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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, 2005

[   ]    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)

2300 North Loop Road, Alameda, California                94502
(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, $0.001 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. [ ]

State issuer's revenues for its most recent fiscal year: $15,911,221

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 10, 2006 was $0.89, based on the last
sale price of $0.87 as reported by the NASD Over-The-Counter Bulletin Board.

As of March 13, 2006, Registrant had outstanding 14,521,605 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........................................................................1

   ITEM 1.     DESCRIPTION OF BUSINESS........................................1
     FORWARD-LOOKING STATEMENTS...............................................1
     BACKGROUND...............................................................1
     THE COMPANY..............................................................1
     BUSINESS PLAN............................................................2
     PRODUCTS AND SERVICES....................................................3
     INDUSTRY OVERVIEW........................................................4
     COMPETITION..............................................................5
     MARKET STRATEGIES........................................................6
     REGULATION...............................................................7
     EMPLOYEES................................................................11
     INTELLECTUAL PROPERTY....................................................11
     AVAILABLE INFORMATION....................................................11
   ITEM 2.     DESCRIPTION OF PROPERTY........................................11
   ITEM 3.     LEGAL PROCEEDINGS..............................................11
   ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............12

PART II.......................................................................13

   ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......13
     MARKET INFORMATION.......................................................13
     HOLDERS..................................................................13
     DIVIDENDS................................................................13
     RECENT SALES OF UNREGISTERED STOCK.......................................13
     EQUITY COMPENSATION PLAN INFORMATION.....................................14
   ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......14
     INTRODUCTION.............................................................14
     CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS...............15
     FACTORS THAT COULD AFFECT FUTURE RESULTS.................................15
     OVERVIEW.................................................................16
     RESULTS OF OPERATIONS....................................................17
     LIQUIDITY AND CAPITAL RESOURCES..........................................18
     CRITICAL ACCOUNTING POLICIES.............................................21
     RECENT ACCOUNTING PRONOUNCEMENTS.........................................22
   ITEM 7.     FINANCIAL STATEMENTS...........................................22
   ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS..................22

PART III......................................................................23

   ITEM 9.     DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
               PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.....23
     OFFICERS AND DIRECTORS...................................................23
     KEY EMPLOYEES............................................................24
     MEDICAL ADVISORY BOARD...................................................25
     SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..................27
   ITEM 10.    EXECUTIVE COMPENSATION.........................................27
     REMUNERATION PAID TO EXECUTIVES..........................................27
     REMUNERATION PAID TO DIRECTORS...........................................28
     EMPLOYMENT AGREEMENTS....................................................28
     EMPLOYEE BENEFITS........................................................28
   ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT.....................................................30
   ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................30
   ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K...............................31
     EXHIBITS.................................................................31
     FORM 8-K REPORTS.........................................................32
   ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................32

SIGNATURES....................................................................33


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                                     PART I
ITEM 1. DESCRIPTION OF BUSINESS

FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-KSB, including "Management's Discussion and
Analysis or Plan of Operation" in Item 6, contains forward-looking statements
that involve risks and uncertainties and assumptions that, if they never
materialize or prove incorrect, could cause the results of Allergy Research
Group, Inc. and its consolidated subsidiary (the "Company") to differ materially
from those expressed or implied by such forward-looking statements. All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements, including any projections of revenue, costs
or other financial items; any statements of the plans, strategies and objectives
of management for future operations; any statement concerning proposed new
products, services, developments or industry rankings; any statements regarding
future economic conditions or performance; any statements of belief; and any
statements of assumptions underlying any of the foregoing. The risks,
uncertainties and assumptions referred to above include but are not limited to
the items discussed in "Factors that Could Affect Future Results" set forth in
"Management's Discussion and Analysis or Plan of Operation" in Item 6 of this
report. The Company assumes no obligation and does not intend to update these
forward-looking statements.

BACKGROUND

      Allergy Research Group, Inc. (SYMBOL: ALRG) (the "Company" or "Allergy
Research Group"), together with wholly owned subsidiary, Nutricology, Inc.,
strives to be an innovative leader in nutraceutical research and product
formulation. Through Nutricology, Inc., the Company has produced quality,
hypoallergenic nutritional supplements since 1980 and currently supplies
products to over 4,000 physicians and health care practitioners worldwide. The
Company 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), Buffered Vitamin C and Nattokinase
(an enzyme derived from boiled soybeans).

THE COMPANY

      Allergy Research Group, 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, PhD.

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

      We sell our products worldwide to healthcare professionals, who recognize
the Company for the quality, purity and efficacy of its targeted nutritional
supplement line. Currently, we supply products to over 4,000 physicians and
health care practitioners worldwide, including accounts in the United States,
Japan, China, Taiwan, the United Kingdom, South Korea, Jamaica, New Zealand,
Mexico, Turkey, Norway, Denmark, Switzerland, Italy, Ireland, Philippines,
Russia, South Africa and Singapore. The United States accounts for approximately
87% of sales before returns, discounts and allowances, with England, Japan and
Canada producing 6%, 3% and 2% of sales, respectively. Financial information
regarding our revenue, income and assets can be found in our audited financial
statements filed as part of this Report.

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      We develop, contract manufacture, market and sell our own branded
products, including vitamins and nutritional supplements under the NutriCology
and Allergy Research Group labels. Our products are distributed through
distributors to medical and professional accounts and to retailers. We also sell
direct to consumers via the Internet and telephone sales. See "Market
Strategies" below. We offer a line of approximately 270 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. Due to the nature of our business,
the Company must carry a significant amount of inventory at all times in order
to meet rapid delivery requirements. The Company does not have a significant
amount of backorders at any given time and does not offer payment terms in
excess of 30 days.

      The Company's principal executive offices are located at 2300 North Loop
Road, Alameda, California 94502 and our telephone number is (800) 545-9960.

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 to:

      o   develop new product line extensions, as well as new products, through
          our commitment to research and development;

      o   continue the growth of our balanced distribution network;

      o   build our execution skills through new operations processes and
          decision support systems;

      o   achieve cost superiority through formal productivity benchmarking and
          continuous improvement programs; and

      o   continue to improve upon our comprehensive e-commerce plan, which
          includes ongoing enhancements to make our website more user friendly
          for all market segments of our business.

      We believe that the Company's and Dr. Levine's history and reputation in
the field, multiple distribution channels, broad portfolio of products with wide
brand recognition by professionals around the world, and packaging and
distribution capabilities position us to be a long-term competitor in the
vitamin and nutritional supplements industries.

      The Company continues to collaborate with entrepreneurs of cutting-edge
science-based products, who have limited resources to bring their products to
market. We continue to explore opportunities for partnerships and/or acquisition
of these businesses to broaden our product line of innovative nutraceuticals,
creating potential for real growth in sales and profit while providing products
that promote general health. The Company's distribution channel to the medical
and professional- practitioners market is pivotal to the successful introduction
of unique products.

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      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
2005 and 2004, we spent $304,516 and $298,899, 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 nutraceuticals that could
have pharmaceutical potential may 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 our product development history, we believe that we have
built a reputation in the nutritional supplement industry for innovation. The
Company continues to develop new product concepts that we anticipate will
capture additional market share in our existing domestic and international
business.

      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 excipients. 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, 2005, a concentration of approximately 42% of our
manufacturing was distributed among three separate vendors. The three individual
manufacturers and suppliers of raw materials accounted for approximately 21%,
11% and 10% of our needs. 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.

PRODUCTS AND SERVICES

      Our vitamin and nutritional supplement line consists of approximately 270
products. The Company has one product catalog for the retail market (marketed
under the Nutricology(R) label) and another catalog for the professional market
(marketed under the Allergy Research Group(R) label). Both catalogs include the
following categories of products: Amino Acids, Antioxidant Formulas,
Bioenergetic Nutrients, Bioflavonoids, Brain Support Products, Comprehensive
Nutrient Formulas, Essential Fatty Acids, Gastrointestinal Health Products,
Immune Support Products, Liver Support Products, Multiple Vitamin/Mineral


                                       3
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Formulas, Musculoskeletal Support Products, Organic Glandulars, Selenium
Products, Specialty Products, Vitamin B Products, and Vitamin C Products.
Approximately 80% of our products were formulated by Allergy Research
Group/NutriCology and are contract manufactured and distributed by the Company.
Another 20% of the products are produced by other companies in the industry and
distributed by the Company through licensing agreements, under our label.

INDUSTRY OVERVIEW

      According to the PHARMACEUTICAL & Medical Packaging News (September 2004),
The Freedonia Group (Cleveland) estimated, in its research report released July
2004 (the "Freedonia Report"), that global demand for nutritional supplements
alone will grow by 6.1% each year through 2008. The report valued the current
world market at $7.1 billion and estimated growth to approximately $9.6 billion
in 2008. Over 150 million people in the United States use dietary supplements.
However, despite the apparent popularity of supplements, the industry is under
constant political pressure as the pharmaceutical industry continues to press
for more stringent legal restrictions on the manufacture and distribution of
vitamins and supplements, and foreign and world organizations, such as Codex
Alimentarius, adopt standards and controls that make it more difficult for
consumers to obtain a wide selection of these products.

      Despite its estimates of growth in the industry, The Freedonia Group
warned that proposed GMPs (good manufacturing practices) could affect the
legitimacy of the industry. The GMPs include strict standards for manufacturing,
packaging and labeling to assure consistency and potency of dietary supplement
products. Groups representing the pharmaceutical industry continue to express
concerns over product consistency and quality despite increasing popularity in
the U.S. market, citing the lack of GMPs, and revisions to DSHEA (see
"Regulation" below) and other U.S. and foreign government restrictions that
could cripple the industry by limiting consumer access to dietary supplement
products and alternative medicine and increasing costs to manufacturers of these
products. There appears to be an ongoing campaign to label nutritional
supplement products as "unsafe" despite their track record, and restrictions on
manufacturers' ability to advertise the efficacy of vitamin, mineral and dietary
supplement products limits response to such criticism.

      In November 25, 2005, the Health Freedom Protection Act ("HFPA") was
introduced in Congress as House of Representatives Bill No. 4282. The HFPA would
amend the Federal Food Drug and Cosmetic Act ("FFDCA") to provide that a dietary
supplement is not a drug solely because the label contains certain claims to
cure, mitigate, treat or prevent disease. If enacted, the bill would amend the
FFDCA to prevent the Secretary of Health and Human Services from prohibiting
manufacturers from characterizing the relationship of a particular nutrient to
the cure, mitigation, treatment or prevention of a disease unless it can prove
that (1) there is no scientific evidence that supports the claim and that (2)
the claim is inherently misleading and incapable of being rendered nonmisleading
through the addition of a disclaimer. See "Regulation" below.

      Attempts to increase foreign government regulation of the industry have
met with some success in some jurisdictions in which we currently sell products.
See "Regulation" below. More pervasive are guidelines adopted by the Codex
Alimentarius Commission, or Codex, an agency created in 1963 by two U.N.
organizations - the Food and Agriculture Organization and the World Health
Organization, in July 2005. By way of background, the Codex Committee on
Nutrition and Foods for Special Dietary Uses ("CCNFSDU") began discussions on
guidelines for vitamin and mineral supplements in the 1990's. These Guidelines
apply to vitamin and mineral food supplements intended for use in supplementing
the daily diet with vitamins and/or minerals. However, food supplements
containing vitamins and/or minerals as well as other ingredients would also need
to be in conformity with the specific rules on vitamins and minerals laid down
in the Guidelines. See "Regulation" below.

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      The Guidelines are expected to regulate the maximum amount of vitamins and
minerals that can be placed in food supplements, which may lower the dosage of
U.S.-manufactured products to standards set by foreign jurisdictions, enabling
foreign manufacturers to better compete with U.S. companies. We are unable to
predict the impact of the Guidelines on our sales to foreign markets. In
addition, we are unable to predict how guidelines adopted by Codex would affect
the United States market. The FDA has taken the position that the Guidelines
will not affect the availability of supplement products to U.S. consumers and
will allow U.S. manufacturers to better compete in the international market by
establishing science-based guidelines. Supplements sold in the U.S. will not be
required to comply with the international standards that are more restrictive
than U.S. laws. The U.S. government continues to participate in Codex to
maintain involvement in the setting of international standards to help minimize
potential trade barriers to U.S. products in international markets.

      Despite increased regulation and negative publicity by competitors in the
pharmaceutical industry, 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 medical
conditions.

      We expect that the aging of the United States population, together with a
corresponding increased focus on preventative health measures, to continue to
influence the 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. In marketing our products, we will need to
focus on understanding consumer needs, introducing new products to meet those
needs and winning the trust of consumers through the quality and efficacy of our
products. In addition, an increasing number of people living the "low-carb
lifestyle" require nutritional supplements to prevent deficiencies resulting
from the omission of fruits and vegetables from their diet. This represents a
new market for vitamin, mineral and herbal products.

      The industry has seen a consolidation of vitamin and supplement companies,
with NBTY leading the way. NBTY, now the largest VMS company (with sales of $1.2
billion in 2003) in the United States, acquired Rexall Sundown in 2003. In
addition, Nutraceutical International Corporation has acquired Solaray, Inc.,
Premier One Products, Inc., Makers of KAL, Inc. and Makers of KAL, B.V., Monarch
Nutritional Laboratories, Inc., Action Labs, Inc., NutraForce (Canada)
International, Inc. and Thompson Nutritionals, Inc. While the retail channel of
distribution for vitamins and nutritional supplements has been consolidating,
the vitamin and nutritional supplement industry remains fragmented.

COMPETITION

      Strong interest in nutritional supplements has resulted in a large number
of competitors in the marketplace. We compete with large, nationally known
manufacturers such as Country Life, NBTY, Nature's Way, Solgar, Country Life,
Natrol, Twinlab (recently purchased by IdeaSphere, Inc.), Nature's Plus, NOW
Foods and Nutraceutical International Corporation, among others, as well as many
smaller manufacturers and distributors of nutritional supplements. Private label
products also provide competition to our products. Many of our competitors have
greater access to capital and may be better able to withstand volatile market
conditions. In addition to competition from other companies in the VMS (vitamin,
mineral and supplement) product sector, we experience competition from other
sectors of the nutrition industry, including from the functional food sector.
Functional foods include breakfast cereals, fortified breads,
cholesterol-lowering margarines, and yogurt drinks, among others.

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      Also, as mentioned above under "Industry Overview," the nutritional
supplement industry experiences competition from members of the pharmaceutical
industry as continuing attempts are made to increase regulation of dietary
supplements. Such increased regulation, whether foreign or domestic, could
result the ban of many products (approximately 5,000 in nations regulated by the
European Union Food Supplements Directive) currently available to consumers
through health food stores and other distribution outlets as ingredients or
products are reclassified as drugs that must be produced by drug companies.

      We believe that the Company competes favorably with other VMS companies
because of its reputation for the quality and efficacy of its products as well
as for its comprehensive line of products. We offer approximately 270 different
vitamin and nutritional supplement products with varying degrees of potency and
in a variety of forms (including capsules, liquids, powders, softgels and
tablets). We believe that our ability to offer a broad range of high quality
products with diversity of form and potency is an important factor in our
ability to obtain market share in a highly competitive industry. In addition, we
have identified professionals and distributors as our primary market, believing
that we can build up our reputation for quality and efficacy through these
sources rather than concentrating our efforts on mass market sales in
competition with larger companies that have better resources and brand
recognition even if many of their product lines are of lower quality than ours.

      Some of our competitors in the health and nutritional supplement business,
may be 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.

MARKET STRATEGIES

      We have divided sales into multiple market channels:

      o   Healthfood stores and professional accounts - Physicians,
          nutritionists, chiropractors and health care professionals (43%).

      o   Distributor accounts - Sales to distributors (to be resold to the
          professional or retail markets) (44%).

      o   Retail accounts - Direct sales to consumers (13%).

      The Company markets its products under two brands, NutriCology(R) and
Allergy Research Group(R). Both brands offer a complete range of products,
including multivitamins, single-entity vitamins, minerals and nutritional
supplements, including herbal products. The NutriCology(R) brand is sold to
retail stores and consumers directly, while the Allergy Research Group(R) brand
is sold primarily to the professional market only.

      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, health-oriented radio talk
shows, direct sales to health food stores and pharmacies, and direct catalog
sales to consumers. Our direct sales team currently consists of one contracted
sales representative covering a critical territory and market. This sales
representative, combined with internal support staff, is focused on informing
existing customers of our newest products. We are actively recruiting for an
additional sales/marketing staff position. Through a combination of direct
telemarketing, the Company's scientific newsletter "Focus," and extensive market
specific mailings, we anticipate increased sales over the next year.

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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"), and 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.

      The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was
enacted in October 1994. DSHEA revised the provisions of the Federal Food, Drug
and Cosmetic Act (the "FFDC Act") concerning the composition and labeling of
dietary supplements. The legislation created a new statutory class of "dietary
supplements," including vitamins, minerals, herbs, amino acids and other dietary
substances for human use to supplement the diet.

      Prior to the enactment of DSHEA, dietary supplements were subject to the
same regulatory requirements as other foods. Under DSHEA, manufacturers of
dietary supplements became responsible for determining that the dietary
supplements they manufactured are safe and that any representations or claims
made about them are substantiated by adequate evidence to show that they are not
false or misleading. As a result, dietary supplements do not require approval
from the FDA before they are marketed. Except where the manufacturer is
introducing a new dietary ingredient, where pre-market review for safety data
and other information is required, a manufacturer does not have to provide the
FDA with this evidence either before or after it markets its products. In
addition, dietary supplements do not require FDA registration prior to
production or sale. As indicated above, the manufacturer does, however, have to
notify the FDA if it intends to market a dietary supplement in the U.S. that
includes a new dietary ingredient. In that case, the manufacturer must
demonstrate why the ingredient is reasonably expected to be safe for use in
dietary supplements unless the ingredient has already been recognized as a food
substance and is present in the U.S. food supply.

      DSHEA has come under attack as a result of negative publicity surrounding
some herbal products, such as ephedra, and new legislation is being proposed in
both the Senate and House of Representatives that could result in significantly
greater regulation of the VMS industry. At least one of the proposals would
impose pre-market approval processes for dietary supplements. The industry has
formed a coalition comprised of dietary supplement manufacturers, industry trade
associations and other supporters to help defeat challenges to DSHEA. However,
at this time, we cannot predict with any certainty what those changes will be or
the impact on the Company's business or results of operations. A proposal now
being considered in Congress, spearheaded by Senator Orrin Hatch and a
bipartisan coalition of his colleagues in the United States Senate, would
require dietary supplement manufacturers to report any serious adverse events,
such as a hospitalization or persistent or significant disability related to the
consumption of dietary supplements, to the Food and Drug Administration (FDA).

      Under DSHEA, another important tool of FDA's regulatory and surveillance
activities to help ensure the safety of dietary supplement products is the
Agency's authority to promulgate regulations for dietary supplement current good
manufacturing practices (cGMPs). During March 2003, the FDA issued proposed CGMP
regulations for dietary ingredients and dietary supplements. These rules were
submitted to the Office of Management and Budget for review in October 2005,
normally a 90 days process, and are expected to be adopted in the near future.
The new rules will establish new standards or CGMPs to help reduce the risk
associated with adulterated or misbranded dietary supplements, as well as
establish industry-wide standards necessary to ensure that dietary supplements
are manufactured consistently as to identify purity, quality, strength and
composition. The rules also contain requirements for the design and construction
of physical plants, and establish quality control procedures and procedures for
testing manufactured dietary ingredients and dietary supplements. Finally, the
rules include requirements for maintenance of records and handling of consumer
complaints related to the CGMPs.

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<PAGE>

      The rules are designed to cover all types of dietary supplements. However,
recognizing that the new rules, if adopted, would have a greater economic impact
on small businesses, the FDA included a three-year phase-in period for small
businesses. As a result, businesses with fewer than 500 employees would not be
required to be in complete compliance with the new regulations until three years
after they become effective.

      The FDA also indicated that it would increase regulation of new dietary
ingredients. Currently, manufacturers are required to provide pre-market safety
notifications for new dietary ingredients ("NDIs") to the FDA 75 days before a
product containing the ingredient is introduced to the market. The FDA indicated
that it will increase enforcement of the notification requirements. A dietary
supplement that contains an NDI is deemed to be adulterated unless one of the
two following conditions is met: (a) the supplement must contain only dietary
ingredients that have been presented in the food supply as an article used for
food in a form in which the food has not been chemically altered, or (b) there
is a history of use or other evidence of safety establishing that the
ingredient, when used under the conditions recommended or suggested in the
labeling of the dietary supplement, will reasonably be expected to be safe and
the manufacturer or distributor has provided the FDA with information, including
citations of published articles, upon which its assertion that product is
reasonably expected to be safe is based. The expansion of the NDI list or
notification requirements could increase costs or delay product introduction.

      Products marketed by the Company are classified as dietary supplements
under the FFDC Act, and are therefore subject to DSHEA and, if adopted, the
proposed regulations. In addition to these regulations, state and federal
authorities under a number of disparate regulatory schemes have regulated
advertising and label claims for dietary supplements. 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 even beyond the
current proposals.

      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 amended the NLEA for dietary supplements 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 March 19, 2003, the FDA issued new security guidance documents to
ensure the safety and security of the U.S. food supply. The new guidance
documents are designed to reduce the risk of tampering or other malicious,
criminal or terrorist acts. The FDA also announced increased surveillance of
domestic and imported foods. The guidance documents were issued in response to
the increased risk of bioterrorism as a result of the "War on Terrorism" and the
U.S. invasion of Iraq. The new guidance documents and heightened surveillance
are part of Operation Liberty Shield, a comprehensive national plan designed to
increase protections for U.S. citizens and infrastructure while maintaining the
free flow of goods with minimal disruption to the economy or American way of
life. The FDA guidance documents are not regulations and are not mandatory, but


                                       8
<PAGE>

they do provide FDA recommendations, which are generally followed throughout the
industry. It is unclear what, if any, impact compliance with the guidance
documents by firms that produce, process, distribute, pack or transport food
ingredients has had on the dietary supplement industry.

      In November 25, 2005, the Health Freedom Protection Act ("HFPA") was
introduced in Congress as House of Representatives Bill No. 4282. The HFPA would
amend the Federal Food Drug and Cosmetic Act ("FFDCA") to provide that a dietary
supplement is not a drug solely because the label contains certain claims to
cure, mitigate, treat or prevent disease. If enacted, the bill would amend the
FFDCA to prevent the Secretary of Health and Human Services from prohibiting
manufacturers from characterizing the relationship of a particular nutrient to
the cure, mitigation, treatment or prevention of a disease unless it can prove
that (1) there is no scientific evidence that supports the claim and that (2)
the claim is inherently misleading and incapable of being rendered nonmisleading
through the addition of a disclaimer. The HFPA amendment would allow statements
for a dietary supplement to include words that are recognized as signs or
symptoms of a disease so long as the statement does not include the name of the
specific disease (with no more than a three sentence disclaimer), and would
allow the reprinting and distribution or sale of all or parts of U.S. government
publications, including content concerning nutrients and disease treatment or
prevention. The HFPA would also amend the Federal Trade Commission Act to allow
as advertising (a) government publications exempted from reprinting or
distribution restrictions under the FFDCA, or (b) accurate summaries of
scientific publications. The burden of proving that such an advertisement for a
dietary supplement or ingredient is false and misleading would be on the Federal
Trade Commission.

      Governmental regulations in foreign countries where the Company plans to
commence or continue/expand sales may prevent or delay entry into the market or
prevent or delay the introduction, or require the reformulation, of certain of
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.

      The European Union Food Supplements Directive is scheduled to go into full
effect in Europe in December 2009. The Directive will control food supplement
sales and manufacturing in 25 nations. Among other restrictions, the law (a)
will allow only certain vitamins and minerals to be sold and will limit potency
levels to one to three times the Recommended Daily Allowance ("RDA"), (b) will
outlaw many popular nutrients such as chromium picolinate, and (c) will outlaw
entire product categories such as amino acids. However, the actual levels have
not yet been set and we are unable, at this point, to estimate the impact of the
Directive on the market for our products in the Community. The international
industry has seen a recent movement toward more restrictive controls over
dietary supplements both in the Community and in other markets where are
products are sold, such as New Zealand.

      The Codex Committee on Nutrition and Foods for Special Dietary Uses
("CCNFSDU") began discussions on guidelines for vitamin and mineral supplements
in the 1990's. In July 2005, the Codex Alimentarius Commission adopted
GUIDELINES FOR VITAMIN AND MINERAL FOOD SUPPLEMENTS (the "Guidelines"). The
Guidelines only apply to supplements that contain vitamins and minerals that are
regulated as foods. The Guidelines provide criteria for establishing maximum
amounts of vitamins and minerals per daily portion of the supplement as
recommended by the manufacturer. They also address the packaging and labeling of
supplements. The restrictions are expected to lower the dosage of
U.S.-manufactured products to standards set by foreign jurisdictions.

      Although the FDA has stated that the Codex guidelines will not affect the
availability of supplement products to U.S. consumers, the United States is a
member of the World Trade Organization ("WTO") and a refusal to harmonize U.S.
laws to the guidelines could result in a finding by the WTO dispute resolution
panel that the U.S. is engaging in unfair trade practices. In the event of such
a finding, the United States could become subject to sanctions in the form of


                                       9
<PAGE>

tariffs and pressure will be on Congress to harmonize U.S. standards with those
adopted by the WTO. In the event U.S. laws are not harmonized to Codex, we would
likely experience increased competition in countries that do as a result of
dosage restrictions that would require U.S. manufacturers to lower dosages in
order to market products in those jurisdictions.

      In 2003, U.S. Senator Richard Durbin introduced a bill to Congress that
would require manufacturers of dietary supplements, and each packer or
distributor whose name appears on the label for the supplement, to report
serious adverse experiences to the Secretary of Health and Human Services and to
investigate such occurrences. The bill defined a "serious adverse experiences"
as adverse events associated with the use of a supplement in a human that
involves death or one of other serious calamities. Under current law,
manufacturers report such events voluntarily, and the FDA is required to prove
that the supplement or ingredient is unsafe prior to removing it from the
market. Senator Durbin's bill proposed to cause manufacturers to submit proof of
safety if the FDA has received a report of an adverse experience. Senator
Durbin's bill has been opposed by Senators Orrin Hatch and Tom Harkin, who
originally proposed the legislation that led to DSHEA.

      In the evaluation of adverse event reports, it is very difficult and
sometimes impossible to determine whether there is a true relationship between
the event reported and the product believed to be associated with it. Clinical
data and additional research are required to establish any connection between
the reported event and the product. Currently, Senator Hatch has agreed to work
with Senator Durbin to reach some compromise with respect to adverse event
reporting requirements and a proposal, which has not yet been numbered, has been
introduced in Congress. Senator Hatch has taken the position that, since most
supplements are safe and many manufacturers already voluntarily report adverse
experiences, legislation that would require adverse event reporting as to
serious events only would not be overly burdensome on the industry and a
standardized process with clear rules would let manufacturers know what to
expect. The definition of what constitutes a "series adverse experience" is
still under debate, however, and we believe that any bill which would not
require the report to be backed by medical evidence of a relationship between
the event and the product prior to removal of the product from the market, or
would include a broad definition of what events are to be reported, would have a
serious adverse effect on the industry.

      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 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 currently manufacture pharmaceuticals and nutraceutical
products through the Company, but only conduct literature work and patent
applications for potential products, we do not currently 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.

                                       10
<PAGE>

EMPLOYEES

      As of the date of this report, the Company employs 28 full-time and three
part-time employees. The Company does not have any collective bargaining
agreements with its employees and we believe our employee relations are good.

INTELLECTUAL PROPERTY

      Our 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 14
trademark registrations with the United States Patent and Trademark Office,
including for 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, we have obtained no
patents for our vitamin and nutritional supplement products. However, we have
been granted one patent for the treatment of ITP, idiopathic thrombocytopenia,
which is a common bleeding malady. The related research could lead to a strict
pharmaceutical product with patent protection.

AVAILABLE INFORMATION

      Copies of the Company's Form 10-KSB and proxy statement may be obtained by
notifying the Company in writing at its physical address. The public may also
read and copy any materials filed with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549, or through the SEC
website at www.sec.gov. The Public Reference Room may be contact at (800)
SEC-0330. We post a link to all Section 16 reports filed with the SEC on our
website at www.allergyresearchgroup.com. You may also access our other reports
via that link to the SEC website.

ITEM 2. DESCRIPTION OF PROPERTY

      We moved to a new facility during February 2005. Our new main
administrative office and warehouse is located in Alameda, California and is
leased from AriBen Corporation, a California corporation that is wholly-owned by
the Company's Chief Executive Officer and Chief Financial Officer, Dr. Stephen
Levine, and its Secretary, Susan Levine. These facilities consist of
approximately 29,821 square feet of office and warehouse space. The lease, which
has a term of ten years with options to renew for two subsequent periods of ten
and five years, respectively, has a base monthly rent of $24,000 for the initial
period, $30,000 for the first option period and $35,000 for the second option
period. Rent will be adjusted annually during the second five years of each
10-year lease period based on the consumer price index, with a minimum increase
of three percent. No security deposit was required under the lease. Our new
facility will provide a more geographically beneficial location, closer to our
existing and potential workforce, and the facility can accommodate internal
manufacturing, greater quality control and expansion better than the Company's
prior facility.

ITEM 3. LEGAL PROCEEDINGS

      On July 28, 2005, we were served with a 60-day Notice of Violation of the
California Safe Drinking Water and Toxic Enforcement Act of 1986 (the
"Enforcement Act"), claiming that certain of our products were required to bear
California-specific labels regarding the health risks of certain ingredients.
The California Women's Law Center of Los Angeles, California ("CWLC") served the
notice. Notice was also served on the California Attorney General's Office, the
attorney generals of the various California counties, the district attorneys and


                                       11
<PAGE>

the city attorneys of various cities, which have the authority to bring a civil
action to enjoin the further distribution of any product found to be in
violation of the Enforcement Act and to request that a civil penalty of up to
$2,500 per day for each violation be levied against the Company. When no civil
action was brought by one of these government authorities within the 60-day
period following the notice, CWLC was allowed to bring a civil action itself. We
are currently involved in discussions with the CWLC and have reached a verbal
agreement for settlement. A loss provision of $18,000 has been recorded in the
financial statements. We have ceased all sales of the products in question and
will no longer offer for sale the products associated with the notice.

      In March 2006, the Company received a summons from the United States
District Court for the District of Colorado in an action filed by Pure Research
Products, LLC, a division of J.A. Sichel & Associates. The complaint alleges
that the Company violated certain trademarks and exclusive license rights held
by Pure Research Products, LLC during negotiations between the parties and
following the dissolution of those negotiations. The plaintiff in the action is
seeking various forms of injunctive relief against the Company as well as
damages to be proven at trial. The complaint includes a request for treble
damages in the event the plaintiff is successful. The Company intends to
vigorously defend itself against the allegations.

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

      No actions were submitted to a vote of the Company's shareholders during
the fourth quarter of its fiscal year ended December 31, 2005.


                                       12
<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 ("OTC")
Bulletin Board under the symbol "ALRG." The following table sets forth the
trading history of the Common Stock on the OTC Bulletin Board for each quarter
of fiscal years ended December 31, 2004 and 2005, and the partial period ended
March 10, 2006, as reported by Yahoo! Finance. The quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions.

                   Quarter              Quarter         Quarter
                   Ending                 High            Low
                  3/31/2004              $1.50           $0.73
                  6/30/2004              $1.25           $0.85
                  9/30/2004              $1.10           $0.85
                  12/31/2004             $1.14           $0.85
                  3/31/2005              $1.14           $0.93
                  6/30/2005              $1.05           $0.84
                  9/30/2005              $0.98           $0.84
                  12/31/2005             $0.97           $0.77
                  3/10/2006*             $1.12           $0.85

*Reflects partial period.

HOLDERS

      As of March 22, 2006, there were approximately 102 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

      We have never paid a cash dividend on our common stock. Payment of
dividends is at the discretion of the Board of Directors. To date, the Board of
Directors has elected to retain earnings for operations and has no current plans
to pay dividends in 2006.

RECENT SALES OF UNREGISTERED STOCK

      None.

                                       13
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

--------------------------------------------------------------------------------
                 (a)                  (b)                    (c)
--------------------------------------------------------------------------------

Plan category    Number of            Weighted-average       Number of
                 securities to be     exercise price of      securities
                 issued upon          outstanding            remaining
                 exercise of          options, warrants      available for
                 outstanding          and rights             future issuance
                 options, warrants                           under equity
                 and rights                                  compensation plans
                                                             (excluding
                                                             securities
                                                             reflected in
                                                             column (a))
--------------------------------------------------------------------------------
Equity
compensation
plans approved
by security
holders          333,750              $0.40                  616,750
--------------------------------------------------------------------------------
Equity
compensation
plans not
approved by
security
holders                0              $0.00                        0
--------------------------------------------------------------------------------
Total            333,750              $0.40                  616,750


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

INTRODUCTION

      Management's discussion and analysis of results of operations and
financial condition ("MD&A") is provided as a supplement to the accompanying
consolidated financial statements and footnotes to help provide an understanding
of our financial condition, changes in financial condition and results of
operations. The MD&A is organized as follows:

      o   CAUTION CONCERNING FORWARD-LOOKING STATEMENTS AND RISK FACTORS. This
          section discusses how certain forward-looking statements made by the
          Company throughout the MD&A and in the consolidated financial
          statements are based on our present expectations about future events
          and are inherently susceptible to uncertainty and changes in
          circumstances.

      o   FACTORS THAT COULD AFFECT FUTURE RESULTS. This section discusses
          factors and other variables affecting our operating results and
          cautions readers that past financial performance should not be
          considered a reliable indicator of future performance and investors
          should not use historical trends to anticipate results or trends in
          future periods.

      o   OVERVIEW. This section provides a general description of our business,
          as well as recent developments that we believe are important in
          understanding the results of operations, as well as to anticipate
          future trends in those operations.

                                       14
<PAGE>

      o   RESULTS OF OPERATIONS. This section provides an analysis of our
          results of operations for the years ended December 31, 2005 compared
          to 2004. A brief description is provided of transactions and events
          that impact the comparability of the results being analyzed.

      o   LIQUIDITY AND CAPITAL RESOURCES. This section provides an analysis of
          our financial condition and cash flows as of and for the year ended
          December 31, 2005.

      o   CRITICAL ACCOUNTING POLICIES. This section provides an analysis of the
          significant estimates and judgments that affect the reported amounts
          of assets, liabilities, revenues and expenses, and related disclosure
          of contingent assets and liabilities.

      o   RECENT ACCOUNTING PRONOUNCEMENTS. This section summarizes accounting
          pronouncements issued throughout the year and indicates any potential
          impact on the Company.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS

      The following discussion should be read in conjunction with the 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 our control. We do not undertake to publicly
update or revise any of our forward-looking statements even if experience or
future changes show that the indicated results or events will not be realized.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. You are also urged to
carefully review and consider our discussions regarding the various factors that
affect our business, included in this section and elsewhere in this report.

FACTORS THAT COULD AFFECT FUTURE RESULTS

      We face an inherent risk of exposure to product liability claims in the
event that the use of our products results in injury. Such claims may include,
among others, that our products contain contaminants or include inadequate
instructions as to use or inadequate warnings concerning side effects and
interactions with other substances. We do not anticipate obtaining contractual
indemnification from parties supplying raw materials or marketing our products.
In any event, any such indemnification if obtained would be limited by our terms
and, as a practical matter, to the creditworthiness of the indemnifying party.
In the event that we do not have adequate insurance or contractual
indemnification, product liabilities relating to defective products could have a
material adverse effect on our operations and financial conditions.

      Because of our dependence upon consumer perceptions, adverse publicity
associated with illness or other adverse effects resulting from the consumption
of our products or any similar products distributed by other companies could
have a material adverse effect on our operations. Such adverse publicity could
arise even if the adverse effects associated with such products resulted from
consumers' failure to consume such products as directed. In addition, we may not
be able to counter the effects of negative publicity concerning the efficacy of
our products. Any such occurrence could have a negative effect on our
operations.

                                       15
<PAGE>

      Other key factors that affect our operating results are as follows:

      o   Overall customer demand for our various products.
      o   Volume of products ordered.
      o   Mix of products purchased by our customers.
      o   Prices at which we sell our products.
      o   Our ability to manage our cost structure for capital expenditures and
          operating expenses such as salaries and benefits, freight and
          royalties.
      o   Our ability to match operating costs to shifting volume levels.
      o   Increases in the cost of raw materials and other supplies.
      o   The impact of competitive products.
      o   Adequacy and availability of insurance coverage.
      o   Limitations on future financing.
      o   Increases in the cost of borrowings and unavailability of debt or
          equity capital.
      o   Our inability to gain and/or hold market share.
      o   Exposure to and expense of resolving and defending product liability
          claims and other litigation.
      o   Consumer acceptance of our products.
      o   Managing and maintaining growth.
      o   Customer demands.
      o   Market and industry conditions including pricing, demand for products,
          levels of trade inventories and raw materials availability.
      o   The success of product development and new product introductions into
          the marketplace.
      o   Slow or negative growth in the nutritional supplement industry.
      o   The departure of key members of management.
      o   Our ability to efficiently manufacture our products.
      o   Unexpected customer bankruptcy.
      o   The implementation of SFAS 123R in relation to accounting for
          stock-based compensation.

OVERVIEW

      BUSINESS DESCRIPTION. We strive to be an innovative leader in
nutraceutical research and product formulation. Since 1980, we have produced
quality, hypoallergenic nutritional supplements and supplied products to
physicians and health care practitioners worldwide. We develop, contract
manufacture, market and sell our own brands, including vitamins and nutritional
supplements, throughout the world under the NutriCology(R) and Allergy Research
Group(R) labels. Our products are distributed through distributors, to medical
and professional accounts, retail stores and consumers directly. We offer a line
of approximately 270 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. We also distribute certain third-party manufactured products under our
labels. These products account for approximately 20% of all products offered by
the Company. Our principal executive offices are located at 2300 North Loop
Road, Alameda, California 94502 and our telephone number is (800) 545-9960.

      FUTURE OPERATIONS. The success of our future operations will depend to a
great extent on the operations, financial condition, and management of the
Company. We intend to expand our position in the vitamin and nutritional
supplements markets. Specifically, our strategy continues to be to: (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)
continue to improve upon our comprehensive e-commerce plan. We believe that our
history and reputation in the field, multiple distribution channels, broad
portfolio of products and packaging and distribution capabilities position us to
be a long-term competitor in the vitamin and nutritional supplements industries.

                                       16
<PAGE>

      The Company is still collaborating with several entrepreneurs of
cutting-edge science-based products, who have limited resources to bring their
products to market. We look towards working partnerships and/or acquisition of
these businesses to broaden our product line of innovative nutraceuticals. There
is potential for real growth in sales and profit while providing products that
promote general health. The Company's distribution channel to the medical and
professional-practitioners market is key to the successful introduction of
unique products.

RESULTS OF OPERATIONS

      Please refer to the consolidated 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, 2005 COMPARED TO DECEMBER 31, 2004

      REVENUES. During the fiscal year ended December 31, 2005, we had net sales
of $15,911,221, representing an increase of $774,629 from net sales of
$15,136,592 during fiscal year ended December 31, 2004. The overall increase of
5% was driven by increased sales to our distributors and professional accounts,
whereas sales to our retail customers, who account for approximately 13% (2004:
15%) of our total sales, decreased. The overall increase in sales is primarily
the result of the introduction of new products and effective marketing efforts.
We are planning additional promotional activities with selected major accounts
in 2006.

      COST OF SALES. Cost of sales increased $978,215 to $9,645,293 for the year
ended December 31, 2005, compared to $8,667,078 for the year ended December 31,
2004. The increase in cost of sales corresponds with the increase in sales
compounded by increased cost of materials, which we experienced due to the
demand of certain raw ingredients exceeding the supply in the market place and
because of the weakening U.S. dollar. In addition, we incurred approximately
$50,000 in product testing costs during the twelve months ending December 31,
2005 compared to approximately $23,000 for the same period last year. We are
making a concerted effort to determine that our manufacturers are maintaining
the high standards we and our customers expect. Gross profit margins for 2005
were approximately 39%, a decrease of 4% from approximately 43% in 2004. The
decrease of 4% for the period over period comparison is a result of increased
cost of materials that have not been passed on to our customers in order to
preserve our customer base and to respond to pricing pressures from competitors.
Additionally, high margin sales directly to retail customers have decreased,
whereas lower margin sales to distributors have increased. Despite these market
pressures and after careful consideration of gross margins by product line, we
felt compelled to raise the prices on several items in January 2006 in order to
remain competitive.

      OPERATING EXPENSES. Total operating expenses increased by approximately
$183,403 or 4% to $4,464,523 for the year ended December 31, 2005. We incurred
higher expenses due to increases in wages and associated payroll tax, rent for
our new facility (we paid for rent in two locations in February to facilitate
the move), additional insurance and property tax associated with the new
building, in addition to the cost of the move itself, increased mailings of
promotional materials, and increased legal fees resulting from the threatened
litigation associated with the Notice of Violation of the California Safe
Drinking Water and Toxic Enforcement Act of 1986 discussed in the Legal
Proceedings section above in Part I, Item 3. Offsetting these increases was a
reduction in the bonuses paid to officers and the reversal of a loss provision
associated with a lawsuit that was settled during 2003. We were awarded a
$250,000 settlement and a Florida lawyer asserted a lien claim for 35% of the
proceeds, plus costs of $64,000. The Florida lawyer did not prevail in his
assertion regarding the lien and the accrual for the settlement of $151,500 was
reversed during the second quarter ending June 30, 2005.

                                       17
<PAGE>

      INTEREST EXPENSE. There was no interest expense incurred during 2004 or
2005 because the line of credit was not used.

      INCOME TAXES. As of December 31, 2005 and 2004 we accrued $34,262 and
$104,960, respectively, of income tax payable and recognized a provision for
income tax expense of $656,853 and $930,661, respectively. As of December 31,
2005, we prepaid $107,193 of California income tax. As of December 31, 2005, our
parent company had approximately $250,000 in state net operating loss
carryforwards which expire principally in 2007, and have not been recognized as
we deem it unlikely that income will be generated at the parent company level.

      NET INCOME. During the period ended December 31, 2005, we recorded net
income of $1,208,869, as compared to net income of $1,282,736 for the period
ended December 31, 2004. The overall decrease is due to the decrease in gross
profit compounded by the increase in operating expenses offset by a decrease in
income tax expense.

      EARNINGS PER SHARE. Earnings per share have decreased to $0.08 per share
for the year ended December 31, 2005, versus $0.09 per share for the same period
in 2004.

LIQUIDITY AND CAPITAL RESOURCES

      For the past five years combined we have generated aggregate net income of
$5,459,794. We believe that we will continue to generate net income so long as
we continue to generate sales at the current level, and we are currently
financing our operations through cash generated by operating activities.

      We currently do not utilize any off-balance sheet financing arrangements.

      FISCAL YEAR ENDED DECEMBER 31, 2005 COMPARED TO DECEMBER 31, 2004

      Cash Flows

      OPERATING ACTIVITIES. Net cash flow provided by operating activities was
$842,489 and $417,573 for the years ended December 31, 2005 and 2004,
respectively. Net cash provided by operating activities for both periods
primarily reflects net income and net changes in operating assets and
liabilities such as accounts receivable, inventory and accounts payable. Cash
generated by operating activities for 2005 is explained by an increase in
accounts receivable due to increased sales and an increase in inventory levels
due to rising prices and a modest increase in new products available for sale
offset by an effort to decrease the carrying cost of inventory and the reduction
in liability accounts such as accounts payable and accrued liabilities as the
Company took advantage of vendor discounts offered and primarily paid its
liabilities before they were due. Cash generated by operating activities for
2004 is predominately explained by increases in inventory levels as we built up
inventories to respond to forecasted demand for our products from the prior
year's fourth quarter.

      INVESTING ACTIVITIES. Net cash flows used in investing activities during
2005 was $502,303 primarily resulting from purchases of leasehold improvements
and upgrades to our manufacturing and office equipment offset by repayments from
officers for an outstanding loan. Net cash flows provided by investing
activities during 2004 resulted from repayments from outstanding loans from
officers, offset by the acquisition of computer equipment and software.

                                       18
<PAGE>

      FINANCING ACTIVITIES. Net cash flows provided by financing activities were
$2,000 and $9,800 in 2005 and 2004, respectively, representing cash proceeds
from the exercise of employee stock options during the year.

      Current Financial Condition/Risk Analysis

      At December 31, 2005, the Company had positive working capital of
$5,757,619, compared to working capital at December 31, 2004 of $4,960,277.
Working capital increased as a result of our cash flows generated from operating
activities, which has increased our cash position and allowed us to minimize
outstanding liabilities. Approximately 88% of both our account receivables and
current liabilities are due within 60 days or less. We have focused our cash
management efforts on actively managing our receivables and payables. We finance
our inventory and accounts receivable through income from operations. We have a
line of credit available if income from operations should fail to provide the
financing needed. If customer demand should drop off due to such factors as
pricing pressures imposed by competitors, customer bankruptcies or some other
unforeseen circumstances, our access to funds may be restricted.

      During 2005, we experienced a concentration of approximately 42% of our
manufacturing with three separate vendors (concentration ranging from 10% to 20%
with each individual vendor.) We do not currently have written contracts with
any of our manufacturers, but rely on long-term personal and professional
relationships. We believe that we have good relations with all of our current
manufacturers and suppliers. We believe that, due to the large number of
businesses performing this type of service in the industry, we would have little
difficulty in finding viable alternatives in the event any one of these vendors
became unable or determined not to continue manufacturing our products; however,
we can offer no guarantees that we would be able to replace these manufacturers
and bring them up to speed on our products without at least a temporary
disruption in the manufacturing and distribution process. Because we do not have
written agreements with our manufacturers, we also have no rights of indemnity
with respect to the products manufactured by them in the event a claim is
brought against the Company based on the effects of those products.

      Approximately 12% of our total sales in 2005 (2004: 11%) were attributable
to the same distributor. In the event we were to lose that account, we
anticipate that we would be able to convert the business to sell directly to 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; however, we can offer no guarantee the extent to which these customers
would begin to purchase products directly from the Company.

      Our future funding requirements will depend on numerous factors, some of
which are beyond our control. These factors include the Company's ability to
operate profitably, to recruit and train management and personnel, and to
compete with other, better capitalized and more established competitors who
offer alternative or similar products. We believe that, given our positive
working capital position, we can satisfy our cash requirements over the next
twelve months from operations if we continue to operate at a profit. Our capital
resources and liquidity are expected to be provided by the Company's cash flow
from operations.

      The U.S. economy has been adversely affected by past terrorist activities
and the threat of future activities and current military actions in Iraq and
Afghanistan, and other potential military action. Any economic downturn
resulting from such activities could adversely impact our results of operations,
impair our ability to raise capital, or otherwise adversely affect our ability
to grow our business. In response to these activities and potential activities,
on March 19, 2003, the FDA issued four new security guidance documents designed
to step-up the inspection of foods and food ingredients entering or present
within the U.S. Although these guidance documents are not mandatory, they


                                       19
<PAGE>

represent the recommendations of the FDA, which are generally followed in the
food industry. As yet, it is unclear what effect, if any, the compliance with
these guidance documents by members of the food industry has had on the dietary
supplement industry. Certain dietary ingredients may also represent food
ingredients that are subject to these types of inspections. Although the
guidance documents are part of Operation Liberty Shield, which is designed to
minimize impact to the economy, the increased surveillance of domestic and
imported foods may result in delays and/or increased expenses in the food
industry and indirectly affect our business operations.

In addition, the FDA is in the process of adopting current good manufacturing
practice (CGMP) regulations for dietary ingredients and dietary supplements. The
new rules will establish new standards or CGMPs to help reduce the risk
associated with adulterated or misbranded dietary supplements, as well as
establish industry-wide standards necessary to ensure that dietary supplements
are manufactured consistently as to identify purity, quality, strength and
composition. The new rules also contain requirements for the design and
construction of physical plants, and establish quality control procedures and
procedures for testing manufactured dietary ingredients and dietary supplements.
Finally, the rules include requirements for maintenance of records and handling
of consumer complaints related to the CGMPs. We are not currently able to
predict the cost of complying with these new standards. As a small business, we
should qualify for a three-year implementation process, which will allow us to
spread the cost. However, we cannot predict with certainty any impact of such
costs on our results of operations or financial condition. The FDA estimates
that the proposed rule will have a significant impact on small businesses under
the Regulatory Flexibility Act, with small business bearing a proportionately
larger cost than large businesses.

      Our line of credit with Merrill Lynch Working Capital Management Account
will expire on November 30, 2006. In the event we were unable to renew or obtain
a new line of credit with this or another banking facility, we may not be able
to allow for unexpected or emergency expenses which may arise during the course
of our operations. In that event, we may be required to raise additional capital
through the sale of equity or debt instruments, and we can offer no guarantee
that such financing would be on terms favorable to the Company or that such
financing would be available to the Company as needed.

      CONTRACTUAL OBLIGATIONS. Our Contractual Obligations and Commercial
Commitments are detailed below:

<TABLE>
<CAPTION>
                                                   Payments Due by Period
                                --------------------------------------------------------------
                                                Less
         Contractual                           Than 1        1-3          4-5        After 5
         Obligations               Total        Year        Years        Years        Years
  ---------------------------   ----------   ----------   ----------   ----------   ----------
  <S>                           <C>          <C>          <C>          <C>          <C>
  Line of Credit(1)                     --           --           --           --           --
  ---------------------------   ----------   ----------   ----------   ----------   ----------
  Capital Lease
  Obligations                           --           --           --           --           --
  ---------------------------   ----------   ----------   ----------   ----------   ----------

  Operating Leases(2)           $2,628,000   $  288,000   $  864,000   $  576,000   $  900,000
  ---------------------------   ----------   ----------   ----------   ----------   ----------

  Purchase Obligations(3)       $1,305,469   $1,305,469           --           --           --
  ---------------------------   ----------   ----------   ----------   ----------   ----------
  Total Cash Contractual
  Obligations                   $3,933,469   $1,593,469   $  864,000   $  576,000   $  900,000
  ---------------------------   ----------   ----------   ----------   ----------   ----------
</TABLE>

(1)      This represents our borrowings under the line of credit with Merrill
         Lynch, which had a zero balance as December 31, 2005 and through the
         date of this filing. The Merrill Lynch line of credit provides for
         maximum financing of $1,500,000, bearing interest at the London


                                       20
<PAGE>

         Interbank Offered Rate (LIBOR) plus 2.75%, computed on a monthly basis.
         As of December 31, 2005, the interest rate on the line of credit was
         7.13% per annum. Because the line of credit is secured by substantially
         all of the assets of the Company, if we were to fall into default under
         the terms of our agreement with Merrill Lynch it could have material
         adverse impact on our business and financial position. The CEO of the
         Company has personally guaranteed the line of credit.
(2)      Represents our new Alameda, California location lease with AriBen
         Corporation, a related party. See "Related Party Transactions" under
         Item 12.
(3)      Represents outstanding purchase orders for inventory.

CRITICAL ACCOUNTING POLICIES

      Our discussion and analysis or plan of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those related to bad debts,
inventories, intangible assets, income taxes and contingencies. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

      We believe the following critical accounting policies reflect our more
significant estimates and assumptions used in the preparation of the
consolidated financial statements.

      INCOME TAXES

      We record a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. We have considered future
market growth, forecasted earnings, future taxable income, the mix of earnings
in the jurisdictions in which we operate, and prudent and feasible tax planning
strategies in determining the need for a valuation allowance. In the event we
were to determine that we would not be able to realize all or part of our net
deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to earnings in the period in which we make such determination.
Likewise, if we later determine that it is more likely than not that the net
deferred tax assets would be realized, we would reverse the applicable portion
of the previously provided valuation allowance. In order for us to realize our
deferred tax assets we must be able to generate sufficient taxable income in the
tax jurisdictions in which the deferred tax assets are located.

      ALLOWANCE FOR DOUBTFUL ACCOUNTS

      We evaluate the collectibility of our trade receivables based on a
combination of factors. We regularly analyze our significant customer accounts
and, when we become aware of a specific customer's inability to meet its
financial obligations to us, such as in the case of bankruptcy filings or
deterioration in the customer's operating results or financial position, we
record a specific reserve for bad debt to reduce the related receivable to the
amount we reasonably believe is collectible. The allowances are calculated based
on detailed review of certain individual customer accounts, historical rates and
an estimation of the overall economic conditions affecting our customer base. We
review a customer's credit history before extending credit. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The
accounting effect of this entry would be a charge to income, thereby reducing
our net earnings. Although we consider the likelihood of this occurrence to be
remote, based on past history and the current status of our accounts, there is a
possibility of this occurrence.

                                       21
<PAGE>

      INVENTORY

      Our inventory purchases and commitments are made in order to build
inventory to meet future shipment schedules based on forecasted demand for our
products. We perform a detailed assessment of inventory for each period, which
includes a review of, among other factors, demand requirements, product life
cycle and development plans, component cost trends, product pricing and quality
issues. Based on this analysis, we record adjustments to inventory for excess,
obsolescence or impairment, when appropriate, to reflect inventory at net
realizable value. Revisions to our inventory adjustments may be required if
actual demand, component costs or product life cycles differ from our estimates.
The accounting effect of this entry would be a charge to income, thereby
reducing our net earnings. Although we consider the likelihood of this
occurrence to be remote, there is a possibility of this occurrence.

RECENT ACCOUNTING PRONOUNCEMENTS

      The Financial Accounting Standards Board issued the following accounting
pronouncement during 2005:

      In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections". SFAS No. 154 replaces APB Opinion No. 20 "Accounting Changes" and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". SFAS
No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. The adoption of SFAS No. 154 will not have any impact on the Company's
consolidated financial statements.

      In December 2004, the FASB issued SFAS No. 123R (revised 2004)
"Share-Based Payment" which amends FASB Statement No. 123 and will be effective
for public companies (small business issuers) for interim or annual periods
beginning after December 15, 2005. SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The Company adopted the
new standard as of January 1, 2006. Based on the Company's evaluation of the
adoption of the new standard, the Company believes that it could have a
significant impact to the Company's financial position and overall results of
operations depending on the number of stock options granted in a given year.

ITEM 7. FINANCIAL STATEMENTS

      Please see our audited consolidated financial statements for the year
ended December 31, 2005, attached hereto.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

      None.

ITEM 8A. CONTROLS AND PROCEDURES

      As of the end of the period covered by this report, the Company conducted
an evaluation, under the supervision and with the participation of the principal
executive officer, who is also the principal financial officer, of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this
evaluation, the principal executive officer/principal financial officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms. There was no change in the Company's internal
control over financial reporting during the Company's most recently completed
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.


                                       22
<PAGE>

                                    PART III

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

OFFICERS AND DIRECTORS

      The management and directors of the Company's business activities are
under the control of its Board of Directors. Our Chief Executive Officer,
Stephen Levine, Ph.D., manages the Company's daily operations along with our
President, Manfred (Fred) Salomon. The Company currently has three directors.
The following table provides information regarding each of our officers and
directors, including positions held.

    NAME                       POSITION HELD(1)
    ----                       ----------------
    Stephen Levine, Ph.D.      Chief Executive Officer, Chief Financial Officer,
    2300 North Loop Road       and Chairman of the Board
    Alameda, CA 94502

    Manfred (Fred) Salomon     President
    2300 North Loop Road
    Alameda, CA  94502

    Susan Levine               Vice-President, Secretary, Director
    2300 North Loop Road
    Alameda, CA 94502

    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. (56) 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 the interim CEO.
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. In addition to these various roles, Dr. Levine is solely
responsible for all scientific research and development of new products. He has
been involved in the nutraceutical industry for over 25 years and is in a unique
position to receive invaluable scientific information from the nutraceutical
community. His network of associates includes renowned medical doctors,
researchers and industry leaders. 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 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 the Chief Executive Officer and Chief
Financial Officer. Dr. Levine is the author of AntiOxidant Adaptation, Its Role
in Free Radical Pathology. Dr. Levine's reputation and talent in the industry
are world-renowned. Dr. Levine is the husband of Susan Levine, who acts as
Vice-President and Secretary of the Company.

                                       23
<PAGE>

      FRED SALOMON (67) has served as President since August 12, 2003. He was
hired in 2002 to fill the role of Director of Operations. Mr. Salomon is
responsible for the daily operation of the business. He oversees all aspects of
day-to-day operations. He also works with Ms. Levine on marketing concerns. Mr.
Salomon brings 40 years of executive management experience. He comes from the
home-sewing and craft industry, where he managed and grew several businesses. He
also founded his own company, which he sold to the McCall Pattern Company, where
he served as Chief Operating Officer of their national distribution company,
NMI, Inc. For the last 20 years, Mr. Salomon was general manager of Lion
Notions, Inc. and Fantasy Importers, Inc., both privately held corporations.

      SUSAN LEVINE (52) has served as the Secretary, Director, and
Vice-President to the Company since December 1997. Ms. Levine resigned her board
membership temporarily between January 1999 and January 2000. Since 1980, Ms.
Levine has worked with her husband, Dr. Stephen Levine, in the creation and
development of the Company. Ms. Levine currently works on marketing concerns.
Prior to working for the Company, Ms. 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 (78) 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
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 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 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 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 for 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.

                                       24
<PAGE>

      LAURA JOHNSON, CPA, has been 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 Manager of Quality Control for 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, and reviews product
labeling for accuracy.

      ELISE ZURLO, CNC, has served as the Managing Editor for the Company
newsletter FOCUS since 2000. Ms. Zurlo also produces and/or coordinates all of
the Company's marketing materials. She has been with the Company since 1998,
working closely with Dr. Levine on a variety of research, development, and
writing projects, and continues to do so. Ms. Zurlo had a successful private
nutrition practice in San Rafael, California, for a number of years before
joining the Company. She holds a Bachelor's of Fine Arts degree from New York
University, and a Clinical Nutritionist Certification from the Institute for
Educational Therapy, Cotati, California.

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 Fibromyalgia. 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 makes him the perfect choice to
help head up the Company'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
since 1999. 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


                                       25
<PAGE>

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 was an employee of the Company from January 2000
to October 2005. 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, autoimmune
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 at 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 from the United States for persons with extraordinary ability in
science, and has published several articles in medical journals.

      DR. MICHAEL ROSENBAUM M.D. 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
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.

      Our success is substantially dependent upon the efforts of Dr. Stephen
Levine. The loss of Dr. Levine, whom we regard as the Company's visionary and
whose reputation in the industry is known internationally, would have a material
adverse effect on the Company's business if a suitable replacement could not be
found. Due to his reputation and talent, we believe it would be difficult to
replace Dr. Levine. Our future success is likely to depend substantially on our
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. All of the
responsibilities which would normally fall upon an audit committee under the
provisions of the Securities Act of 1934 and the Corporate Fraud Accountability
Act of 2002 are and will be the responsibility of the full Board. It is the
practice of the Board to review the Company's audited annual financial
statements and unaudited quarterly financial statements with the Company's
independent auditors. Our independent director has the opportunity to separately
review our financial statements with our auditor.

                                       26
<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      To our knowledge, all reports that were required to be filed by our
directors, officers or principal shareholders during 2005 under Section 16(a) of
the Securities Exchange Act of 1934, were timely filed.

      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:

<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               Salary    Bonus   sation    Award(s)    Options    Payouts   sation
Position          Year ($)(8)    ($)(9)     ($)       ($)          (#)       ($)       ($)
---------------- ----- --------- -------- -------- ----------- ----------- -------  ---------
<S>              <C>    <C>      <C>                               <C>              <C>
Stephen Levine,  2003   299,846        -                                            10,890(1)
CEO              2004   324,477  125,000                                            25,422(2)
                 2005   309,616  100,000                                            27,422(3)

Manfred (Fred)   2003   112,308  100,000                           98,250            3,923(4)
Salomon,         2004   120,923  120,000                                            12,231(4)
President        2005   115,385  100,000                                            11,000(4)

Susan Levine,    2003   179,255                                                      8,743(5)
Secretary        2004   195,517   50,000                                            19,580(6)
                 2005   186,562   40,000                                            18,707(7)
</TABLE>

      (1) Represents 401(k) matching funds of $6,308, long-term disability
          policy of $2,427 and a life insurance policy of $2,155.
      (2) Represents 401(k) matching funds of $16,000, long-term disability
          policy of $2,427 and a life insurance policy of $6,995.
      (3) Represents 401(k) matching funds of $18,000, long-term disability
          policy of $2,427 and a life insurance policy of $6,995.
      (4) Represents 401(k) matching funds.
      (5) Represents 401(k) matching funds of $5,677, long-term disability
          policy of $2,251 and a life insurance policy of $815.
      (6) Represents 401(k) matching funds of $12,574, long-term disability of
          $2,251 and a life insurance policy of $4,755.
      (7) Represents 401(k) matching funds of $11,701, long-term disability
          policy of $2,251 and a life insurance policy of $4,755.
      (8) There has not been a salary increase for officers since 2003. The 2004
          wages are higher than 2005 due to our bi-weekly processing of payroll
          and the timing of payments.
      (9) Represents a decrease of approximately 20% from 2004 to 2005.


                                       27
<PAGE>

      During the fiscal years ended December 31, 2005 and 2004, we did not grant
any stock options to executive officers. Options granted in 2003 are included in
the table below:

---------------- ------------- ------------- ---------------- -----------
Name             Number of     % of Total
                 Securities    Options/SAR's
                 Underlying    Granted to
                 Options/ SARs Employees in  Exercise or Base Expiration
                 Granted (#)   Fiscal Year   Price ($/Sh)     Date
---------------- ------------- ------------- ---------------- -----------

Manfred Salomon  98,250        26%           $.40 per share   05/12/2008
---------------- ------------- ------------- ---------------- -----------


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.

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

                 Shares Acquired  Value         Exercisable/   Exercisable/
Name             on Exercise (#)  Realized ($)  Unexercisable  Unexercisable
---------------- ---------------- ------------- -------------- --------------

Manfred Salomon                0             0       98,250/0    $84,495/0(1)

      (1) On May 12, 2003, the Company issued options to purchase 98,250 shares
          of Common Stock to Manfred Salomon under the Company's 1998 Incentive
          Stock Option Plan. These options can be exercised for $.40 per share
          and were fully vested on the grant date. The options expire on May 12,
          2008.

REMUNERATION PAID TO DIRECTORS

      No remuneration was paid to the Company's directors during its fiscal year
ended December 31, 2005.

EMPLOYMENT AGREEMENTS

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

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 incentives 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


                                       28
<PAGE>

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 September
23, 2012, 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, or 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.

      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 any portion of their annual compensation, subject to the
limitations established annually by the Internal Revenue Service, and the
Company will match 100 percent of an employee's contribution, limited to 5% of
the employee's compensation. Total provisions with respect to these plans
approximated $91,000 and $94,000, for the years ended December 31, 2004 and
2005, respectively.

      CAFETERIA PLAN. In May 1999, the Company adopted the NutriCology,
Inc./Allergy Research Group, Inc. Cafeteria Plan pursuant to section 125 of the
Internal Revenue Code ("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, at any time during a plan year. At the end of
each plan year, the employees forfeit any unspent monies unless requests for
reimbursement are made no later than 90 days after the end of the year. In 2005,
the plan was amended to allow eligible expenses to include those incurred
through March 15 of the following year. We automatically contribute enough of
the employee's compensation to pay for insurance coverage provided under our
health plan; however, it is up to the employee to determine the amount of any
additional contributions.

                                       29
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table provides information as of December 31, 2005
concerning the beneficial ownership of our 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.

---------------- ------------------------- ---------------------- -------------
                   Name and Address of      Amount and Nature of   Percent of
Title of Class       Beneficial Owner       Beneficial Ownership   Class(1)(2)
---------------- ------------------------- ---------------------- -------------
$.001 par value  Stephen A. Levine, Ph.D.
common stock     2300 North Loop Road           10,113,250(4)        70%(3)
                 Alameda, CA 94502

$.001 par value  Susan D. Levine
common stock     2300 North Loop Road           10,113,250(4)        70%(3)
                 Alameda, CA 94502

$.001 par value  Manfred Salomon                    99,750(5)          .7%
common stock     2300 North Loop Road
                 Alameda, CA  94502

$.001 par value  Officers and Directors
common stock     as a group                     10,114,750            70%

(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, 2005, 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 14,521,605 shares outstanding on March 22, 2006.
(3)   Represents shares held jointly with the Company's Secretary, Susan D.
      Levine, and Chief Executive Officer, Dr. Stephen A. Levine, as community
      property.
(4)   Includes 10,113,250 shares held jointly with our Chief Executive Officer,
      Dr. Stephen A. Levine, and our Secretary, Susan D. Levine.
(5)   Includes options to purchase 98,250 shares of common stock at an exercise
      price of $.40 per share which are fully vested.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Dr. 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 January 4, 2005, the Company entered into a lease for office and
warehouse space located at 2300 North Loop Road, Alameda, California with AriBen
Corporation, a single-purpose California corporation wholly-owned by Stephen and
Susan Levine. The leased premises consist of approximately 29,821 square feet of
office and industrial space. The lease, which has a term of ten years with
options to renew for two subsequent periods of ten and five years, respectively,
has a base monthly rent of $24,000 for the initial period, $30,000 for the first
option period and $35,000 for the second option period. Rent will be adjusted
annually during the second five years of each 10-year lease period based on the
consumer price index, with a minimum increase of three percent. No security
deposit is required under the lease.

                                       30
<PAGE>

      We have reimbursed AriBen Corporation for some of the tenant improvements
that were built out to our specifications in the amount of $350,000. We believe
that the new facilities provide a more geographically beneficial location,
closer to our existing and potential workforce, and the facilities can
accommodate internal manufacturing, greater quality control and expansion better
than our prior facilities.

      During 2005, all officer loans including accrued interest were repaid by
Stephen and Susan Levine.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

ITEM                                                                    EXH. NO.
----                                                                    --------

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
Code of Business Conduct and Ethics**                                       10.4
Lease between Registrant and AriBen Corporation dated January 4, 2005***    10.5
Subsidiaries of the Company                                                 21
Consent of Independent Registered Public Accounting Firm                    23.1
Certificate of Stephen A. Levine required by Rule 13a-14(a) or Rule
  15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
  to Section 302 of Sarbanes-Oxley Act of 2002                              31
Certificate of Stephen A. Levine pursuant to 18 U.S.C. Section 1350,
  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002      32
Haight-Ashbury Free Medical Clinic Design Research Survey*                  99.1


* Incorporated by reference to the corresponding Exhibit previously filed as an
Exhibit to Registrant's Form 10-SB (File #0-27227).
** Incorporated by reference to the corresponding Exhibit previously filed with
Registrant's Form 10-KSB on March 31, 2003.
***Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on
Form 8-K filed on January 4, 2005.
# 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.

                                       31
<PAGE>

(b)   Form 8-K Reports

      A Current Report on Form 8-K was filed with the Commission on December 21,
2005 under Item 1.01 (Entry into a Material Definitive Agreement) disclosing an
aggregate discretionary bonus of $349,750 and amounts for each named executive
officers for the fiscal year ending December 31, 2005.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Relationship with Independent Auditors

      The firm of Clancy and Co., P.L.L.C. served as the Company's independent
public accountants for the years ended December 31, 2005 and 2004. The Board of
Directors of the Company, in its discretion, may direct the appointment of
different public accountants at any time during the year if the Board believes
that a change would be in the best interests of our stockholders. The Board of
Directors has considered the audit fees, audit-related fees, tax fees and other
fees paid to the Company's accountants, as disclosed below, and determined that
the payment of such fees is compatible with maintaining the independence of the
accountants.

      Set forth below is a summary of the fees paid to the Company's principal
accountants for the past two years for the professional services performed for
the Company.

Audit Fees

      The aggregate fees billed by Clancy and Co., P.L.L.C. for professional
services rendered for the audit of the Company's annual financial statements on
Form 10-KSB and the reviews of the financial statements included in the
Company's Form 10-QSB's for the fiscal years ended December 31, 2005 and 2004
was $44,700 and $42,500, respectively.

Audit-Related Fees

      None.

Tax Fees

      The aggregate fees billed for tax compliance rendered by our independent
auditors for the years ended December 31, 2005 was $6,000 and 2004 was $5,000.

All Other Fees

      None.

Audit Committee Pre-Approval Policies and Procedures

      The Company does not currently have an Audit Committee. The Company's
current policy is that the Board of Directors pre-approves all audit and
non-audit services that are to be performed and fees to be charged by our
independent auditor to assure that the provision of these services does not
impair the independence of such auditor. The Board of Directors pre-approved all
audit services and fees of our independent auditor for the years ended December
31, 2005 and 2004. Our independent auditors did not provide us with any
non-audit services during the periods indicated above.

                                       32
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Report of Independent Registered Public Accounting Firm.......................F2

Consolidated Balance Sheet ...................................................F3

Consolidated Income Statements ...............................................F4

Consolidated Statements of Changes in Stockholders' Equity ...................F5

Consolidated Statements of Cash Flows ........................................F6

Notes to Consolidated Financial Statements ...................................F7


                                       F1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ALLERGY RESEARCH GROUP, INC.

We have audited the accompanying consolidated balance sheet of Allergy Research
Group, Inc., a Florida Corporation, and Subsidiary (the "Company") as of
December 31, 2005 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the two preceding years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards established by the
Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2005, and the consolidated results of their
operations and their cash flows for the periods indicated above, in conformity
with generally accepted accounting principles in the United States of America.



Clancy and Co., P.L.L.C.
Scottsdale, Arizona

March 20, 2006


                                       F2
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2005

ASSETS
------
Current assets
   Cash and cash equivalents                                        $ 2,487,824
   Accounts receivable, net of allowance for doubtful
     accounts of $45,000                                                954,943
   Inventories (Note 3)                                               2,573,612
   Prepaid expenses and other current assets                            169,479
   Prepaid income taxes                                                 107,193
                                                                    -----------
Total current assets                                                  6,293,051
                                                                    -----------

Property and equipment, net of accumulated depreciation of
     $1,093,238 (Note 4)                                                562,928
                                                                    -----------

Intangible assets, net of amortization of $29,753 (Note 5)               13,180
                                                                    -----------

TOTAL ASSETS                                                        $ 6,869,159
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
   Accounts payable                                                 $   274,642
   Accrued expenses (Note 6)                                            207,824
   Deferred tax liability (Note 10)                                      18,704
   Income taxes payable (Note 10)                                        34,262
                                                                    -----------
Total current liabilities                                               535,432
                                                                    -----------

Commitments and Contingencies (Note 11)

Stockholders' equity
Preferred stock:  $0.25 par value, authorized:
     1,000,000. issued and outstanding:  None                              None
Common stock: $0.001 par value, authorized shares:
     100,000,000; issued: 15,105,355, outstanding: 14,521,605            15,105
Additional paid-in capital                                            1,150,641
Retained earnings                                                     5,446,518
Less:  treasury stock, at cost (583,750 shares)                        (278,537)
                                                                    -----------
Total stockholders' equity                                            6,333,727
                                                                    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 6,869,159
                                                                    ===========


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       F3
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                         CONSOLIDATED INCOME STATEMENTS
                 FOR THE YEARS ENDED DECMEBER 31, 2005 AND 2004

                                                         2005            2004
                                                      -----------    -----------

Net sales                                             $15,911,221    $15,136,592
Costs of sales                                          9,645,293      8,667,078
                                                      -----------    -----------
Gross margin                                            6,265,928      6,469,514
                                                      -----------    -----------

Operating expenses
   Selling, general and administrative                  4,160,007      3,982,221
   Research and development                               304,516        298,899
                                                      -----------    -----------
Total operating expenses                                4,464,523      4,281,120
                                                      -----------    -----------

Earnings from operations                                1,801,405      2,188,394
                                                      -----------    -----------

Other income (expense)
   Interest income                                         64,317         25,003
   Interest expense                                            --             --
                                                      -----------    -----------
Total other income (expense)                               64,317         25,003
                                                      -----------    -----------

Earnings before income taxes                            1,865,722      2,213,397

Provision for income taxes (Note 10)                      656,853        930,661
                                                      -----------    -----------

Net earnings available to common stockholders         $ 1,208,869    $ 1,282,736
                                                      ===========    ===========

Basic earnings per share                              $      0.08    $      0.09
                                                      ===========    ===========

Diluted earnings per share                            $      0.08    $      0.09
                                                      ===========    ===========


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       F4
<PAGE>

<TABLE>
<CAPTION>
                                           ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                                   CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                         FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004


                                                    COMMON       COMMON     ADDITIONAL
                                      PREFERRED     STOCK        STOCK       PAID-IN      RETAINED    TREASURY
                                        STOCK       SHARES       AMOUNT      CAPITAL      EARNINGS      STOCK          TOTAL
                                     ----------   ----------   ----------   ----------   ----------   ----------    ----------
<S>                                       <C>     <C>          <C>          <C>          <C>          <C>           <C>
BALANCE, DECEMBER 31, 2003                   --   15,105,355   $   15,105   $1,145,120   $2,954,913   $ (284,816)   $3,830,322
Exercise of employee stock options
     [24,500 shares]                                                             4,585                     5,215         9,800
Net earnings                                 --           --           --           --    1,282,736           --     1,282,736
                                     ----------   ----------   ----------   ----------   ----------   ----------    ----------
BALANCE, DECEMBER 31, 2004                   --   15,105,355       15,105    1,149,705    4,237,649     (279,601)    5,122,858
Exercise of employee stock options
     [5,000 shares]                          --           --           --          936           --        1,064         2,000
Net earnings                                 --           --           --           --    1,208,869           --     1,208,869
                                     ----------   ----------   ----------   ----------   ----------   ----------    ----------
BALANCE, DECEMBER 31, 2005                   --   15,105,355   $   15,105   $1,150,641   $5,446,518   $(278,537)    $6,333,727
                                     ==========   ==========   ==========   ==========   ==========   ==========    ==========

                           THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                                               F5
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                           ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                         FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

                                                               2005            2004
                                                            -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
<S>                                                         <C>            <C>
Net earnings                                                $ 1,208,869    $ 1,282,736
                                                            -----------    -----------
Adjustments to reconcile net earnings to net cash
     provided by operating activities:
     Depreciation and amortization                               93,425        132,222
     Gain on Disposal of fixed assets                            (4,650)
     Change in provision for doubtful accounts                       --         (9,000)
     Change in deferred taxes                                    18,704        284,024
Changes in assets and liabilities
     (Increase) decrease in accounts receivable                (196,875)       (71,121)
     (Increase) decrease in inventories                         (23,297)      (953,588)
     (Increase) decrease in prepaid expenses and
        other current assets                                    (17,539)      (161,027)
     (Increase) decrease in security deposits                        --         18,019
     Increase (decrease) in accounts payable                    (65,573)      (120,626)
     Increase (decrease) in accrued liabilities                 (99,877)        45,382
     Increase (decrease) in income taxes payable                (70,698)       (29,448)
                                                            -----------    -----------
Net cash flows provided by operating activities                 842,489        417,573
                                                            -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
     Acquisition of property and equipment                     (543,971)       (11,806)
     Proceeds from sale of property and equipment                12,850             --
     Expenditures for intangible assets, trademarks                  --         (1,370)
     Repayments from officers                                    28,818         26,912
                                                            -----------    -----------
Net cash flows provided by (used in) investing activities      (502,303)        13,736
                                                            -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
     Exercise of employee stock options                           2,000          9,800
                                                            -----------    -----------
Net cash flows provided by financing activities                   2,000          9,800
                                                            -----------    -----------

Increase in cash and cash equivalents                           342,186        441,109
Cash and cash equivalents, beginning of year                  2,145,638      1,704,529
                                                            -----------    -----------
Cash and cash equivalents, end of year                      $ 2,487,824    $ 2,145,638
                                                            ===========    ===========

CASH PAID FOR:
     Interest                                               $        --    $        --
                                                            ===========    ===========

     Income taxes                                           $   754,182    $   602,798
                                                            ===========    ===========

           THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                               F6
</TABLE>
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Allergy Research Group, Inc. (the "Company"), together with its wholly-owned
subsidiary, Nutricology, Inc., strives to be an innovative leader in
nutraceutical research and product formulation. Since 1980, Nutricology, Inc.
has produced quality, hypoallergenic nutritional supplements and currently
supplies products to physicians and health care practitioners worldwide. The
Company is headquartered in Alameda, California and the Company's shares are
quoted on the "Over-the-counter (OTC) Bulletin Board."

The Company sells its products directly to consumers and to medical,
professional and retailers and through distributors who sell products to
professionals and retailers. The Company develops, contract manufactures,
markets and sells its own brand of products, including vitamins and nutritional
supplements, throughout the world under the NutriCology(R) and Allergy Research
Group(R) labels, and distributes third-party products under these brands
representing approximately 20% of its total products. The Company offers a line
of approximately 270 products, including vitamins in both multivitamin and
single-entity formulas, minerals and herbals. The Company's products are
manufactured in various forms, including capsules, tablets, softgels, powders
(drink mixes) and liquids. The Company's liquid and powder products are packaged
by outside vendors and manufacturers. The Company is expanding its research on
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:
developing, marketing and distributing natural nutritional supplements. The
Company's sales are primarily to distributors (44%) and to health care
professionals and health food stores (43%) throughout the United States. The
Company has one customer that accounts for approximately 12% (2004: 11%) of its
sales, or $1,831,000 (2004: $1,665,000) in sales dollars.

USE OF ESTIMATES - The preparation of financial statements in conformity with
U.S. 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. Management makes its best estimate of the ultimate
outcome for these items based on historical trends and other information
available when the financial statements are prepared. Changes in estimates are
recognized in accordance with the accounting rules for the estimate, which is
typically in the period when new information becomes available to management.
Actual results could differ from those estimates.

                                       F7
<PAGE>

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

CONCENTRATION OF CREDIT RISK - Concentration of credit risk includes cash,
sales, purchases and product as follows:

(a) Cash - The Company maintains cash balances at financial institutions in
excess of $100,000, which are insured by the Federal Deposit Insurance
Corporation up to $100,000.

(b) Sales - The Company has one customer that accounted for approximately 12% of
sales in 2005 (2004: 11%) and three customers (2004: one customer) that
individually accounted for more than 10% of total accounts receivable at
December 31, 2005.

(c) Purchases - The Company purchases raw materials and uses outside vendors for
the manufacture of products. The Company has three vendors (2004 one vendor)
that individually accounted for more than 10% of total vendor purchases,
representing approximately 42% (2004: 24%) of the Company's manufacturers and
suppliers of raw materials.

(d) Product - The Company has one product in both 2004 and 2005 that
individually accounts for more than 10% of its sales dollars.

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, with cost computed on a first-in, first-out basis.

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 - Long-lived assets, such as property and equipment, are
reviewed for impairment when circumstances indicate the carrying value of an
asset may not be recoverable. For assets that are to be held and used, an
impairment loss is recognized when the estimated undiscounted cash flows
associated with the asset or group of assets is less than their carrying value.
If impairment exists, an adjustment is made to write the asset down to its fair
value, and a loss is recorded as the difference between the carrying value and
fair value. Fair values are determined based on quoted market values, discounted
cash flows or internal and external appraisals, as applicable. Assets to be
disposed of are carried at the lower of carrying value or estimated net
realizable value.

REVENUE RECOGNITION - Revenue is recognized when the product is shipped and the
risks and rewards of ownership have transferred to the customer. The Company
recognizes shipping and handling fees as revenue, and the related expenses as a
component of cost of sales. All internal handling charges are charged to
selling, general and administrative expenses. Revenues are presented net of
returns and allowances. Sales returns and allowances for 2005 and 2004 were
$1,441,122 and $1,479,779, respectively.

ALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company establishes an allowance for
doubtful accounts to ensure accounts receivables are not overstated due to
uncollectibility. Bad debt reserves are maintained based on a variety of
factors, including the length of time receivables are past due, historical
experience and a detailed review of certain individual customer accounts. The
Company reviews a customer's credit history before extending credit, however, a


                                       F8
<PAGE>

specific reserve for individual accounts is recorded when the Company becomes
aware of a customer's inability to meet its financial obligations, such as in
the case of bankruptcy filings or deterioration in the customer's operating
results or financial position. If circumstances related to customers change,
estimates of the recoverability of receivables would be further adjusted.

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 totaled $304,516 for 2005 (2004: $298,899).

ADVERTISING COSTS - Advertising costs are expensed as incurred and totaled
$79,586 in 2005 (2004: $78,404).

INCOME TAXES - The Company recognizes deferred tax assets and liabilities for
the expected tax consequences of temporary differences between the tax bases of
assets and liabilities and their reported amounts using enacted tax rates in
effect for the year the differences are expected to reverse. The Company records
a valuation allowance to reduce the deferred tax assets to the amount that is
more likely than not to be realized.

EARNINGS PER SHARE - Basic earnings per share ("EPS") is calculated using net
earnings and the weighted-average number of shares outstanding during the
reporting period. Diluted EPS includes the effect from potential issuance of
common stock, such as stock issuable pursuant to the exercise of stock options.

The reconciliation of the numerators and denominators of the basic and diluted
EPS calculations was as follows for the years ended December 31:

                                                          2005          2004
                                                       -----------   -----------
Numerator: net earnings                                $ 1,208,869   $ 1,282,736

Denominator:
  Weighted-average shares used to compute basic EPS     14,516,824    14,508,955
  Dilutive potential common shares                         188,638       206,289
                                                       -----------   -----------
  Weighted-average shares used to compute diluted EPS   14,705,462    14,715,244

Basic net earnings per share:                          $      0.08   $      0.09
                                                       ===========   ===========

Diluted net earnings per share:                        $      0.08   $      0.09
                                                       ===========   ===========

STOCK-BASED COMPENSATION - The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
("APB") 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. Statement of Financial Accounting Standards
("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 pro forma disclosure requirements of SFAS No. 123 only. No options
were issued in 2005 or 2004; therefore no pro forma disclosures are necessary.
See Note 9 for a description of the Company's stock option plan.

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.

                                       F9
<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS - For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable, prepaid
expenses and other current assets, accounts payable and other accruals, 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.

RECENT ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board
("FASB") issued the following recent accounting pronouncements:

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections". SFAS No. 154 replaces APB Opinion No. 20 "Accounting Changes" and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". SFAS
No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. The adoption of SFAS No. 154 will not have any impact on the Company's
consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R (revised 2004) "Share-Based
Payment" which amends FASB Statement No. 123 and will be effective for public
companies (small business issuers) for interim or annual periods beginning after
December 15, 2005. SFAS 123R requires that compensation cost related to
share-based payment transactions be recognized in the financial statements.
Share-based payment transactions within the scope of SFAS 123R include stock
options, restricted stock plans, performance-based awards, stock appreciation
rights, and employee share purchase plans. The Company adopted the new standard
as of January 1, 2006. Based on the Company's evaluation of the adoption of the
new standard, the Company believes that it could have a significant impact to
the Company's financial position and overall results of operations depending on
the number of stock options granted in a given year.


NOTE 2 - RELATED PARTY TRANSACTIONS
-----------------------------------

DUE FROM OFFICERS - These loans represent a series of non-interest bearing
advances primarily during 1997 and a final advance during 1999 to the CEO. The
advances began accruing interest in 2000 at the rate of 8% per annum. This loan
and all accrued interest was paid in full during 2005.

FACILITY LEASE AGREEMENT - On January 4, 2005, the Company entered into a lease
for real property located at 2300 North Loop Road, Alameda, California from
AriBen Corporation, a California corporation that is wholly-owned by the
Company's Chief Executive Officer and Chief Financial Officer, Stephen Levine,
and its Secretary, Susan Levine (the "Landlord"). The leased premises consist of
approximately 29,821 square feet of office and industrial space. The lease,
which has a term of ten years with options to renew for two subsequent periods
of ten and five years, respectively, has a base monthly rent of $24,000 for the
initial period, $30,000 for the first option period and $35,000 for the second
option period. Rent will be adjusted annually during the second five years of
each 10-year lease period based on the consumer price index, with a minimum
increase of three percent. No security deposit was required under the lease.
(See Note 11)

                                      F10
<PAGE>

NOTE 3 - INVENTORIES
--------------------

Inventories consist of the following:

Raw materials                                          $ 1,465,668
Finished goods                                           1,031,917
Supplies                                                   126,026
Reserve for obsolescence                                   (50,000)
                                                       -----------
Total                                                  $ 2,573,612
                                                       ===========


NOTE 4 - PROPERTY AND EQUIPMENT
-------------------------------

Property and equipment consist of the following:

Machinery and equipment                                $  732,299
Office equipment                                          208,133
Furniture and fixtures                                    152,663
Computer equipment                                         83,105
Computer software                                          77,064
Leasehold improvements                                    402,902
                                                       ----------
Total                                                   1,656,166
Less accumulated depreciation                           1,093,238
                                                       ----------
Net book value                                         $  562,928
                                                       ==========


Depreciation expense charged to operations for 2005 was $93,425
(2004: $126,646).


NOTE 5 - INTANGIBLE ASSETS
--------------------------

Intangible assets consist of the following:

Trademarks, gross carrying amount                      $29,753
Accumulated amortization                                29,753
                                                       -------
Net book value                                               0
Customer lists, not subject to amortization             13,180
                                                       -------
                                                       $13,180
                                                       =======


No amortization expense was charged to operations for 2005 (2004: $5,576).


NOTE 6 - ACCRUED EXPENSES
-------------------------

Accrued expenses consist of the following:

Accrued expenses                                        135,129
Accrued vacation                                         40,924
Accrued payroll                                          23,927
Accrued sales tax                                         7,844
                                                       --------
                                                       $207,824
                                                       ========

                                      F11
<PAGE>

NOTE 7 - RETIREMENT PLAN
------------------------

The Company has a 401(k) Retirement Plan and eligible employees may contribute
any portion of their annual compensation, subject to the limitations established
annually by the Internal Revenue Service, and the Company matches 50% of an
employee's contribution, limited to 5% of the employee's compensation. Total
contributions by the Company with respect to these plans for 2005 approximated
$94,000 (2004: $91,000).


NOTE 8 - TREASURY STOCK AND COMMON STOCK REPURCHASE PROGRAM
-----------------------------------------------------------

On May 3, 2002, the Company announced a stock repurchase plan, whereby the
Company could repurchase between 1,000,000 and 2,500,000 shares of the Company's
common stock in open market transactions, from time to time, during the
following two years in compliance with Rule 10b-18 of the Securities Exchange
Act of 1934 and all other applicable securities regulations. Repurchases of
common shares in the open market provided shares for issuance to employees under
stock option and stock purchase plans. From inception of the plan through
December 31, 2002, the Company repurchased 383,250 shares of common stock for
$81,573. On May 12, 2003, all of the repurchased shares of common stock were
granted to employees under the 1998 Stock Option Plan. During December 2003, the
Company repurchased 250,000 shares of common stock from its Chief Executive
Officer for $207,500. Total shares held in treasury are 583,750 of which 333,750
shares remain unexercised under stock option grant agreements.

NOTE 9 - STOCK-BASED COMPENSATION
---------------------------------

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 options vest immediately and expire five years after the date
issued.

The following is a summary of stock option transactions:

                                                                   WEIGHTED-
                                            SHARES UNDER            AVERAGE
                                              OPTION             EXERCISE PRICE
                                            -----------           -----------
OUTSTANDING AT 12/31/03                         513,250           $      0.88
Exercised                                       (24,500)                (0.40)
Forfeited                                      (150,000)                (2.00)
Granted                                              --                    --
                                            -----------           -----------
OUTSTANDING AT 12/31/04                         338,750                  0.40
Exercised                                        (5,000)                (0.40)
Forfeited                                            --                    --
Granted                                              --                    --
                                            -----------           -----------
OUTSTANDING AT 12/31/05                         333,750           $      0.40
                                            ===========           ===========

Options outstanding and exercisable at December 31, 2005 were 333,750
exercisable at $0.40 per share. The weighted-average exercise price of options
outstanding and exercisable at December 31, 2005 was $0.40 per share and the
weighted-average remaining contractual life was 2.4 years.

                                      F12
<PAGE>

NOTE 10 - INCOME TAXES
----------------------

THE COMPONENTS OF PROVISION FOR INCOME TAXES ARE AS FOLLOWS:


                                                          2005            2004
                                                        ---------      ---------

U.S. federal income tax - based on income                 559,222        524,960
State taxes - based on income                              78,927        121,677
Change in deferred taxes - federal                         25,263        168,338
Change in deferred taxes - state                           (6,559)       115,686
                                                        ---------      ---------
                                                        $ 656,853      $ 930,661
                                                        =========      =========


A RECONCILIATION OF INCOME TAX AT THE STATUTORY RATE TO THE COMPANY'S EFFECTIVE
RATE FOLLOWS:

                                                                 2005     2004
                                                               -------   ------

Statutory U.S. federal income tax rate                           34.0%    34.0%
State income taxes, net of related federal income tax benefit     4.2%     5.5%
Other                                                            (3.0)%   12.3%
Changes in the valuation allowance                                 --     (9.8)%
                                                               -------   ------
Income tax expense - effective rate                              35.2%    42.0%
                                                               =======   ======
INCOME TAXES CURRENTLY PAYABLE CONSIST OF THE FOLLOWING:

U.S. federal income taxes - based on income                    $34,262
CA state taxes - based on income                                    --
                                                               -------
                                                               $34,262
                                                               =======


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:

                                                        2005             2004
                                                      --------         --------
DEFERRED TAX ASSETS:
--------------------
Net operating loss carryforwards                      $ 22,500         $ 54,000
Valuation allowance                                    (22,500)         (54,000)
                                                      --------         --------
Net deferred tax asset                                      --               --

DEFERRED TAX LIABILITIES:
-------------------------
Depreciation                                            18,704               --
                                                      --------         --------

Net deferred tax liability                            $ 18,704         $     --
                                                      ========         ========

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.

                                      F13
<PAGE>

The valuation allowance for 2005 was $22,500 (2004: $54,000), a decrease of
$31,500 from 2004, representing the effect of state net operating loss
carryforwards at the parent company level that does not generate income.
Accordingly, the Company has fully reserved against its deferred tax asset, as
it does not believe realization is likely. The state net operating loss
carryforwards of approximately $255,000 expire principally in 2007. State net
operating loss carryforwards are based on federal net operating losses, which
are limited to certain percentages and carryover periods based on the year
incurred.

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 11 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

OPERATING LEASES, FACILITY MOVE AND RELATED OBLIGATIONS

During February 2005, the Company moved to a new main administrative office and
warehouse located in Alameda, California, and entered into a non-cancelable
operating lease with AriBen Corporation, a related party, (the "Landlord"). (See
Note 2) In connection with the move, the Company was responsible for reimbursing
the Landlord for tenant improvements on the property, which was built out to the
Company's specifications. The improvements were completed in February 2005 and
$350,000 was paid to the Landlord. Other moving costs incurred approximated
$112,000 and included costs such as a coordinator for the warehouse move,
warehouse equipment upgrades, new phone and communication system. All other
significant equipment leases were canceled during 2004, through the purchase or
return of the equipment. Rent expense charged to operations during the 2005 was
$294,000 (2004: $256,000).

Future minimum rental commitments under non-cancelable leases for the next five
years are as follows:

         2006                        $   288,000
         2007 - 2009                 $   864,000
         2010                        $   288,000

LINE OF CREDIT

The Company has a Merrill Lynch Working Capital Management Account ("WCMA"),
which provides for a line of credit up to $1,500,000 with interest due monthly
at the variable interest rate of 2.75% plus the One-Month London Interbank
Offered Rate ("LIBOR"), the total of which equaled 7.13% on December 31, 2005.
The line of credit is secured by substantially all of the assets of the Company
and is personally guaranteed by the CEO of the Company. The line of credit
expires on November 30, 2006.

The WCMA account immediately pays down the line of credit when deposits are
received. When checks are issued, the line of credit is utilized if no cash is
available. If the line of credit has a zero balance, the WCMA account pays
interest on deposits at Merrill Lynch's money market rate. The entire line of
credit was available for use as of the date of issuance of these financial
statements.

PURCHASE OBLIGATIONS

As of December 31, 2005, the Company had inventory purchase obligations
approximating $1,300,000, which were incurred as part of the normal course of
business.

                                      F14
<PAGE>

LAWSUIT

On July 28, 2005, we were served with a 60-day Notice of Violation of the
California Safe Drinking Water and Toxic Enforcement Act of 1986 (the
"Enforcement Act"), claiming that certain of our products were required to bear
California-specific labels regarding the health risks of certain ingredients.
The California Women's Law Center of Los Angeles, California ("CWLC") served the
notice. Notice was also served on the California Attorney General's Office, the
attorney generals of the various California counties, the district attorneys and
the city attorneys of various cities, which had 60 days in which to bring a
civil action to enjoin the further distribution of any product found to be in
violation of the Enforcement Act and to request that a civil penalty of up to
$2,500 per day for each violation be levied against the Company. Since no civil
action was brought by one of these government authorities within the 60-day
period following the notice, CWLC was able to file a civil action of its own. We
are currently involved in discussions with the CWLC and have reached a verbal
agreement for settlement. A loss provision of $18,000 has been recorded in the
financial statements. We have ceased all sales of the products and will no
longer offer the products associated with the notice.

UNASSERTED CLAIMS AND ASSESSMENTS

From time to time the Company is subject to certain asserted and unasserted
claims encountered in the normal course of business. It is the Company's belief
that the resolution of these matters will not have a material adverse effect on
its financial position or results of operations, however, management cannot
provide assurance that damages that result in a material adverse effect on its
financial position or results of operations will not be imposed in these
matters. The Company accounts for contingent liabilities when it is probable
that future expenditures will be made and such expenditures can be reasonably
estimated.

SUBSEQUENT EVENTS

In March 2006, the Company received a summons from the United States District
Court for the District of Colorado in an action filed by Pure Research Products,
LLC, a division of J.A. Sichel & Associates. The complaint alleges that the
Company violated certain trademarks and exclusive license rights held by Pure
Research Products, LLC during negotiations between the parties and following the
dissolution of those negotiations. The plaintiff in the action is seeking
various forms of injunctive relief against the Company as well as damages to be
proven at trial. The complaint includes a request for treble damages in the
event the plaintiff is successful. The Company intends to vigorously defend
itself against the allegations.


                          END OF FINANCIAL STATEMENTS.


                                      F15
<PAGE>

                                   SIGNATURES

         In accordance with section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                            ALLERGY RESEARCH GROUP, INC.



Date: April 6, 2006                        By: /s/Stephen A. Levine
                                               -------------------------
                                           Stephen A. Levine, Ph.D., CEO


         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.




Date: April 6, 2006                        By: /s/Stephen A. Levine
                                               -------------------------
                                           Stephen A. Levine, Ph.D., CEO, CFO
                                                and Director


Date: April 6, 2006                        By: /s/Susan D. Levine
                                               -------------------------
                                           Susan D. Levine, Director


Date: April 6, 2006                        By: /s/Ed Kane
                                               -------------------------
                                           Ed Kane, Director


                                       33