recognition of intangible assets
acquired in a business combination. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001. This statement does not affect the
financial statements.

      In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 addresses accounting and reporting for intangible assets
acquired, except for those acquired in a business combination. SFAS No. 142
presumes that goodwill and certain intangible assets have indefinite useful
lives. Accordingly, goodwill and certain intangibles will not be amortized but
rather will be tested at least annually for impairment. SFAS No. 142 also
addresses accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. This statement is not expected to have a
material effect on the financial statements.

      In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. This
statement does not affect the financial statements.

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which supersedes SFAS No. 121. This
statement addresses financial accounting and reporting for the impairment or

                                       21
<PAGE>

disposal of long-lived assets. SFAS No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years. This statement is not expected to
have a material effect on the financial statements.

ITEM 7. FINANCIAL STATEMENTS

      Please see the Company's audited financial statements for the period ended
December 31, 2001, as compared to the period ended December 31, 2000, attached
hereto.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

      During its last fiscal year and as of the date of this report, the Company
has had no changes in or disagreements with its principal independent accountant
regarding any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, nor has the Company's principal
accounting firm resigned or declined to stand for re-election.

                                       22
<PAGE>

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

      The management and directors of the Company's business activities are
under the control of its Board of Directors. Its Chief Executive Officer,
Stephen Levine, Ph.D., manages the Company's daily operations. The Company
currently has three directors. Below are the executive officers and directors of
the Company.

NAME                           POSITION HELD(1)
----                           -------------
Stephen Levine, Ph.D.          Chief Executive Officer, President, and Chairman
30806 Santana Street           of the Board
Hayward, California 94544
Susan Levine                   Chief Conventions Oversight, Secretary, Director
30806 Santana Street
Hayward, California 94544
Ed Kane (1)                    Director
45 Reese Road
Millville, NJ 08332
         1 Mr. Kane acts as an independent director for the Company.

      The following is a summary of the business experience of the officers and
directors of the Company as well as other key employees.

      STEPHEN LEVINE, PH.D. (50) has served as the Company's Chief Executive
Officer from December 1997 to January 1999 and recommenced service to the
Company in that capacity in January 2000, upon resignation of Marianne Sum. Dr.
Levine has been Chairman of the Board and a Director of the Company since
December 1997. In January 2001, Levine was appointed Chief Financial Officer of
the Company. Dr. Levine graduated cum laude from the State University College in
Buffalo, New York and received his Ph.D. from the University of California,
Berkeley. In 1979, Dr. Levine founded NutriCology/Allergy Research Group and was
employed as its owner and operator from that time until 1998, when NutriCology
was acquired by the Company. He now serves as Chairman of the Board of
Directors, as well as being employed as Director of Research. Dr. Levine is the
author of AntiOxidant Adaption, Its Role in Free Radical Pathology. Dr. Levine
is the husband of Susan Levine, who acts as Chief Convention Oversight of the
Company.

      SUSAN LEVINE (46) has served as the Secretary and Chief Conventions
Oversight and Director to the Company since December 1997. Mrs. Levine resigned
her board membership temporarily between January 1999 and January 2000. In
addition, Susan Levine acts as the Company's Public Relations and Conventions
and Travel Specialist. Since 1980, Mrs. Levine has worked with her husband, Dr.
Stephen Levine, in the creation and development of the Company. Prior to working
for the Company, Mrs. Levine was the Director of Senior Housing ECHO, a
non-profit organization located in Hayward, California, where her duties
included grant writing and coordination of workers for social programs.

      ED KANE (74) was appointed to the Company's Board of Directors on November
8, 2000. From 1955 to present, Mr. Kane has acted as the sole owner and chief
executive officer of Kane Steel, a company that has current gross sales of $25
million and over 120 employees. Mr. Kane also started K-TRON International
("KTII") in 1964. KTII was the first to digitize weigh feeding, which is a
system used to continuously weigh and feed material for the process industries.
KTII is listed on the over-the-counter market and is a $120 million company
today, with plants in Switzerland and the United States. In addition, Mr. Kane
started K-FLOW International ("KFI") in 1980 to manufacture a patented mass flow

                                       23
<PAGE>

meter. KFI was merged into the instrument division of the Swiss firm Asea Braun
Bavari in 1991. Expanding into the health field ten years ago, Mr. Kane and his
wife Patricia, a Ph.D., founded BodyBio Corporation, a specialized laboratory
analysis service utilized by physicians worldwide in interpreting blood test
results. Mr. Kane is currently the chief executive officer of BodyBio
Corporation. Mr. Kane has been a student of science and medicine for most of his
adult life, and holds a degree from the Temple University. Mr. Kane's particular
focus has been on fatty acid metabolism. He has been a visiting professor at the
Wharton School of Business in Philadelphia and instructs physicians in a
biomedical course on lipid metabolism five times yearly. Mr. Kane holds several
U.S. patents on steel structures, instrumentation and biochemistry. The city of
Millville, New Jersey recently recognized Mr. Kane as one of the three leading
industrialists of the last half century.

KEY EMPLOYEES

      CLINTON ABBOTT has served as Operations Manager of the Company since
October 1999. Mr. Abbott has filled various roles for the Company: from July
1999 to September 1999, he acted as Pharmacy Market Development Manager; from
September 1998 to July 1999 he acted as Purchasing and Facilities Manager; from
April 1997 to September 1998 he acted as Purchasing/Warehouse Manager; and from
December 1996 to April 1997, he acted as Purchasing Manager. Mr. Abbott brings
20 years of experience with two of the largest pharmaceutical wholesalers in the
U.S., Cardinal Health ($240 million per year in sales) and Bergen Brunswig ($140
million per year), where he held titles of Purchasing, Operation and
Distribution Manager. Mr. Abbott holds a B.S. degree in Business Administration
from California State University, Sacramento, where he graduated in 1980.

      HORTENSE AMARANTE serves as Customer Service Manager to the Company. One
of the most senior employees at the Company, Ms. Amarante has been with the
Company since 1990 filling many roles, primarily in the accounting department.
Prior to joining the Company, Ms. Amarante worked in the Accounting Department
for First Select Visa for five years. Ms. Amarante was educated in Portugal and
holds a Bachelors of Arts degree in Education.

      LAURA JOHNSON, CPA, is the Controller for the Company since January 2001.
Prior to accepting the position with the Company she was the controller at a
small closely held company. She has also held various accounting and auditing
positions with American Stores, Inc., Ball Metal Container Group and Price
Waterhouse. Ms. Johnson holds a B.S. degree in Business Administration with a
concentration in accounting from Colorado State University, Fort Collins, where
she graduated in 1981.

      DIANE RAILE, CNC, acts as Technical Support Manager to the Company. A
Certified Nutrition Consultant, Ms. Raile was educated at the Institute for
Educational Therapy in Cotati, California. Ms. Raile acts as intermediary
between customers and ARG research and development department, as well as
coordinator of the Company's product library. Prior to joining the Company in
1998, Ms. Raile held teaching positions at IET campuses and Trinity College in
San Francisco and maintained a private nutritional practice. Ms. Raile is an
accomplished public speaker on the subject of nutrition. She taught at IET from
September 1997 to July 1998 and with Trinity from October 1997 to March 1998.

      LUBA VOLOSHKO, PH.D. has served as Director of Quality Control to the
Company since 1998. Dr. Voloshko came to the Company with a Ph.D. in chemistry
from the Moscow University of Chemical Technology. Dr. Voloshko was the Chemical
Department Chief at the Laboratory of Forensic Science in Riga Latvia for twelve
years from 1984 through 1997 before coming to the U.S. Dr. Voloshko keeps
abreast of all FDA regulations related to the nutritional supplement industry,
conducts random and specific product and material testing, oversees the receipt
and release of all raw materials and finished goods, as well as reviewing
product labeling for accuracy.

                                       24
<PAGE>

      BEVERLY WEAVER, has acted as national Sales Manager for the Company since
2000. Ms. Weaver came to work for the Company as its Texas sales representative
in 1997, an area that covers Arizona as well. Prior to coming to the Company,
Ms. Weaver was the business manager for Rhythm of Life Wellness Center in Mesa
Arizona from 1995 to 1997. Ms. Weaver attended the University of Houston for two
years and the Pan American College in Edinburgh, Texas for one year. In her
current position, she attends trade shows, visits doctors and coordinates
efforts of other members of the Company's sales staff.

MEDICAL ADVISORY BOARD

      The Company has a Medical Advisory Board, currently consisting of the
following members:

      DR. JEFFRY ANDERSON. Dr. Anderson is Medical Advisory Board co-chairman
with Dr. Stephen Levine. Dr. Anderson also carries on a Marin County based
medical practice. Dr. Anderson consults with Dr. Levine to develop state of the
art designer supplements the Company is known for originating. Prior to his
consulting work with the Company, Dr. Anderson was in private practice in Marin
County for approximately 25 years. He has been working with Dr. Levine for
approximately the past ten years, at the same time acting as a consulting
physician for other companies. He is best known for his ground-breaking work in
the fields of Chronic Fatigue Syndrome and Fibro Mialgia. Dr. Anderson was one
of the first Bay Area Physicians to focus on the causes of Chronic Fatigue. His
extensive work in immune system dysfunctions make him the perfect choice to help
head up ARG's Medical Advisory Board. Dr. Anderson received his M.D. from the
Indiana University School of Medicine in 1969.

      DR. FOUAD I. GHALY, M.D. Dr. Ghaly has been consulting with the Company
for approximately two years. He specializes in cardiovascular health, using a
preventive medical approach in both his cardiovascular and anti-aging protocols.
Dr. Ghaly has appeared on several local television programs focusing on
cardiovascular health, as well as lecturing at conferences worldwide, most
notably in the Soviet Union in 1992 at the Cardiovascular Institute. Dr. Ghaly
has acted as a diplomat for the American Board of Anti-Aging Medicine (June
1999) and for the American Board of Anesthesiology (March 1975). For the past
five years, he has been engaged in private practice in Beverly Hills, CA, and
acts as President of the Rejuvenation & Longevity Medical Clinic. Dr. Ghaly
received his M.D. from the University of Alexandria Medical School in
Alexandria, Egypt in 1965, with internships and residencies in Egypt, Canada and
Johns Hopkins Hospital in Baltimore, MD.

      DR. BA HOANG. Dr. Hoang has been consulting with the Company since August
1999. He is also a scientific advisor with Get Well International, Inc., and
research consultant for the Institute of Transplant Research at the University
of California Davis. From 1996 to 1998, Dr. Hoang acted as founder and director
of the Research of the Natural Immune Supplements Corp., where he focused on
research and development of natural supplements for chronic infectious diseases,
chronic viral infections, allergy, asthma, auto-immune diseases and immune
suppressed conditions. From 1995 to present, Dr. Hoang has acted as research
collaborator of the Biochemistry Department of the Royal Holloway University of
London, where he works on the investigation of anti-HIV1 activities and the mode
of action of herbal species. He is the co-receiver of the Wellcome Trust Grant.
>From 1993 to 1996, Dr. Hoang was senior research associate St. Petersburg
Pediatric medical Academy, Russia, where he conducted research for the
development of a new approach to the diagnosis and treatment of Auto-Immune
Thrombocytopenic Purpura Asthma. Dr. Hoang has received the Visa O1 for persons
with extraordinary ability in science, and has published several articles in
medical journals.

      DR. MICHAEL ROSENBAUM MD. Dr. Rosenbaum has been consulting with Dr.
Levine since inception of NutriCology. He is an original member in the
Orthomolecular medical Society under Linus Pauling. Dr. Rosenbaum previously
held the position of President of the Orthomolecular Medical Society and is an

                                       25
<PAGE>

author and lecturer in his field. Dr. Rosenbaum has also been the President of
the Huxley Society and a medical director of the Primal Therapy Center. He has
had a private practice in environmental medicine, allergy and immunology in both
Marin County and Santa Monica since 1977. Dr. Rosenbaum received his M.D. from
the Albert Einstein College of Medicine in New York City in 1968. He has
authored several books, including "the Natural Way to Energize & Revitalize Your
Life" in 1999, and has published a number of articles in medical journals.
Currently, Dr. Rosenbaum acts as a member of the review panel for The Healthy
Foundation and Vitamins for the Homeless, and as a director for the
Orthomolecular Health Medicine Organization.

      DR. DANIEL RUBIN, N.C. Dr. Rubin has been a medical and technical
consultant to the Company since 1997, and acted as our national spokesperson
during 1999. He is the Director of Clinical Research and Attending Physician at
Aidan, Incorporated, an Immunology or Oncology company in Tempe, Arizona, which
designs and manufactures state-of-the art immunological products and protocols.
He is also the Medical Director for the Being Alive Wellness Center, the medical
program of AIDS Project Arizona. He received his N.D. from Southwest College of
Naturopathic Medicine, where he also did his residency, in 1997. Dr. Rubin has
extensive teaching experience, and has delivered lectures in Asia as well as the
United States on Cancer Immunology and HIV Disease.

      The Company's success is substantially dependent upon the efforts of Dr.
Stephen Levine. The loss of Dr. Levine, whom we regard as the Company's
visionary, could have a material adverse effect on the Company if a suitable
replacement were not found. Our future success is likely to depend substantially
on its continued ability to attract and retain highly qualified personnel, and
the competition for such personnel is intense.

      The Company currently does not have an audit committee. Our independent
director in consultation with our outside auditing firm reviews the audited
financial statements annually.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      To our knowledge, no reports, which were required to be filed by our
directors, officers or principal shareholders during 2001 under Section 16(a) of
the Securities Exchange Act of 1934, were or are delinquent.

ITEM 10. EXECUTIVE COMPENSATION

REMUNERATION PAID TO EXECUTIVES

      The following table sets forth the remuneration to the Company's executive
officers for the past three fiscal years:

                                       26
<PAGE>

<TABLE>
<CAPTION>
                      SUMMARY COMPENSATION TABLE

                                                          Long Term Compensation
                                                     --------------------------------
                          Annual Compensation                Awards          Payouts
                     ------------------------------- ----------------------- --------
                                           Other                 Securities
                                           Annual    Restricted     Under-            All Other
Name and                                   Compen-     Stock       lying      LTIP     Compen-
Principal                                  sation      Award(s)    Options   Payouts   sation
Position       Year  Salary($) Bonus ($)     ($)         ($)         (#)      ($)      ($) (1)
-------------- ----- --------- --------- ----------- ----------- ----------- -------- ---------
<S>            <C>    <C>                                           <C>                 <C>
Stephen        1999   165,846                                                           13,543
Levine,        2000   169,083                                                           19,391
CEO            2001   225,246                                                           17,355
Susan          1999    99,846                                       150,000              6,643
Levine,        2000    54,988                                                           18,247
Secretary      2001   129,981                                                            6,751
</TABLE>

(1)   Includes matching funds contributed under the Company's 401(K) Plan, auto
      allowances and premiums paid on Officer Life Insurance and disability
      policies.

      During the last fiscal year and as of December 31, 2001, the Company did
not grant any stock options to executive officers.

      The following table is intended to provide information as to the number of
stock options exercised by each of the executive officers listed above, the
value realized upon exercise of such options, and the number and value of any
unexercised options still held by such individuals.

<TABLE>
<CAPTION>
                                                      Number of
                                                      Securities       Value of
                                                      Underlying       Unexercised
                                                      Unexercised      In-the-Money
                                                      Options/SARs     Options/SARs at
                                                      at FY-End (#)    FY-End ($)

               Shares Acquired on                     Exercisable/     Exercisable/
Name           Exercise (#)        Value Realized ($) Unexercisable    Unexercisable
-------------- ------------------- ------------------ ---------------- --------------------
<S>                           <C>                <C>     <C>                        <C>
Susan Levine                  0                  0       150,000/0                  0/0(1)
</TABLE>


(1)   In 1999, the Company issued options to purchase 150,000 shares of Common
      Stock to Susan Levine as compensation for her services as an officer of
      the Company. These options are exercisable for an exercise price of $2.00
      per share.

REMUNERATION PAID TO DIRECTORS

      No remuneration was paid to the Company's directors during its fiscal year
ended December 31, 2001.

EMPLOYMENT AGREEMENTS

      The Company does not have a current employment agreement with its Chief
Executive Officer.

                                       27
<PAGE>

EMPLOYEE BENEFITS

      1998 INCENTIVE STOCK OPTION PLAN. The Company's Board of Directors and
shareholders adopted the 1998 Incentive Stock Option Plan on July 10, 1998 and
reserved an aggregate of 1,000,000 shares of Common Stock for grants of stock
options under the plan. The purposes of the 1998 Incentive Stock Option Plan are
(a) to attract and retain the best available people for positions of substantial
responsibility and (b) to provide additional incentive to the employees of the
Company and to promote the success of the Company's business.

      The 1998 Incentive Stock Option Plan is administered by the Board of
Directors, which has the authority to select individuals who are to receive
options under the Plan and to specify the terms and conditions of each option so
granted (incentive or nonqualified), the vesting provisions, the option term and
the exercise price. The 1998 Incentive Stock Option Plan includes two separate
plans: Plan A provides for the granting of options that are intended to qualify
as incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and Plan B provides for the
granting of non-qualified stock options. Each Plan will terminate on July 31,
2003, unless sooner terminated by the Board.

      An option granted under the 1998 Incentive Stock Option Plan expires five
(5) years from the date of grant or, if earlier, on the date of the optionee's
termination of employment or service, no more than six (6) months of the
optionee's death or disability. Options granted under the 1998 Incentive Stock
Option Plan are not generally transferable by the optionee except by will or the
laws of descent and distribution and generally are exercisable during the
lifetime of the optionee only by such optionee. The Board of Directors has
authority to grant options under the 1998 Incentive Stock Option Plan to
non-officer employees (including outside directors) of the Company and
consultants to the Company at an exercise price not greater than the fair market
value of the Common Stock on the date of grant.

      In the event of (i) the merger or consolidation of the Company in which it
is not the surviving corporation, or pursuant to which shares of Common Stock
are converted into cash, securities or other property (other than a merger in
which holders of Common Stock immediately before the merger have the same
proportionate ownership of the capital stock of the surviving corporation
immediately after the merger), (ii) the sale, lease, exchange or other transfer
of all or substantially all of the Company's assets (other than a transfer to a
majority-owned subsidiary), or (iii) the approval by the holders of Common Stock
of any plan or proposal for the Company's liquidation or dissolution (each,
"Corporate Transaction"), the Board of Directors will determine whether
provision will be made in connection with the Corporate Transactions for
assumption of the options under the 1998 Incentive Stock Option Plan or
substitution of appropriate new options covering the stock of the successor
corporation, or an affiliate of the successor corporation. If the Board of
Directors determines that no such assumption or substitution will be made, each
outstanding option under the 1998 Incentive Stock Option Plan shall
automatically accelerate so that it will become 100% vested and exercisable
immediately before the Corporate Transaction, except that acceleration will not
occur if, in the opinion of the Company's accountants, it would render
unavailable "pooling of interest" accounting for the Corporate Transaction.

      RULE 401(k) RETIREMENT PLAN. In January 1997, the Company adopted the
NutriCology, Inc. 401(k) Retirement Plan (the "401(k) Plan"). Eligible employees
may contribute up to 15 percent of their annual compensation, subject to certain
limitations, and the Company will match 50 percent of an employee's
contribution. The Company will not match before tax contribution amounts in
excess of 6% of the employee's compensation. Total provisions with respect to
these plans approximated $28,000 and $34,000, for the years ended December 31,
2000 and 2001, respectively.

      CAFETERIA PLAN. In May 1999, the Company adopted the NutriCology, Inc.,
ARG Cafeteria Plan pursuant to section 125 of the Internal Revenue Code

                                       28
<PAGE>

("Cafeteria Plan"), retroactive to January 1999. Eligible employees may
contribute a portion of their upcoming pay to special funds or accounts to pay
for certain benefits under the Cafeteria Plan, including health care
reimbursement, day-care assistance and insurance premiums on health care
insurance programs. Ordinarily, these expenses would be paid with out-of-pocket,
taxable dollars. Under the Cafeteria Plan, the amounts contributed are not
subject to Federal income or Social Security taxes. Employees may submit
requests for reimbursement of these expenses to the administrator of the
Cafeteria Plan, BenefitStreet.com, at any time during a plan year. At the end of
each plan year, the employees will forfeit any unspent monies unless requests
for reimbursement are made no later than 60 days after the end of the year. The
Company will automatically contribute enough of the employee's compensation to
pay for insurance coverage provided under its health plan; however, it is up to
the employee to determine the amount of any additional contributions.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table provides information as of December 31, 2001
concerning the beneficial ownership of the Company's common stock by (i) each
director, (ii) each named executive officer, (iii) each shareholder known by the
Company to be the beneficial owner of more than 10% of its outstanding Common
Stock, and (iv) the directors and officers as a group. Except as otherwise
indicated, the persons named in the table have sole voting and investing power
with respect to all shares of Common Stock owned by them.

<TABLE>
<CAPTION>
------------------ ----------------------------------- --------------------- ----------------
                     Name and Address of Beneficial    Amount and Nature of  Percent of Class
Title of Class                   Owner                 Beneficial Ownership
------------------ ----------------------------------- --------------------- ----------------
<S>                <C>                                         <C>                <C>
$.001 par value    Stephen Levine, Ph.D.
common stock       30806 Santana Street                        9,800,000 (3)      66%(1)
                   Hayward, California 94544

$.001 par value    Officers and Directors as a group           9,800,000          65%(2)
common stock
</TABLE>


(1)   Where persons listed on this table have the right to obtain additional
      shares of Common Stock through the exercise of outstanding options or
      warrants or the conversion of convertible securities within 60 days from
      December 31, 2001, these additional shares are deemed to be outstanding
      for the purpose of computing the percentage of Common Stock owned by such
      persons, but are not deemed outstanding for the purpose of computing the
      percentage owned by any other person.
(2)   Percentages are based on 15,105,355 shares outstanding on March 8, 2002.
(3)   Represents shares held jointly with the Company's Secretary, Susan Levine,
      as community property. Percentage calculation includes currently vested
      options held by Susan Levine.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Stephen Levine, the Company's Chief Executive Officer and Chairman of the
Board of Directors, and Susan Levine, the Company's Secretary, are husband and
wife.

      On September 19, 1997, NutriCology invested $20,000 in Carbon Based Corp.,
a company started by the Company's independent director, Ed Kane. The Company
wrote off the total amount of the investment on December 21, 2000.

      Stephen and Susan Levine loaned NutriCology approximately $286,000 prior
to its reverse acquisition by the Company in 1998. The loan has been offset and
exceeded by advances made to the Levines during the past four fiscal years,
seventy-three percent (73%) of which were made prior to the reverse acquisition.

                                       29
<PAGE>

Each advance has been made as a non-interest bearing, due on demand loan on the
books of the Company. Interest (8% per annum) has been accrued on these loans in
the amount of $9,470 and $10,969 for the years ended December 31 2001 and
December 31, 2000, respectively. The Company's audited financial statements
indicate that as of December 31, 2001 and 2000, the amounts due from Dr. Levine
were $138,801 and $148,079, respectively.

      In 1999 Dr. Levine stepped down from his CEO position to focus on the
development of new products. He and his wife, Susan Levine, formed Inventive
Biomedical, LLC, a California limited liability company ("IBM"), as a research
and development firm. For the years ended December 31, 2001 and 2000, the
Company paid approximately $9,000 and $99,000, respectively, to IBM for research
and development and for market testing of new products. The continued viability
of IBM may depend on the ability of the Company to provide additional funding.

      Get Well International is a supplier of certain raw materials for the
Company and is affiliated with one of the Company's employees. For the years
ended December 31, 2001 and 2000, the Company paid approximately $23,200 and
$10,700, respectively to Get Well International.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

<TABLE>
<CAPTION>
ITEM                                                                                    EXH. NO.
----                                                                                    --------

<S>                                                                                      <C>
Registrant's Articles of Incorporation*                                                  3.1
Registrant's Articles of Amendment to Articles of Incorporation dated January 15, 1998*  3.2
Registrant's Bylaws*                                                                     3.3
Form of Common Stock Certificate*                                                        4.1
Form of Non-Qualified Stock Option*                                                      4.2
Form of Incentive Stock Option*                                                          4.3
Form of Common Stock Purchase Warrant*                                                   4.4
1998 Stock Option Plan*                                                                  4.5
License Agreement between Registrant and Jim Cassidy dated March 21, 2000*               10.1
Option Agreement between Registrant, Dr. Ba Hoang and PhytoPharm PLC*#                   10.2
Loan and Security Agreement between Registrant and Aerofund Financial, Inc.*             10.3
Haight-Ashbury Free Medical Clinic Design Research Survey*                               99.1
</TABLE>

* Incorporated by reference to the corresponding Exhibit previously filed as an
Exhibit to Registrant's Form 10-SB (File #0-27227).

# Registrant requested confidential treatment pursuant to Rule 406 for a portion
of the referenced exhibit and separately filed such exhibit with the Commission
in conjunction with the filing of its registration statement of Form 10-SB.

(b)   Form 8-K Reports

           None.

                                       30
<PAGE>

INDEX TO FINANCIAL STATEMENTS


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
<S>                                                                                  <C>
Independent Auditors' Report.........................................................F2

Consolidated Balance Sheets at December 31, 2001 and 2000............................F3

Consolidated Income Statements for the years ended December 31, 2001 and 2000........F4

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001 and 2000...........................................................F5

Consolidated Statements of Cash Flows for years ended December 31, 2001 and 2000.....F6

Notes to the Financial Statements....................................................F7-F16
</TABLE>

                                       F1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Allergy Research Group, Inc.

We have audited the accompanying consolidated balance sheets of Allergy Research
Group, Inc. as of December 31, 2001 and 2000, and the related statements of
income, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 2001 and 2000, and the consolidated results of its operations and
its cash flows for the periods indicated in conformity with generally accepted
accounting principles in the United States.


/s/  Clancy and Co., P.L.L.C.
-----------------------------
Clancy and Co., P.L.L.C.
Phoenix, Arizona

February 20, 2002

                                       F2
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 and 2000

ASSETS                                                      2001         2000
------                                                  -----------  -----------
Current Assets
   Cash and Cash Equivalents                            $  199,499   $  188,648
   Accounts Receivable (Note 1)                            534,884      797,792
   Inventories (Note 2)                                  1,559,133    1,233,692
   Prepaid Income Taxes (Note 8)                            10,800       10,800
   Prepaid Expenses and Other Current Assets               156,367       94,399
   Deferred Tax Assets (Note 8)                            220,460      123,550
                                                        -----------  -----------
Total Current Assets                                     2,681,143    2,448,881

Property and Equipment (Note 3)                            505,573      690,677

Other Assets
   Security Deposit                                         21,410       21,410
   Due From Officers (Note 4)                              138,801      148,079
   Cash Surrender Value of Life Insurance (Note 5)               0       45,290
   Intangible Assets (Note 1)                               27,261       18,831
                                                        -----------  -----------
Total Other Assets                                         187,472      233,610
                                                        -----------  -----------

Total Assets                                            $3,374,188   $3,373,168
                                                        ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
   Accounts Payable                                     $1,016,027   $  848,187
   Accrued Liabilities                                     213,611      256,466
   Line of Credit (Note 6)                                 570,064      980,477
   Capital Lease Obligation, Current Portion (Note 7)       55,214       47,746
   Income Taxes Payable (Note 8)                               862          725
                                                        -----------  -----------
Total Current Liabilities                                1,855,778    2,133,601

Capital Lease Obligation, Noncurrent Portion (Note 7)       48,647      103,861
                                                        -----------  -----------
Total Liabilities                                        1,904,425    2,237,462

Commitments and Contingencies (Note 6, 7, and 9)

Stockholders' Equity
Preferred Stock:  $0.25 Par Value, Authorized:
     1,000,000 Issued and outstanding:  None                None         None
Common Stock: $0.001 Par Value, Authorized Shares:
     30,000,000; Issued and Outstanding:
     2001: 15,105,355         2000: 15,055,355              15,105       15,055
Additional Paid In Capital                               1,141,377    1,133,927
Retained Earnings (A Deficit)                              313,281      (13,276)
                                                        -----------  -----------
Total Stockholders' Equity                               1,469,763    1,135,706
                                                        -----------  -----------
Total Liabilities and Stockholders' Equity              $3,374,188   $3,373,168
                                                        ===========  ===========

    The accompanying notes are an integral part of these financial statements

                                       F3

<PAGE>


                          ALLERGY RESEARCH GROUP, INC.
                         CONSOLIDATED INCOME STATEMENTS
                 FOR THE YEARS ENDED DECMEBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
Year Ended December 31:                                            2001            2000
                                                               -------------   -------------

<S>                                                            <C>             <C>
Revenues                                                       $ 11,749,199    $ 11,786,512
Costs of Sales                                                    7,107,779       7,037,213
                                                               -------------   -------------
Gross Profit                                                      4,641,420       4,749,299

Operating Expenses
   Selling, General and Administrative                            4,070,974       4,277,239
   Research and Development                                         195,471         132,885
                                                               -------------   -------------
Total Operating Expenses                                          4,266,445       4,410,124

Operating Income                                                    374,975         339,175

Other Income (Expense)
   Interest Income                                                    9,476          10,969
   Interest Expense                                                (153,867)       (180,342)
                                                               -------------   -------------
Total Other Income (Expense)                                       (144,391)       (169,373)
                                                               -------------   -------------

Net Income Before Benefit for Income Taxes                          230,584         169,802

Benefit for Income Taxes (Note 8)                                    95,973          95,174
                                                               -------------   -------------

Net Income Available to Common Stockholders                    $    326,557    $    264,976
                                                               =============   =============

Basic and Diluted Income Per Share of Common Stock             $       0.02    $       0.02
                                                               =============   =============

Basic and Diluted Weighted Average Common Shares Outstanding     15,083,574      15,055,355
                                                               =============   =============
</TABLE>

    The accompanying notes are an integral part of these financial statements
                                       F4
<PAGE>

<TABLE>
                                    ALLERGY RESEARCH GROUP, INC.
                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<CAPTION>
                                                                               Additional    Retained
                                          Preferred    Common        Stock       Paid In     Earnings
                                            Stock      Shares       Amount       Capital    (A Deficit)      Total
                                          ---------  -----------  -----------  -----------  -----------   -----------
<S>                                           <C>    <C>          <C>          <C>          <C>           <C>
Balance, December 31, 1999                    -      15,055,355   $   15,055   $1,133,927   $ (278,252)   $  870,730
Net Income                                                                                     264,976       264,976
                                                                                            -----------   -----------
Balance, December 31, 2000                    -      15,055,355       15,055    1,133,927      (13,276)    1,135,706
Common stock issued for service at $0.15
     per share, June 8, 2001                  -          50,000           50        7,450                      7,500
Net Income                                                                                     326,557       326,557
                                                                                            -----------   -----------
Balance, December 31, 2001                    -      15,105,355   $   15,105   $1,141,377   $  313,281    $1,469,763
                                                                  ===========  ===========  ===========   ===========

             The accompanying notes are an integral part of these financial statements.




                                                 F5
</TABLE>

<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
Year ended December 31:                                            2001          2000
                                                                 ----------   ----------
Cash Flows From Operating Activities
------------------------------------
<S>                                                              <C>          <C>
Net Income                                                       $ 326,557    $ 264,976
Adjustments to Reconcile Net Income to Net Cash Provided
     By (Used In) Operating Activities
     Depreciation and Amortization                                 225,002      224,316
     Common Stock Issued for Services                                7,500            0
     Decrease in the Allowance for Doubtful Accounts              (100,190)     (42,518)
     Intangible Asset Acquired Through Forgiveness of A/R          (13,180)           0
     (Increase) Decrease in the Inventory Reserve Account          (64,685)      13,841
     Increase in Deferred Taxes                                    (96,910)     (99,096)
Changes in Assets and Liabilities
    (Increase) Decrease in Accounts Receivable                     363,098      214,669
    (Increase) Decrease in Inventories                            (260,756)    (182,105)
    (Increase) Decrease in Accrued Interest Receivable              (9,470)     (10,969)
    (Increase) Decrease in Income Tax Deposits                           0      (10,000)
    (Increase) Decrease in Prepaids and Other Current Assets       (61,968)      25,015
    (Increase) Decrease in Other Assets                                  0        7,000
    (Increase) Decrease in Cash Surrender Value-Life Insurance      45,290       (4,885)
     Increase (Decrease) in Accounts Payable                       167,840     (448,263)
     Increase (Decrease) in Accrued Liabilities                    (42,855)     (86,756)
     Increase (Decrease) in Income Taxes Payable                       137          675
                                                                 ----------   ----------
Total Adjustments                                                  158,853     (399,076)
                                                                 ----------   ----------
Net Cash Flows Provided By (Used In) Operating Activities          485,410     (134,100)

Cash Flows From Investing Activities
------------------------------------
   Acquisition of Property and Equipment                           (34,499)     (63,383)
   Expenditures for Intangible Assets, Trademarks                     (650)      (2,261)
   Repayments from Officers                                         18,749       28,892
                                                                 ----------   ----------
Net Cash Flows Used In Investing Activities                        (16,400)     (36,752)

Cash Flows From Financing Activities
------------------------------------
   Advances Under Line of Credit                                    77,604      372,472
   Repayments on Line of Credit                                   (488,017)           0
   Repayments on Capital Lease Obligations                         (47,746)     (68,328)
                                                                 ----------   ----------
Net Cash Flows (Used In) Provided By Financing Activities         (458,159)     304,144
                                                                 ----------   ----------

Increase (Decrease) in Cash and Cash Equivalents                    10,851      133,292
Cash and Cash Equivalents, Beginning of Year                       188,648       55,356
                                                                 ----------   ----------
Cash and Cash Equivalents, End of Year                           $ 199,499    $ 188,648
                                                                 ==========   ==========
Cash paid for:
   Interest                                                      $ 151,061    $ 138,769
                                                                 ==========   ==========
   Income Taxes                                                  $     800    $  13,250
                                                                 ==========   ==========
Supplemental noncash investing and financing activities:
   Common stock issued for services rendered                     $   7,500           --
                                                                 ==========
   Property and Equipment Canceled Under Capital Lease                  --    $ (29,305)
                                                                              ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       F6

<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 1 - DESCRIPTION OF BUSINESS / SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         --------------------------------------------------------------------

Description of Business.

Allergy Research Group, Inc. (the Company) is engaged in the business of
developing, marketing and distributing branded and private label products,
including vitamins and nutritional supplements, throughout the world under the
NutriCology and Allergy Research Group(R) labels. The Company distributes its
products through distributors to medical and professional accounts and to
retailers. The Company's products are manufactured in various forms, including
capsules, tablets, softgels, powders (drink mixes) and liquids. Approximately
70% of the Company's products, consisting of capsules and tablets, are packaged
in-house. The Company's liquid and powder products are packaged by outside
vendors and manufacturers. The Company is expanding into the field of research
on pharmaceuticals and nutraceuticals and continues to add new products to its
existing product line.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

ACCOUNTING METHOD - The Company uses the accrual method of accounting for
financial statement and tax return purposes.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Allergy Research Group, Inc. (a Florida corporation) and its wholly
owned subsidiary, Nutricology, Inc. (a California corporation). All significant
intercompany balances and transactions have been eliminated in consolidation.

BUSINESS SEGMENT INFORMATION - The Company operates in one industry segment,
that being developing, marketing and distributing natural nutritional
supplements. The Company's sales are primarily to distributors and health care
professionals throughout the United States. The Company has one customer that
accounts for more than 10% of its revenues, or approximately $1,500,000 in
sales.

USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash
equivalents.

                                       F7
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

CONCENTRATION OF CREDIT RISK - Concentration of credit risk include cash, sales
and purchases. The Company maintains cash balances at a local financial
institution in excess of $100,000, which are insured by the Federal Deposit
Insurance Corporation up to $100,000. The Company has one customer that accounts
for approximately 12% of sales. The Company uses outside vendors for the
manufacture of its products. Approximately 56% of the Company's manufacturing
comes from four separate outside vendors that act as manufacturers and suppliers
of raw materials.

INVENTORIES - Inventories consist of raw materials and finished goods. Raw
materials consist of bulk product that has not been mixed or encapsulated.
Finished goods consist of product that has been encapsulated or made into tablet
form and that has been packaged for sale. Inventories are stated at the lower of
cost or net realizable value, using the first-in, first-out method.

PROPERTY AND EQUIPMENT - Property and equipment, stated at cost, is depreciated
over the estimated useful lives of the assets using the straight-line method for
financial statement purposes and accelerated methods for income tax purposes.
Significant improvements and betterments are capitalized. Routine repairs and
maintenance are expensed when incurred.

LONG-LIVED ASSETS - The Company records impairment losses on long-lived assets
used in operation when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount.

REVENUE RECOGNITION - Revenues are recognized and title passes upon shipment to
the customer which is in accordance with Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements." Sales are presented net of
returns and allowances for 2001 and 2000 of $1,020,603 and $947,919,
respectively.

ALLOWANCE FOR DOUBTFUL ACCOUNTS AND RETURN ALLOWANCES - Accounts receivable are
shown net of allowances for doubtful accounts and returns which are estimated as
a percentage of accounts receivable based on prior years experience. The Company
reviews a customer's credit history before extending credit. Allowance for
doubtful accounts at December 31, 2001 and 2000 was $90,213 and $190,403,
respectively.

COST RECOGNITION - Cost of sales includes all direct material and labor costs
and those indirect costs of bringing raw materials to sale condition, including
shipping and handling costs. Selling, general and administrative costs are
charged to operating expenses as incurred. Research and Development costs are
charged to operations when incurred and are included in operating expenses.
Research and development costs were $195,471 and $132,885, for 2001 and 2000,
respectively.

                                       F8
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

ADVERTISING COSTS - Advertising costs are expensed as incurred. Total adverting
costs expensed during 2001 and 2000 were $56,623 and $72,740, respectively.

INCOME TAXES - The Company accounts for income taxes under the provisions of
SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income
tax assets and liabilities are computed for differences between the financial
statements and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future, based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary, to reduce
deferred income tax assets to the amount expected to be realized.

STOCK-BASED COMPENSATION - The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation cost
for stock options, if any, is measured as the excess of the quoted market price
of the Company's stock at the date of grant over the amount an employee must pay
to acquire the stock. SFAS No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans. The Company
has elected to remain on its current method of accounting as described above,
and has adopted the disclosure requirements of SFAS No. 123.

EARNINGS PER SHARE - Basic earnings or loss per share is based on the weighted
average number of common shares outstanding. Diluted earnings or loss per share
is based on the weighted average number of common shares outstanding and
dilutive common stock equivalents. Basic earnings/loss per share is computed by
dividing net income applicable to common stockholders (numerator) by the
weighted average number of common shares outstanding (denominator) for the
period. All earnings or loss per share amounts in the financial statements are
basic earnings or loss per share, as defined by SFAS No. 128, "Earnings Per
Share." Diluted earnings or loss per share does not differ materially from basic
earnings or loss per share for all periods presented. Convertible securities
that could potentially dilute basic earnings per share in the future such as
stock options are not included in the computation of diluted earnings per share
because to do so would be antidilutive. All share and per share information are
adjusted retroactively to reflect stock splits and changes in par value.

CAPITAL STRUCTURE - The Company discloses its capital structure in accordance
with SFAS No. 129, "Disclosure of Information about Capital Structure," which
establishes standards for disclosing information about an entity's capital
structure.

COMPREHENSIVE INCOME - The Company includes items of other comprehensive income
by their nature in a financial statement and displays the accumulated balance of
other comprehensive income separately from retained earnings and additional paid
in capital in the equity section of the balance sheet. For the periods
presented, other comprehensive income (loss) includes unrealized losses on
marketable equity securities.

START-UP EXPENSES - The Company expenses start-up costs and organization costs
for financial statement purposes pursuant to AICPA Statement of Position 98-5,
"REPORTING ON THE COSTS OF START-UP ACTIVITIES." For income tax purposes, the
Company has elected to treat its organizational costs as deferred expenses and
amortize them over a period of sixty months beginning in the first month the
Company was actively in business.

                                       F9
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

FAIR VALUE OF FINANCIAL INSTRUMENTS - For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable, prepaid
expenses, accounts payable and accrued liabilities, and debt, the carrying
amounts approximate fair value due to their short maturities.

INTANGIBLE ASSETS - Other assets include trademarks and customer lists.
Trademarks are amortized using the straight-line method over the life of the
trademark. Customer lists are not amortized, but are tested at least annually
for impairment, in accordance with SFAS No. 142, "Goodwill and Other Intangible
Assets." Periodically, the Company evaluates whether the estimated useful life
used to amortize an intangible asset is appropriate due to changing facts and
circumstances resulting in increases or decreases in the asset's useful life,
and records the change prospectively. Amortization expense charged to operations
during 2001 and 2000 was $5,400 and $5,356, respectively.

RECLASSIFICATION - Certain prior period amounts have been reclassified to
conform to the current year presentation. These changes had no effect on
previously reported results of operations or total stockholders' equity.

RECENT ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board
("FASB") has issued the following additional pronouncements, none of which are
expected to have a significant affect on the financial statements:

SFAS No.141, "Business Combinations." SFAS No. 141 requires that all business
combinations be accounted for under the purchase method of accounting. SFAS No.
141 also changes the criteria for the separate recognition of intangible assets
acquired in a business combination. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001.

SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 is effective for financial statements issued for fiscal
years beginning after June 15, 2002.

FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS No. 144 is effective
for financial statements issued for fiscal years beginning after December 15,
2001, and interim periods within those fiscal years.

PENDING ACCOUNTING PRONOUNCEMENTS - It is anticipated that current pending
accounting pronouncements will not have an adverse impact on the financial
statements of the Company.

                                       F10
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 2 - INVENTORIES
         -----------

Inventories consist of the following at December 31:

                                                    2001                2000
                                                ------------        ------------
Raw Materials                                   $   696,825         $   504,097
Finished Goods                                      912,308             844,280
Reserve for Obsolescence                            (50,000)           (114,685)
                                                ------------        ------------
Total                                           $ 1,559,133         $ 1,233,692
                                                ============        ============


NOTE 3 - PROPERTY AND EQUIPMENT
         ----------------------

Property and equipment consist of the following at December 31:

                                                     2001                2000
                                                 ------------       ------------
Machinery and Equipment                          $   674,248        $   672,563
Office Equipment                                     230,084            230,084
Vehicles                                              43,161             43,161
Furniture and Fixtures                               184,723            184,723
Computer Equipment                                   209,692            182,504
Computer Software                                     52,606             46,981
Leasehold Improvements                                99,204             99,204
                                                 ------------       ------------
Total                                              1,493,718          1,459,220
Less Accumulated Depreciation                       (988,145)          (768,543)
                                                 ------------       ------------
Net Book Value                                   $   505,573        $   690,677
                                                 ============       ============

Depreciation expense charged to operations for 2001 and 2000 were $219,602 and
$218,960, respectively.

                                       F11
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 4 - RELATED PARTY TRANSACTIONS
         --------------------------

From time to time, the Company makes personal loans or receives advances from/to
its principal stockholder. These loans were originally noninterest bearing and
due on demand. Beginning in 2000, the Company accrued interest on these loans at
the rate of 8% per annum. Due From Officers at December 31, 2001 and 2000 was
$138,801 and $148,079, including accrued interest of $20,439 and $10,969,
respectively.

For the years ended December 31, 2001 and 2000, the Company paid approximately
$9,000 and $99,000, respectively, to Inventive Biomedical, LLC, a California
limited liability company (IBM), for research and development expenses and
market testing of new products.

NOTE 5 - CASH SURRENDER VALUE LIFE INSURANCE
         -----------------------------------

During May 2001, the Company canceled two insurance policies in the face amount
of $750,000 on the lives of certain key employees, who were also the
beneficiaries, and the cash surrender value of $46,645 was returned to the
Company. The cash surrender value at December 31, 2000 was $45,290 with no
policy loans outstanding.

NOTE 6 - LINE OF CREDIT
         --------------

On May 17, 2001, Registrant entered into a revolving line of credit for up to
$1,200,000 with City National Bank. The City National Bank line of credit was
used to refinance the Company's former line of credit with Aerofund Financial,
Inc. ("Aerofund"), which matured on March 1, 2001, and had a current principal
balance of $871,964. Aerofund had begun charging interest at a default rate of
20% per annum in excess of the interest rate on April 1, 2001. The new line of
credit with City National Bank incurs interest at a variable rate of interest
equal to two (2) points over the City National Bank Prime Rate, with an initial
rate of 9% per annum. The City National Bank line of credit matures on July 5,
2002, at which time the full principal balance plus all accrued unpaid interest
shall be due. The line of credit requires the pledge of Key Man Life Insurance
Policy on the Company's Chief Executive Officer of up to $750,000 and also is
personally guaranteed by the Company's Chief Executive Officer and Secretary.
The amount of credit available under the agreement for future advances at
December 31, 2001 was $629,936.

The line of credit agreement contains customary covenants and events of default.
The Company is in default on one of its covenants and under the terms of the
agreement, the bank may call the loan if the Company is in violation of any
restrictive covenants. As of the date of issuance of these financial statements,
the bank has waived the Company's violation of the respective covenant.

                                       F12
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

On March 1, 2000, the Company entered into an agreement with Aerofund to provide
additional funding for twelve months in the form of a line of credit to the
Company up to $1,200,000, bearing interest at prime plus three percent (3%)
computed on a monthly basis. Prime at December 31, 2000 was 9.5%. Interest was
due monthly. Any interest not paid when due accrued at the default rate of 20%
per annum in excess of the interest rate. The agreement contained "maintenance
fees" and "overavailability fees" based on the average outstanding balance which
were payable on the first day of each month. The minimum monthly charge was
$11,000. The agreement contained an early termination fee of the greater of all
fees and expenses incurred under the terms of the agreement for the immediately
preceding six months, or $20,000. The line of credit was secured by
substantially all of the assets of the Company. Included in accrued expenses is
$48,923 of accrued interest and fees due at December 31, 2000.

NOTE 7 - CAPITAL LEASE OBLIGATIONS
         -------------------------

The Company leases certain machinery and equipment under capital leases which
contain purchase options at the end of the leases. Future minimum payments under
noncancelable leases at December 31 are as follows:

2002                                                                   $ 60,021
2003                                                                     50,016
                                                                       ---------
Total minimum lease payments                                            110,037
Less amount representing interest                                         6,176
                                                                       ---------
Present Value of the minimum lease payments                             103,861
Less Current Portion                                                     55,214
                                                                       ---------
Noncurrent Portion                                                     $ 48,647
                                                                       =========

Assets under capital leases are summarized as follows:

                                                         2001            2000
                                                      ---------        ---------
Office Equipment                                      $118,005         $118,005
Machinery and Equipment                                 53,927           53,927
Furniture and Fixtures                                  10,393           10,393
Computer Software                                       34,050           34,050
Computer Equipment                                      33,194           33,194
Leasehold Improvements                                  47,924           47,924
                                                      ---------        ---------
Total                                                  297,493          297,493
Accumulated Depreciation                               187,134          130,654
                                                      ---------        ---------
Net Assets                                            $110,359         $166,839
                                                      =========        =========

                                       F13
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 8 - INCOME TAXES
         ------------

The deferred tax consequences of temporary differences in reporting items for
financial statement and income tax purposes are recognized, as appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income within the net operating loss carryforward period. Management has
considered these factors in reaching its conclusion as to the valuation
allowance for financial reporting purposes. The income tax effect of temporary
differences comprising the deferred tax assets and deferred tax liabilities on
the accompanying consolidated balance sheet is a result of the following:

Deferred Tax Assets:                                  2001              2000
--------------------                              ------------      ------------
Net Operating Loss Carryforwards                  $ 1,152,744       $ 1,210,914
Expenses Not Currently Deductible
    For Tax Purposes                                   57,055           178,797
                                                  ------------      ------------
Total                                               1,209,799         1,389,711
Valuation Allowance                                  (893,969)       (1,214,265)
                                                  ------------      ------------
Net Deferred Tax Asset                                315,830           175,446

Deferred Tax Liabilities:
-------------------------
Depreciation                                           95,370            51,896
                                                  ------------      ------------
Net Deferred Tax Asset                            $   220,460       $   123,550
                                                  ============      ============

The net change in the valuation allowance for 2001 was a decrease of $320,296
and for 2000 was an increase of $135,312, which are principally the result of
net operating loss carryforwards.

Prepaid income taxes represent $10,000 of federal income taxes which were
credited to next year's taxes and $800 of state income taxes paid which were
credited towards the current year's minimum franchise tax. Accrued income taxes
payable represents $862 of current year's minimum franchise tax due.

The benefit for income taxes for the years ended December 31, 2001 and 2000 is
as follows:

                                                         2001            2000
                                                       ---------       ---------
Current income tax provision (benefit)
    State Taxes                                        $    937        $  3,922
Deferred income tax
    Increase in Deferred Tax Asset                      (96,910)        (99,096)
                                                       ---------       ---------
Income Tax Provision (Benefit)                         $(95,973)       $(95,174)
                                                       =========       =========

                                       F14
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

A reconciliation of income tax at the statutory rate to the Company's effective
rate is as follows:

                                                     2001       2000
                                                     -----      -----
Computed at the statutory federal rate               (34%)      (34%)
Computed at the statutory state rate                  (9%)       (9%)
Net operating loss carryforwards                      33%        33%
Valuation allowance                                  (31%)      (46%)
                                                     -----      -----
Income tax expense - effective rate                  (41%)      (56%)

At December 31, 2001, the Company has available net operating loss carryforwards
for federal and state income tax purposes of approximately $3,000,000 and
$1,350,000 to offset future taxable income, which expire principally in the year
2020. Pursuant to the Tax Reform Act of 1986, annual utilization of the
Company's net operating loss carryforwards may be limited if a cumulative change
in ownership of more than 50% is deemed to occur within any three-year period.

NOTE 9 - COMMITMENTS AND CONTINGENCIES
         -----------------------------

(1) OPERATING LEASES - The Company leases office space and equipment under
various noncancelable operating leases which expire through June 2006. Rent
expense charged to operations for 2001 and 2000 was approximately $304,000 and
$291,000, respectively.

Future minimum rental commitments under noncancelable leases are as follows:

2002                       $ 349,164
2003                       $ 197,652
2004                       $  21,405
2005                       $   6,540
2006                       $   3,270

The Company subleases a portion of its space at the rate of $8,320 per month.
The total amount of minimum rentals to be received in the future under
noncancelable subleases are as follows:

2002                       $  99,840
2003                       $  49,920

                                       F15
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2001 AND 2000

NOTE 10 - PROFIT SHARING PLAN
          -------------------

The Company has a defined contribution plan which covers substantially all
employees. The Company's contributions to the plan are made at the sole
discretion of the Company's Board of Directors. Contributions to the plan were
approximately $34,000 and $28,000 during 2001 and 2000, respectively.

NOTE 11 - STOCK OPTIONS
          -------------

The Company has authorized 1,000,000 shares of common stock for issuance to
directors and key employees under the 1998 Stock Option Plan (the plan). The
objectives of the plan include attracting and retaining the best personnel,
providing for additional performance incentives, and promoting the success of
the Company by providing directors and key employees the opportunity to acquire
common stock. The Company granted 100,000 options during July 1998 and 150,000
options during January 1999, exercisable at $2.00 per share, expiring five years
from the date of grant. As of December 31, 2001 and 2000, total options
outstanding were 250,000 with a weighted average exercise price of $2.50 and
weighted average remaining contractual lives of 1.88 years.

The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," under which no compensation cost for stock options
is recognized for stock options awards granted at or above fair market value.
Had compensation expense for the Company's stock-based compensation plans been
determined under SFAS No. 123, based on the fair market value at the grant
dates, the Company's pro forma net loss and pro forma net loss per share would
have been reflected as follows at December 31:

        Net Income                          2001           2000
                                            ----           ----
             As reported                 $ 326,557      $ 264,976
             Pro forma                   $ 276,427      $ 214,846
        Net Income Per Share
             As reported                 $    0.02      $    0.02
             Pro forma                   $    0.02      $    0.01

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for those options granted in 1999 and 1998, respectively:
dividend yield of 0%, expected volatility of 95% and 131%, risk-free interest
rate of 5%, and expected lives of five years.

                                       F16

<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.


                          ALLERGY RESEARCH GROUP, INC.



Date: March 28, 2002                By: /s/ Stephen Levine
                                        ----------------------------------------
                                        Stephen Levine, Ph.D., President and CEO



Date: March 28, 2002                By: /s/ Susan Levine
                                        ----------------------------------------
                                        Susan Levine, Secretary

                                       31