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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, 2003

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

                For the transition period from ______________ to _______________

                         Commission file number 0-27227

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

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

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

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

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

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

             None.                              NASD OTC Bulletin Board

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

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

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

         Yes [X]          No [ ]

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

State issuer's revenues for its most recent fiscal year: $13,652,856

The aggregate market value of the voting stock held by non affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock as of March 8, 2004 was $1.35, based on the last sale
price of $1.34 as reported by the NASD Over-The-Counter Bulletin Board.

As of March 28, 2004, Registrant had outstanding 14,492,105 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.....................................................4
     INDUSTRY OVERVIEW........................................................11
     COMPETITION..............................................................13
     MARKET STRATEGIES........................................................15
     REGULATION...............................................................15
     EMPLOYEES................................................................18
     INTELLECTUAL PROPERTY....................................................18
   ITEM 2.     DESCRIPTION OF PROPERTY........................................18
   ITEM 3.     LEGAL PROCEEDINGS..............................................18
   ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............19
PART II.......................................................................19
   ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......19
     MARKET INFORMATION.......................................................19
     HOLDERS..................................................................20
     DIVIDENDS................................................................20
   ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......20
     INTRODUCTION.............................................................20
     CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS...............21
     FACTORS THAT COULD AFFECT FUTURE RESULTS.................................22
     OVERVIEW.................................................................22
     RESULTS OF OPERATIONS....................................................23
     LIQUIDITY AND CAPITAL RESOURCES..........................................24
     CRITICAL ACCOUNTING POLICIES.............................................26
     RECENT ACCOUNTING PRONOUNCEMENTS.........................................27
   ITEM 7.     FINANCIAL STATEMENTS...........................................28
   ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS..................28
   ITEM 8A.    CONTROLS AND PROCEDURES........................................28
PART III......................................................................28
   ITEM 9.     DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
       PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.............28
     OFFICERS AND DIRECTORS...................................................28
     KEY EMPLOYEES............................................................30
     MEDICAL ADVISORY BOARD...................................................31
     SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..................32
   ITEM 10.    EXECUTIVE COMPENSATION.........................................32
     REMUNERATION PAID TO EXECUTIVES..........................................32
     REMUNERATION PAID TO DIRECTORS...........................................34
     EMPLOYMENT AGREEMENTS....................................................34
     EMPLOYEE BENEFITS........................................................34
   ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
       MANAGEMENT.............................................................35
   ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................36
   ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K...............................37
     EXHIBITS.................................................................37
     FORM 8-K REPORTS.........................................................37
   ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................37
CONSOLIDATED FINANCIAL STATEMENTS............................................F-1
SIGNATURES....................................................................39
CERTIFICATION.................................................................40

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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, as well as 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 approximately 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) and Buffered Vitamin C.
Buffered Vitamin C was tested at the Haight Ashbury Clinic in San Francisco as a
nutritional supplement for its value (associated with medical treatment) for
opiate and stimulate abusers. Overall, the tests indicate that Buffered Vitamin
C is beneficial in detoxification and aftercare programs, including
discouragement of resumption of drug abuse.

THE COMPANY

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

      Nutricology, Inc. now operates as a wholly owned subsidiary of Allergy
Research Group. As used herein, the "Company" means Allergy Research Group and
its subsidiaries, 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 approximately 4,000 physicians
and health care practitioners world-wide, 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.

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

      The Company's principal executive offices are located at 30806 Santana
Street, Hayward, California 94544 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: (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, which includes
upcoming changes that will result in a more user-friendly and marketing-driven
web site and the ability to accommodate wholesale orders. We believe that the
Company's history and reputation in the field, multiple distribution channels,
broad portfolio of products and packaging and distribution capabilities position
it to be a long-term competitor in the vitamin and nutritional supplements
industries.

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

      The Company also continues to collaborate 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,
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 key 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
2003 and 2002, we spent $254,780 and $260,749, respectively, on research and
development. The nutritional supplement industry is influenced by products that
become popular due to changing consumer interests in health, appearance and
longevity, new research coming out on existing compounds or new compounds being
discovered along with public and media attention to these same interests. We
believe it is important to develop new products in these industries in order to
capitalize on new market opportunities, to strengthen relationships with
customers by meeting demand and to increase market share. In addition, we
believe that continually introducing new products is important to preserving and
enhancing gross margins due to the relatively short life cycle of some products.
Our involvement in the research and development of pharmaceuticals and
nutraceuticals should enable us to expand our nutritional supplement product
line and open a new potential revenue stream through joint ownership of patents.

      As a result of the Company's product development history, we believe that
it has built a reputation in the nutritional supplement industry for innovation
in both branded and private label products. The Company is in various stages of
development with respect to new product concepts that we anticipate will augment
both our existing domestic and international product lines. Recently, through
Dr. Levine, the Company has become more focused on researching and developing
broad-spectrum immune products. (A broad-spectrum immune product is one that is
varied in its ability to enhance a wide range of protective mechanisms of immune
function against pathogens, bacteria, virus, fungus, protozoan and cancer.)
Building from this focus on broad-spectrum immune products, the Company has
expanded the market created for anti-angiogenics, specifically with a
bindweed-based product called VascuStatin.

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

      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. To ensure optimal stability, our products are stored in a
humidity and temperature-controlled environment. We rely on scientific research
and collaboration with other experts in the biomedical field to insure state of
the art, hypoallergenic, when possible, formulations containing the purest,
highest quality ingredients.

      The Company currently does not have facilities for the manufacture of
encapsulated and liquid products, and we are using outside vendors for this
purpose. As of December 31, 2003, a concentration of approximately 58% of our
manufacturing was distributed among four separate vendors. The largest
manufacturer and supplier of raw materials supplies 28% of our needs, with the
second largest at 11%, the third at 10% and the fourth largest vendor at 9%. 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

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microbiological testing. In order to assure that our products meet the high
standards we require, we randomly take raw materials and samples from our
manufacturers to independent laboratories for testing.

      Approximately 75% of our products, consisting of capsules and tablets, are
packaged at and distributed from our 25,440 square foot warehousing and
packaging facility located in Hayward, California (the "Hayward Facility"). The
Hayward Facility was leased by the Company for five years commencing June 1,
1998, and consists of approximately 5,500 square feet of office space. The lease
allows for an increase of 5% every 15 months. During the first six months of
2003, we paid approximately $33,300 per month for these facilities. The rental
expense in 2003 for the first six-months was offset by sublease income of
approximately $1,900 per month. The original lease was scheduled to expire on
June 30, 2003; however, it was amended to extend the term of the lease one year
and to exclude the rental of the warehouse facility that was subleased on a
monthly basis through June 30, 2003. Our monthly rental expense following these
amendments to the lease was approximately $20,765. During February 2004, we
renegotiated the lease to extend the term to December 31, 2004 with an option to
extend the lease for three additional months. Although the current facility and
equipment are sufficient to meet our immediate needs, we are exploring the
possibilities of moving our facilities to a more geographically beneficial
location and facilities that will allow for internal manufacturing and greater
quality control. Currently, our outside manufacturers package our liquid
products and encapsulate our powder products.

PRODUCTS AND SERVICES

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

      Approximately 75% of the products discussed below were formulated by
Allergy Research Group/NutriCology and are contract manufactured and distributed
by the Company. Another 25% of the products are produced by other companies in
the industry and distributed by the Company through licensing agreements. Most
notably, we license the distribution rights for ProGreens(R), a fresh,
nutrient-rich whole-food concentrate, which is gluten-free and contains no egg,
dairy or animal products, no yeast, malto-dextrin, barley malt or simple sugar,
no preservatives, and no artificial flavoring or coloring. Other licensed
products include OralMat(R), a product based on an extract of the rye plant;
Eurocel, a product made from Korean and Chinese herbs that have been used
historically in Oriental medicine; VascuStatin, a product made from bindweed,
shown to potentially assist in supporting the inhibition of angiogenisis; and
Nattokinase, an enzyme derived from boiled soybeans and BACILLUS NATTO, which
may support healthy blood flow.

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

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      AMINO ACIDS

      Amino acids exist in all living cells and chains of amino acids make up
protein. Amino acids make up a great portion of skin, hair, nails, muscle tissue
and internal organs. The brain and heart are especially high in protein. The
body uses amino acids in the production of neurotransmitters in the brain,
several hormones, a variety of enzyme and metabolic processes, the formation of
antibodies, and for the production of non-essential amino acids. Essential amino
acids are the amino acids that the body cannot produce on its own, therefore it
is necessary to obtain them from diet and/or nutritional supplements.
Non-essential and semi-essential amino acids are produced by the body; however,
higher amounts may be necessary during times of increased physical or emotional
stress, illness or imbalance. Our amino acid products are easily absorbed into
the system.

      ANTIOXIDANT FORMULAS

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

      BIOENERGETIC NUTRIENTS

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

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

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      BIOFLAVONOIDS

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

      BRAIN SUPPORT PRODUCTS

      The Brain Support formulas produced by the Company are designed to enhance
brain function, improve memory, support the central nervous system and aid in
the production of neurotransmitters in the brain. Included in this group of
products is Melatonin, which was first introduced to the U.S. health food and
professional market by Nutricology. Melatonin has many nutritional benefits.
However, its main function in the body is to support the aspects of brain
chemistry involved in sleep.

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

      COMPREHENSIVE NUTRIENT FORMULAS

      We produce a family of products that are referred to as Comprehensive
Nutrient Formulas. Under the NutriCology(R) label, these products include:
Complete Immune, Complete Heart, Complete Heart II, and Complete Nerve. Under
the Allergy Research Group(R) label, which is marketed to healthcare
professionals, these products are sold as: Wholly Immune, Take Heart, Take Heart
II, and Steady On. Complete Immune is a comprehensive blend of herbs and
nutrients designed to work synergistically to enhance the body's natural immune
system, decrease oxidative damage, promote liver detoxification, and regulate
cell division. Complete Heart and Complete Heart II are comprehensive
cardiovascular support formulas to support general nutrition, ATP (adenosine
triphosphate) production, catabolism and homocysteine metabolism, anti-oxidant
function and maintenance of serum viscosity and cardiovascular health. Complete
Nerve is a comprehensive neurovascular support formula that provides nutrients
that have been shown to improve blood and oxygen supply to the brain,
potentially improving brain function. This formula provides general nutrition,
precursors for the formation of L-dopa and dopamine, support for the generation
of neurotransmitters, support of healthy emotional response, increased
neuromuscular control and support against oxidative degeneration of central
neurons.

      ESSENTIAL FATTY ACIDS

      It has been clear for some time that many individuals in western society
consume far too many of their calories from fatty foods. However, certain
dietary fats are actually important nutrients. These are considered Essential
Fatty Acids (EFAs). EFAs include linoleic acid and alpha-linolenic acid, which
appear to have vitamin-like activity: they are essential for metabolism and
cannot be produced by the body from simpler molecules. In addition,
gamma-linolenic acid (GLA) is a fatty acid intermediate which may help some

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individuals bypass a "weak-link" in fatty acid metabolism (delta-6-desaturase),
and can be classified as "semi-essential."

      High intakes of cholesterol, saturated fats and hydrogenated fats
("trans-fats") may be undesirable, but consumption of EFAs are a positive factor
in any program for good health. ARG/NutriCology EFAs are derived from the
highest quality sources available and every batch of our fish oil products are
tested for mercury and other potential contaminants.

      GASTROINTESTINAL HEALTH PRODUCTS

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

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

      Our Gastrointestinal Health Products include a variety of products to
support digestion and elimination, intestinal permeability and microbiology.
Perm A vite is a formula designed specifically to support the body's production
of a healthy gastrointestinal lining, necessary in conditions of "leaky gut."
Several unique and potent probiotic formulas, as well as a variety of microbial
balancing formulas, such as Tricycline, containing artemisinin, black walnut
hulls, citrus seed extract, and berberine sulfate have been shown to reduce
unwanted microbes. "Probiotic" is the term used to describe friendly intestinal
bacteria necessary for gastrointestinal health.

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

      IMMUNE SUPPORT

      The immune system is a complex system involving communication between
organs, tissues and chemicals. Its main purpose is to protect the body against
foreign invaders, infection, and disease processes. The primary functions of the
immune system have been understood for a relatively short period of time. The

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current understanding is that the thymus gland (master gland of immunity) grows
rapidly for the first two years of life and continues to grow at a slower rate
until puberty. At that time the amount and strength of the T-cells (thymus
cells) determines the strength of one's immune system. The thymus gland then
slowly shrinks with age, lessening the strength of one's immune system.
Shrinkage of the thymus (decreasing immunity) can be caused by stress,
infection, radiation, drugs such as cortisone, malnutrition, chronic illness and
free-radical damage. Specific nutrients that support the thymus and immune
system as a whole may potentially increase one's immunity.

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

      LIVER SUPPORT PRODUCTS

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

      We have exclusive U.S. distribution rights for Eurocel, a product made
from Korean and Chinese herbs that have been used historically in Oriental
medicine for liver support. Studies on Eurocel indicate positive results in
patients with Hepatitis C, showing a significant decrease in viral titers.

      MULTIPLE VITAMIN / MINERAL PRODUCTS

      We produce a comprehensive multi-vitamin formula called Multi-Vi-Min(R),
formulated by Dr. Levine. Multi-Vi-Min(R) was designed to be a hypoallergenic,
and many people who cannot tolerate other multi-vitamins do well with this
formula. The formula comes in three variations, one containing copper and iron,
one without copper and iron, and one especially formulated for children. In
addition, we produce and market a number of other multi-vitamin and mineral
products on the premise that a quality multiple vitamin/mineral supplement is a
must for everyone. These products include calcium, magnesium, zinc and potassium
based products, as well as two forms of OcuDyne, a formula created exclusively
for the Company by Jonathan Wright, M.D. and Alan R. Gaby, M.D., designed
specifically to support the structure and functions of the eye.

      MUSCULOSKELETAL SUPPORT PRODUCTS

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

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      InflaMed is a product designed to help maintain healthy joint tissue by
supporting the reduction of pain associated with inflammation, reduction of
proinflammatory mediators (prostaglandins, thromboxanes, etc.), and regulation
of the inflammatory response by supporting the body's detoxification systems, as
well as reducing oxidative stress damage induced by inflammation.

      ORGANIC GLANDULARS

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

      SELENIUM PRODUCTS

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

      SPECIALTY PRODUCTS

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

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

      We also have a product developed by SoftGel Technologies called
Glucosol(TM). Glucosol(TM) is a unique standardized leaf extract of
Lagerstroemia speciosa L., a traditional herb from Asia. Processed by water
extraction and standardized to 1% corosolic acid per softgel, Glucosol(TM)
offers superior potency. Corosolic acid, the active triterpenoid, has been
studied for its blood sugar-lowering effects since the 1930's. Recent Japanese
and American Studies have shown that Glucosol(TM) regulates blood sugar by
supporting the body in glucose metabolism and activating glucose transport and
uptake. Our unique, all natural softgel formulation provides optimum efficacy
and enhanced absorption. Maximum effects occur within the first 15 days of

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supplementation, and blood glucose regulation continues for a period of time
after supplementation is discontinued. In addition, Glucosol(TM) has been shown
to support the body in improving carbohydrate metabolism, thereby potentially
being valuable in weight reduction programs.

      Other "specialty products" include three hypoallergenic products known as
NAC (N-Acetyl-L-Cysteine), an antioxidant closely related to L-cysteine but more
stable; Saw Palmetto Complex, which provides the highest quality standardized
Saw Palmetto extract available combined with nutrients that complement its
action; and Super Immuno Complex(TM), a daily high-potency nutritional
supplement packet designed to boost the immune system, antioxidant and essential
fatty acid status, and overall nutrition. NAC, when taken orally, raises blood
and tissue cysteine levels. Cysteine is important for homeostasis, being a key
antioxidant, a glutathione pre-cursor, and a natural source of sulfur for
metabolism. Saw Palmetto extract is a lipophilic extract of saw palmetto
berries, and is a superior product for prostate support.

      Nattokinase, an enzyme derived from boiled soybeans and BACILLUS NATTO,
was added to the product line in 2002. Research has shown nattokinase to support
the body in healthy blood coagulation and to support fibrinolytic activity.

VITAMIN B PRODUCTS

      B vitamins are water-soluble nutrients, which means that they are not
stored in the body and do not remain in the body for very long. Therefore, B
vitamins should be replenished daily. B vitamin insufficiencies can occur easily
during periods of dieting, fasting, malabsorption, or consuming the Standard
American Diet (SAD), which usually includes too many processed foods and excess
sugar. Alcohol and drug intake, including antibiotics, also deplete levels of B
vitamins.

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

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

      VITAMIN C PRODUCTS

      Vitamin C is the body's most important water-soluble antioxidant nutrient
and is involved in a wide variety of biochemical reactions throughout the body.
Included in its functions is the synthesis of collagen, the basis of all
connective tissues, found in virtually every cell of the body. Vitamin C
possesses antioxidant properties and because of its molecular structure, is able
to donate hydrogen atoms from two hydroxyl positions to neutralize free
radicals. In addition, the body uses Vitamin C during detoxification and
inflammation processes, as well as immune system functions including: the
production of white blood cells, histamine release and degradation, the
reduction of glutathione and the metabolism and protection of several other
nutrients. In combination with other nutrients, Vitamin C also supports the
production of certain neurotransmitters.

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      The Company has pioneered the development of Buffered Vitamin C products,
and continues to offer the purest and least allergenic Vitamin C products
available anywhere. In addition to its hefty content of ascorbic acid, our
Buffered Vitamin C also supplies potassium and the macrominerals calcium and
magnesium at approximately one half of the RDI per level teaspoon. Due to its
generous complement of calcium (405 mg per teaspoon), supplementation with our
Buffered Vitamin C may be desirable for individuals who do not regularly consume
dairy products. Developed by Dr. Stephen Levine, our Buffered Vitamin C products
are well tolerated by sensitive individuals. The latest addition to our Buffered
Vitamin C products is a unique cassava root (of the potato family) source
Buffered Vitamin C. All of our Buffered Vitamin C products are formulated with
carbonates of potassium, calcium and magnesium, giving them an acid-alkaline
buffering action (pH 7.0 in water), potentially improving bowel tolerance and
minimizing hyperacidity.

INDUSTRY OVERVIEW

      The market for vitamins, minerals and other dietary supplements (excluding
sports nutrition, food bars, diet products and functional foods) (the "VMS
Products") grew rapidly between 1994 and 1998, following the passage of the
Dietary Supplement Health and Education Act ("DSHEA") in October 1994. Prior to
DSHEA, dietary supplements were subject to the same regulatory requirements as
were other foods. The new law created a new regulatory framework for the safety
and labeling of nutritional supplements. See "Regulation" below.

      Packaged Facts, an independent research firm, reported that the market for
VMS Products grew at a compound rate of 15.4% from $5.0 billion in 1994 to $8.9
billion in 1998. A large portion of that growth was attributable to an increase
in sales of supplements (primarily herbal), which grew from $1.3 billion in 1994
to $3.9 billion in 1998. Growth in this category was fueled by the widespread
publicity surrounding such herbs as echinacea, garlic, ginseng, gingko, Saw
Palmetto and St. John's Wort.

      Nutritional Outlook reported in March 2003 that market growth had
decreased significantly to 36% from 1999 to 2002, with the expectation that
during the next few years the growth rate would reach a mature level of 56%.
According to Nutritional Outlook, the U.S. nutrition industry in March 2003 was
worth approximately $53 billion, divided into the following, primary segments:

      -     Natural and organic foods ($12.6 billion)
      -     Supplements ($17.7 billion)
      -     Functional foods ($18.5 billion)
      -     Natural personal-care and household items ($4.1 billion)

      A report published by Key Note, Ltd. in January 2003 indicates that,
during 2002, retail sales of functional foods grew by an estimated 9.2%, while
the retail sale of VMS Products fell by 3.6%. The Key Note report estimated that
the nutraceuticals market, as a whole, increased in value by 37.7% between 1998
and 2002. The report stated that positive factors included an increase in
consumer interest in a healthy diet and lifestyle, and taking charge of health
issues, in an aging population where health awareness has increased in
importance. Consumer health concerns are coupled with concerns over taking
multiple prescription drugs. According to Nutritional Outlook, the market for
condition-specific supplements will increase as consumers look for optimal
solutions to their specific health conditions.

      Despite the prediction for flat growth in the VMS Products industry, Key
Note did conclude that multivitamins continue to represent one of the only
growth sectors in the VMS Products market, primarily due to children's and
"complete" products. In a study published by Joseph Marra, Director of Marketing
at The Natural Marketing Institute in Harleysville, Pennsylvania, in the
November 2002 issue of Nutraceuticals World, indicated that the 52-week period
ended September 15, 2002 showed multivitamins as the top selling supplement. The

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study indicated that multivitamins, which have led the category for several
years, continue to lead, with a growth rate of 4.7% for the period in 2002. At
the same time, the market showed a significant decrease for herbal supplements,
with an overall decrease of 9%. The period showed an increase in sales of
supplements packaged as "antioxidants." Overall, the study indicated an increase
of 1.3% of total category sales of vitamins and minerals, compared to the
preceding 52-week period.

      The Natural Marketing Institute concluded that there were multiple causes
for the market changes reflected in its study, including, but not limited to,
the following:

         - As consumer knowledge of a product increases, they grow weary of the
         supplement and seek to move on to a younger, more attractive
         supplement. For example, the study reflected a decrease in sales of
         vitamins C and E (well known antioxidants) but an increase in sales of
         other supplements actually packaged as "antioxidants."

         - Publicity surrounding the efficacy, potency and possible herb and
         drug interactions resulted in a decline in sales of herbal supplements.
         Herbs and botanicals have been the most effected by negative publicity.

         - Conflicting information regarding the value of natural foods and the
         effect of modern production methods on actual nutritional value cause
         some consumers to opt for more natural foods as opposed to supplements,
         while other seek to supplement their diets with necessary vitamins and
         minerals in order to replace nutrients which may have been eliminated
         in the production process.

         - Consumers tend to develop unreasonable expectations as to the
         benefits of supplements. 42% of the consumers surveyed indicated that
         they had ceased using vitamins and/or minerals due to lack of
         recognizable benefits, while the number for herbal supplements exceeded
         50%. Despite this, the study still indicated that "overall credibility"
         was cited by only 6 to 7% of consumers as the reason for cessation of
         use. This trend indicates that consumers may believe in the products,
         but are still unsatisfied with the speed and noticeability of results.

      Nutritional Outlook reported in March 2004 that herb sales continued to
slide (decreasing 13% overall), while category sales of vitamin products
increased 46%, with unit sales increasing only 13%. Nutritional Outlook
contributed the increase in category sales to sales of multivitamin products,
stating that while multivitamins remained stable, single-category vitamins have
not recovered from downslides in the prior year. Decline in sales of herbal
products was attributed to bad or negative publicity, including publicity
surrounding the effects of ephedra. Nutritional Outlook further reported a move
by suppliers into "value-added" products, ingredients and functional food. Key
Note reported in 2003 that negative factors affecting the industry included
consumer skepticism over the need for VMS Products and possible adverse effects
of taking overly large doses of some vitamins.

      The Key Note report indicated that new legislation from multiple
regulatory bodies was expected to slow the launch of new products. According to
Nutritional Outlook, legislation anticipated in 2003 will, most likely, be
passed in 2004; including proposals on good manufacturing practices.

      Vitamins and nutritional supplements are sold through seven primary
distribution channels: natural food and specialty retail (including health food
stores and supplement/chain stores), mass-market retailers (drug store chains,
supermarkets and other mass merchandisers), direct sales channels (including
multilevel marketing and catalog distribution), e-commerce via the Internet,
mail order, direct TV (for example, infomercials), and professionals. According
to Nutritional Outlook, roughly 70% of all products are sold in retail outlets,
including health food stores, supplement and/or chain stores, supermarkets,

                                       12
<PAGE>

grocers and drug stores. The other 30% is sold either directly to consumers
through catalogs, the Internet or television and radio advertising, as well as
multilevel marketers. Although the 2003 Nutritional Outlook study showed only a
small amount of product being sold through medical professionals and
alternative-healthcare providers, practitioners were considered the
highest-growth category "with potential as an untapped source of consumer
access, especially with physicians." E-commerce was also listed as having high
growth potential; however, the study states that this growth should cap out at
about 4% of the industry by 2010.

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

      We expect that the aging of the United States population, together with a
corresponding increased focus on preventative health measures, 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.

      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 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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      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 200 different
vitamin and nutritional supplement products with varying degrees of potency and
in a variety of forms (including capsules, liquids, powders, softgels, tablets
and creams). 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.

      Following are some brief descriptions of a few of our competitors, which
more directly compete with us in the VMS Product sector:

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

      METAGENICS, INC. Metagenics produces some products which are similar to
ours; however, as the practitioner provider division of Health World Limited, it
limits access to its products to healthcare practitioners and patients referred
by healthcare practitioners registered with Metagenics.

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

      JARROW FORMULAS. Jarrow manufactures high quality products that are
marketed in the retail market. We believe their products are of a higher quality
than some of the mass-market product lines like Twinlab and KAL, and their
products are generally priced a little lower than ours.

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

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

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

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

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

MARKET STRATEGIES

      We have divided sales into multiple market channels:

            o     Professional accounts - Physicians, nutritionists,
                  chiropractors and health care professionals (35%).

            o     Distributor accounts - Sales to distributors (to be resold to
                  the professional or retail markets) (47%).

            o     Retail accounts - Healthfood stores and direct sales to
                  consumers (18%).

      The Company markets its products under two brand names, 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 the
retail market and the Allergy Research Group(R) brand to the professional
market.

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

REGULATION

      The manufacturing, processing, formulating, packaging, labeling and
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the United States Food and Drug Administration (the
"FDA"), the Federal Trade Commission (the "FTC"), the United States Department
of Agriculture and the Environmental Protection Agency ("EPA"). These activities

                                       15
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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 it 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. It is expected
that the members of Congress will be asked to pass a bipartisan bill opening
DSHEA up for modification sometime during 2004, and it appears likely that
changes will be adopted. According to the March 2004 edition of Nutritional
Outlook, the industry has formed a coalition comprised of dietary supplement
manufacturers, industry trade associations and other supporters to help defeat
challenges to DSHEA. 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.

      During March 2003, the FDA issued proposed current good manufacturing
practice ("CGMP") regulations for dietary ingredients and dietary supplements.
If adopted as proposed, the new rule would 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 proposed rule also contains requirements
for the design and construction of physical plants, and establishes quality
control procedures and procedures for testing manufactured dietary ingredients
and dietary supplements. Finally, the rule includes requirements for maintenance
of records and handling of consumer complaints related to the CGMPs.

      The proposed rule is designed to cover all types of dietary supplements.
However, recognizing that the new rule, 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 proposed rule was
available for public comment for five months (through August 11, 2003) with
implementation of final regulations expected in 2004.

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      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, advertising and label
claims for dietary supplements have been regulated by state and federal
authorities under a number of disparate regulatory schemes. There can be no
assurance that a state will not interpret claims presumptively valid under
federal law as illegal under that state's regulations, or that future FDA or FTC
regulations or decisions will not restrict the permissible scope of such claims
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 November 18, 1998, the FTC published "Dietary Supplements: An
Advertising Guide for Industry," a guide describing FTC policy governing dietary
supplement advertising. The guide provides additional explanation but does not
substantively change the FTC's policy requiring that product claims be truthful
and supported by adequate substantiation as to the truthfulness of the claim.

      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
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.

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

      We cannot predict the nature of any future laws, regulations,
interpretations or applications, nor can we determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on the Company's business in the future. They could, however, require
the reformulation of certain products to meet new standards, the recall or
discontinuance of certain products not capable of reformulation, additional
record keeping, expanded documentation of the properties of certain products,
expanded or different labeling, and/or scientific substantiation. Any or all of
such requirements could have a material adverse effect on our results of

                                       17
<PAGE>

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.

EMPLOYEES

      As of the date of this report, the Company employs approximately 29
full-time and four 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 13
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.

ITEM 2.    DESCRIPTION OF PROPERTY

      Our main administrative office and warehouse, located in Hayward,
California, are under a five-year lease, which commenced June 1, 1998. The lease
contains a provision allowing for an increase in rent of 5% every 15 months. The
property consists of approximately 25,440 square feet of office and warehouse
space, of which approximately 5,500 square feet is office space and 19,940
square feet consists of warehouse space. The Company previously maintained a
second warehouse for warehousing and packaging purposes, which was sublet during
the period ended December 31, 2003, for $1,900 per month. This sublease was
terminated as of June 30, 2003 when our lease was renegotiated to exclude this
property and to extend the term one year. During February 2004 the lease was
modified to extend the term to December 31, 2004 with an option to rent the
building for three additional months. During fiscal years ended 2003 and 2002,
the Company paid rent on its facilities of $313,987 and $368,300 respectively.
Rental expense was offset by sublease income of $10,175 for 2003 and $91,520 for
2002 for total rent expense of $303,812 (2003) and $276,780(2002).

ITEM 3.   LEGAL PROCEEDINGS

      In 1993, a lawsuit was filed in the Circuit Court of the 15th Judicial
Circuit in and for Palm Beach County, Florida by NutriSupplies, Inc., successor
in interest to rights of Robert H. Harris and the Earth Harvest, Inc. against
NutriCology, Inc. (which has since become a wholly-owned subsidiary of the
Company), Stephen A. Levine (officer, director and beneficial shareholder of the
Company) and Nicholas Gonzales, M.D. This matter is a contract dispute between
Dr. Gonzales and NutriSupplies, Inc., which alleges that Dr. Gonzales violated

                                       18
<PAGE>

their contract agreement and then returned to NutriCology to supply his
patients' needs. NutriCology and Dr. Levine were named in the suit only because
NutriCology had been Dr. Gonzales' supplier. Dr. Gonzales has agreed to fully
indemnified NutriCology and Dr. Levine from any wrongdoing. A motion for summary
judgment was granted in favor of NutriCology, but was appealed. On June 6, 2001,
the appellate court affirmed the grant of that motion, and NutriSupplies filed a
Motion for Rehearing and Request for Oral Argument. That motion was denied and
no further appeals have been filed. NutriCology had requested reimbursement of
attorneys' fees, which were denied. NutriCology appealed that decision, and won.
During 2003, the Company was paid $250,000 as part of the settlement. A lawyer
who was previously representing Dr. Gonzales has asserted a lien against the
settlement for 35% of the proceeds plus costs of $64,000. The Company is
contesting the claim.

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

      None.

                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

      The Company's Common Stock is traded on the Over-the-Counter Bulletin
Board under the symbol "ALRG." The following table sets forth the trading
history of the Common Stock on the Over the Counter Bulletin Board and the Pink
Sheets for each quarter of fiscal years end December 31, 2002 and 2003 as
reported by Dow Jones Interactive or 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
                   ------             ----            ---
                  3/31/2002          $0.18           $0.091
                  6/30/2002          $0.18           $0.10
                  9/30/2002          $0.38           $0.15
                  12/31/2002         $0.345          $0.19
                  3/31/2003          $0.42           $0.17
                  6/30/2003          $0.64           $0.29
                  9/30/2003          $0.99           $0.40
                  12/31/2003         $0.92           $0.71
                  3/28/2004*         $0.73           $1.50

* Reflects partial period.

                                       19
<PAGE>

HOLDERS

      As of December 31, 2003, there were approximately 107 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. The Board of Directors
plans to retain earnings, if any, for operations and does not intend to pay
dividends in the foreseeable future.

<TABLE>
EQUITY COMPENSATION PLAN INFORMATION
<CAPTION>
-------------------------------------------------------------------------------------------------------
                           (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))
-------------------------------------------------------------------------------------------------------
<S>                        <C>                            <C>                        <C>
Equity
compensation plans
approved by
security holders           513,250                        $0.88                      486,750
-------------------------------------------------------------------------------------------------------
Equity
compensation plans
not approved by
security holders                 0                        $0.00                            0
-------------------------------------------------------------------------------------------------------
Total                      513,250                        $0.88                      486,250
</TABLE>

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

                                       20
<PAGE>

of our financial condition, changes in financial condition and results of
operations. The MD&A is organized as follows:

     - 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.

     - 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.

     - OVERVIEW. This section provides a general description of the 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.

     - RESULTS OF OPERATIONS. This section provides an analysis of our results
     of operations for the years ended December 31, 2003 compared to 2002. A
     brief description is provided of transactions and events, including related
     party transactions, that impact the comparability of the results being
     analyzed.

     - 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, 2003.

-    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.

-    RECENT ACCOUNTING PRONOUNCEMENTS. 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
which affect our business, included in this section and elsewhere in this
report.

                                       21
<PAGE>

FACTORS THAT COULD AFFECT FUTURE RESULTS

      Factors that might cause actual results, performance or achievements to
differ materially from those projected or implied in such forward-looking
statements include, among other things: (i) the impact of competitive products;
(ii) changes in law and regulations; (iii) adequacy and availability of
insurance coverage; (iv) limitations on future financing; (v) increases in the
cost of borrowings and unavailability of debt or equity capital; (vi) the effect
of adverse publicity regarding nutritional supplements; (vii) the inability of
the Company to gain and/or hold market share; (viii) exposure to and expense of
resolving and defending product liability claims and other litigation; (ix)
consumer acceptance of the Company's products; (x) managing and maintaining
growth; (xi) customer demands; (xii) market and industry conditions including
pricing, demand for products, levels of trade inventories and availability of
raw materials; (xiii) the success of product development and new product
introductions into the marketplace; (xiv) slow or negative growth in the
nutritional supplement industry; (xv) the departure of key members of
management; (xvi) the ability of the Company to efficiently manufacture its
products; (xvii) the effect of proposed legislation regarding the labeling,
facilities and quality control of our products; (xviii) the effect of FDA
guidance documents for increased inspections of food ingredients on the dietary
supplement industry; (xix) the effect of the U.S. War on Terrorism and
activities in Iraq; as well as other risks and uncertainties that are described
from time to time in the Company's filings with the Securities and Exchange
Commission, and elsewhere in this report.

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 branded and private label products, 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 and to
retailers. We offer a line of approximately 200 products, including vitamins in
both multivitamin and single-entity formulas, minerals, and herbals. Our
products are manufactured in various forms, including capsules, tablets,
softgels, powders (drink mixes), liquids and creams. Our principal executive
offices are located at 30806 Santana Street, Hayward, California 94544 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.

      We will continue to work with Dr. Hoang on his proprietary herbal formulas
with a view to developing additional research that can be marketed to the
pharmaceutical and nutraceutical industries. This process is limited to
literature work, including patent submissions for potential products. The
research can be marketed to pharmaceutical companies either through direct sell
of the research to the pharmaceutical company, or through a joint venture
arrangement between the pharmaceutical company and the Company whereby the
parties will jointly own the patent and continue development of the products. It

                                       22
<PAGE>

is our hope that, during the process of research into possible pharmaceutical
and nutraceutical products, we will test new herbal products, or additional uses
for existing herbal products, that can be added to our current line of products
as health food or dietary supplements.

      The Company is 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, 2003 COMPARED TO DECEMBER 31, 2002

      REVENUES. During the fiscal year ended December 31, 2003, we had net sales
of $13,652,856, representing an increase of $968,443 from net sales of
$12,684,413 during fiscal year ended December 31, 2002. The overall increase of
8% was driven by an increase in direct sales to retail customers of
approximately 35% and an increase in sales to distributors of approximately 9%,
while sales directly to professionals and health food stores showed modest
increases. The increase in sales is primarily the result of the introduction of
new products and effective marketing efforts.

      COST OF SALES. Cost of sales increased $236,163 to $7,823,958 for the year
ended December 31, 2003, compared to $7,587,795 for the year ended December 31,
2002. The increase in cost of sales corresponds with the increase in sales.
Gross profit margins increased approximately 2.5%, to approximately 42.7% for
2003, as a result of the higher margins associated with retail sales.

      OPERATING EXPENSES. Total operating expenses decreased by approximately
$318,015 or 8% to $3,866,814 for the year ended December 31, 2003 from
$4,184,829 for the year ended December 31, 2002, primarily attributable to the
reduction in our outside sales staff, a new telephone contract which reduced
telephone expense, a reduction in depreciation expense associated with fully
depreciated assets that are still in good working condition, less reliance on
outside consultants, and a reduction in legal fees associated with a settlement
received on the NutriSupplies, Inc. case discussed at ITEM 3. These reductions
in operating expenses were offset by increases in medical, workers compensation
and liability insurance.

      INTEREST EXPENSE. Interest expense decreased approximately $30,304 for the
year ended December 31, 2003, as compared to December 31, 2002, as a result of
declining interest rates and because the line of credit was not used during
2003..

      INCOME TAXES. As of December 31, 2003, we recorded a deferred tax asset of
$284,024 to be realized as a result of future taxable income offset by net
operating loss carryforwards. As of fiscal year ended December 31, 2003, we had
approximately $560,000 and $1,400,000, respectively, available in federal and
state net operating loss carryforwards to offset future taxable income, which
expire principally in the year 2019 (federal) and 2011 (state).

      NET INCOME. During the period ended December 31, 2003, we experienced net
income of $1,643,770, as compared to net income of $997,862 for the period ended
December 31, 2002. The increase is a reflection of the increase in sales, higher

                                       23
<PAGE>

profit margins, a reduction in selling and general and administrative expenses,
and the reduction of interest expense.

      EARNINGS PER SHARE. Earnings per share have increased to $0.11 per share
for the year ended December 31, 2003, versus $0.07 per share for the same period
in 2002.

LIQUIDITY AND CAPITAL RESOURCES

      For the past four years combined we have generated net income of
$3,233,165. We believe that we will continue to generate net income. We are
currently financing our operations through cash generated by operating
activities.

      FISCAL YEAR ENDED DECEMBER 31, 2003 COMPARED TO DECEMBER 31, 2002

      Cash Flows

      OPERATING ACTIVITIES. Net cash flow provided by operating activities was
$1,609,484 and $882,997 for the years ended December 31, 2003 and 2002,
respectively. Net cash provided by operating activities for both years primarily
reflects net income and changes in operating assets and liabilities, partially
offset by non-cash expenses.

      INVESTING ACTIVITIES. Net cash flows provided by investing activities
during 2003 was $3,314 primarily resulting from repayments from officers for an
outstanding loan, offset by purchases of computer equipment and copy machines.
Net cash flows used in investing activities during 2002 was $35,767 and was
related to purchases of an automobile, computer software and miscellaneous
office equipment; repayments from officers offset these expenditures.

      FINANCING ACTIVITIES. Net cash flows used in financing activities during
2003 and 2002 was $248,271 and $706,727, respectively, consisting primarily of
purchases of treasury stock and repayments on the line of credit (2002) and
capital lease obligations. During 2003, stock options were exercised yielding
cash proceeds of $8,000.

      COMMON STOCK REPURCHASE PROGRAM. On May 3, 2002, we announced a stock
repurchase plan, whereby the Company may repurchase between 1,000,000 and
2,500,000 shares of its common stock in open market transactions, from time to
time, during the succeeding two years in compliance with Rule 10b-18 of the
Securities Exchange Act of 1934 and all other applicable securities regulations.
Since the inception of the plan through December 31, 2002, the Company
repurchased 383,250 shares of common stock for $81,573. On May 12, 2003, options
for all of the repurchased shares of common stock were granted to employees
under the 1998 Stock Option Plan. During December 2003, we repurchased 250,000
shares of common stock from our chief executive officer for $207,500. We plan to
use these shares to provide additional stock options to key employees for
incentive purposes.

      Current Financial Condition/Risk Analysis

      At December 31, 2003, the Company had positive working capital of
$3,503,764, compared to working capital at December 31, 2002 of $1,873,215.
Working capital more than doubled year over year as a result of our cash flows
generated from operating activities, which has significantly increased our cash
position and allowed us to minimize outstanding liabilities. We have been
successful in paying down our outstanding debt as a result of overall decreased
operating expenses and increased revenues. Substantially all of our current
liabilities are due within 60 days or less and approximately 97% of our accounts
receivable are due within 60 days or less. We have focused our cash management
efforts on actively managing our receivables and payables. We finance our

                                       24
<PAGE>

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 2003, we experienced a concentration of approximately 58% of our
manufacturing with four separate vendors (concentration ranging from 28% to 9%
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. However, 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.

      Approximately 12% of our total sales in 2003 were attributable to a single
distributor. In the event we were to lose that account, we anticipate that we
would be able to convert the business to 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.

      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, and, in addition, we have available net operating loss
carryforwards of approximately $560,000 (federal) and $1,400,000 (state) to
offset future taxable income.

      The U.S. economy in general is being adversely affected by past terrorist
activities and the threat of future activities, the War on Terrorism and current
military actions in Iraq, Afghanistan and Haiti. 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 addition, 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 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, during March 2003, the FDA issued proposed current good
manufacturing practice (CGMP) regulations for dietary ingredients and dietary
supplements. If adopted as proposed, the new rules would 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 proposed rule also contains
requirements for the design and construction of physical plants, and establishes
quality control procedures and procedures for testing manufactured dietary
ingredients and dietary supplements. Finally, the rule includes requirements for
maintenance of records and handling of consumer complaints related to the CGMPs.

                                       25
<PAGE>

      The proposed rule is designed to cover all types of dietary supplements.
However, recognizing that the new rule, 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 became effective. If the proposed rule
is adopted as proposed, we will attempt to spread the implementation expenses
across the three-year phase-in period and may incur some of these expenses
during the next twelve months of operations.

      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>
  Line of Credit (1)
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Capital Lease
  Obligations
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Operating Leases                   $280,827           $271,017              $9,810
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Total Cash Contractual
  Obligations                        $280,827           $271,017              $9,810
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
</TABLE>

      (1)   This represents our borrowings under the line of credit with Merrill
            Lynch, which had a zero balance as December 31, 2003 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
            Interbank Offered Rate (LIBOR) plus 2.75%, computed on a monthly
            basis. As of December 31, 2003, the interest rate on the line of
            credit was 3.878% 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.

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.

                                       26
<PAGE>

      INCOME TAXES

        SFAS 109, Accounting for Income Taxes, establishes financial accounting
and reporting standards for the effect of income taxes. The objectives of
accounting for income taxes are to recognize the amount of taxes payable or
refundable for the current year and deferred tax liabilities and assets for the
future tax consequences of events that have been recognized in an entity's
financial statements or tax returns. Judgment is required in assessing the
future tax consequences of events that have been recognized in our financial
statements or tax returns. Fluctuations in the actual outcome of these future
tax consequences could materially impact our financial position or our results
of operations. Our deferred tax asset on the consolidated balance sheet is
recognized primarily as a result of net operating loss carryforwards. In the
event that the Company did not generate any taxable income within the next year,
the asset would be overstated. 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, and future taxable
income 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 such determination is made. Likewise,
if we later determine that it is more likely than not that the net deferred tax
assets would be realized, the previously provided valuation allowance would be
reversed. This asset represents approximately 6% of total assets at December 31,
2003.

      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.

      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.

RECENT ACCOUNTING PRONOUNCEMENTS

      The Financial Accounting Standards Board has issued the following
accounting pronouncements, none of which are expected to have a significant
effect, if any, on the our financial statements:

            JANUARY 2003 - Interpretation No. 46 "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51" (FIN 46). FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003.

                                       27
<PAGE>

            APRIL 2003 - SFAS No. 149, "Accounting for Amendment of Statement
133 on Derivative Instruments and Hedging Activities." This Statement is
generally effective for contracts entered into or modified after June 30, 2003,
and all provisions should be applied prospectively.

            MAY 2003 - SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003.

ITEM 7.   FINANCIAL STATEMENTS

      Please see our audited consolidated financial statements for the period
ended December 31, 2003, as compared to the period ended December 31, 2002,
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.

                                    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.

                                       28
<PAGE>

NAME                                  POSITION HELD(1)
----                                  -------------
Stephen Levine, Ph.D.                 Chief Executive Officer, Chief Financial
30806 Santana Street                  Officer, and Chairman of the Board
Hayward, CA 94544

Manfred (Fred) Salomon                President
30806 Santana Street
Hayward, CA  94544

Susan Levine                          Vice-President, Secretary, Director
30806 Santana Street
Hayward, CA 94544

Ed Kane(1)                            Director
45 Reese Road
Millville, NJ 08332

         (1) Mr. Kane acts as an independent director for the Company.

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

      STEPHEN LEVINE, PH.D. (54) 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. 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. Dr. Levine is the author of AntiOxidant
Adaptation, Its Role in Free Radical Pathology. Dr. Levine is the husband of
Susan Levine, who acts as Vice-President of the Company.

      FRED SALOMON (65) has served as President since August 12, 2003. He was
hired in 2002 to fill the role of Director of Operations. 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 (50) has served as the Secretary, Director, and
Vice-President to the Company since December 1997. Mrs. Levine resigned her
board membership temporarily between January 1999 and January 2000. Since 1980,
Mrs. Levine has worked with her husband, Dr. Stephen Levine, in the creation and
development of the Company. Prior to working for the Company, Mrs. Levine was
the Director of Senior Housing ECHO, a non-profit organization located in
Hayward, California, where her duties included grant writing and coordination of
workers for social programs.

      ED KANE (76) 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

                                       29
<PAGE>

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 ($240 million per year in sales) and Bergen Brunswig ($140
million per year), where he held titles of Purchasing, Operation and
Distribution Manager. Mr. Abbott holds a B.S. degree in Business Administration
from California State University, Sacramento, where he graduated in 1980.

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

      LAURA JOHNSON, CPA, 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 Director of Quality Control to the
Company since 1998. Dr. Voloshko came to the Company with a Ph.D. in chemistry
from the Moscow University of Chemical Technology. Dr. Voloshko was the Chemical
Department Chief at the Laboratory of Forensic Science in Riga Latvia for twelve
years from 1984 through 1997 before coming to the U.S. Dr. Voloshko keeps
abreast of all FDA regulations related to the nutritional supplement industry,

                                       30
<PAGE>

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 Fibro Mialgia. Dr. Anderson was one
of the first Bay Area Physicians to focus on the causes of Chronic Fatigue. His
extensive work in immune system dysfunctions 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
for approximately two years. He specializes in cardiovascular health, using a
preventive medical approach in both his cardiovascular and anti-aging protocols.
Dr. Ghaly has appeared on several local television programs focusing on
cardiovascular health, as well as lecturing at conferences worldwide, most
notably in the Soviet Union in 1992 at the Cardiovascular Institute. Dr. Ghaly
has acted as a diplomat for the American Board of Anti-Aging Medicine (June
1999) and for the American Board of Anesthesiology (March 1975). For the past
five years, he has been engaged in private practice in Beverly Hills, CA, and
acts as President of the Rejuvenation & Longevity Medical Clinic. Dr. Ghaly
received his M.D. from the University of Alexandria Medical School in
Alexandria, Egypt in 1965, with internships and residencies in Egypt, Canada and
Johns Hopkins Hospital in Baltimore, MD.

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

                                       31
<PAGE>

      DR. MICHAEL ROSENBAUM MD. Dr. Rosenbaum has been consulting with Dr.
Levine since inception of NutriCology. He is an original member in the
Orthomolecular Medical Society under Linus Pauling. Dr. Rosenbaum previously
held the position of President of the Orthomolecular Medical Society and is an
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, could
have a material adverse effect on the Company if a suitable replacement were not
found. Our future success is likely to depend substantially on 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. Our independent
director, in consultation with our outside auditing firm, reviews the audited
financial statements annually.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     To our knowledge, all reports which were required to be filed by our
directors, officers or principal shareholders during 2003 under Section 16(a) of
the Securities Exchange Act of 1934, were timely filed with the exception of
Form 3 due to be filed by our President following his appointment to the office
on August 12, 2003. The filing was inadvertently missed and filed on February
25, 2004.

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:

                                       32
<PAGE>

<TABLE>
                                                   SUMMARY COMPENSATION TABLE
<CAPTION>
                                                                         Long Term Compensation
                                                                  --------------------------------------
                                      Annual Compensation                   Awards             Payouts
                               ---------------------------------- --------------------------- ----------
                                                        Other                     Securities
                                                        Annual      Restricted      Under-                All Other
                                                        Compen-       Stock         lying       LTIP       Compen-
Name and Principal               Salary      Bonus      sation       Award(s)      Options     Payouts     sation
Position               Year        ($)        ($)         ($)          ($)           (#)         ($)       ($) (1)
-------------------- --------- ---------- ----------- ----------- ------------ -------------- ---------- -----------
<S>                  <C>         <C>         <C>       <C>         <C>                <C>      <C>           <C>
Stephen Levine, CEO  2001        225,246                                                                     17,355
                     2002        250,000      90,000                                                         16,505
                     2003        299,846                                                                     10,890

Manfred (Fred)       2001
Salomon,             2002(2)      43,077      25,000
President            2003        112,308     100,000                                  98,250                  3,923

Susan Levine,        2001        129,981                                                                      6,751
Secretary            2002        141,940      50,000                                                          7,500
                     2003        179,255                                                                      8,743
</TABLE>

      (1)   Includes matching funds contributed under the Company's 401(K) Plan,
            auto allowances (2001-2002) and premiums paid on Officer Life
            Insurance and disability policies.
      (2)   Mr. Salomon began working for the Company on July 15, 2002 as the
            Director of Operations. He was appointed President on August 12,
            2003.

During the last fiscal year ended December 31, 2002, we did not grant any stock
options to executive officers. Options granted in 2003 are included in the table
below:

<TABLE>
<CAPTION>
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
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
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S>                       <C>                    <C>                     <C>                    <C>
Manfred Salomon           98,250                 26%                     $.40 per share         05/12/2008
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>

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

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

                           Shares Acquired on                           Exercisable/          Exercisable/
Name                       Exercise (#)           Value Realized ($)    Unexercisable         Unexercisable
-------------------------- ---------------------- --------------------- --------------------- ----------------------
<S>                                            <C>                   <C>     <C>                   <C>
Susan Levine                                   0                     0       150,000/0               0/0(1)
Manfred Salomon                                0                     0        98,250/0             37,335/0(2)
</TABLE>

                                       33
<PAGE>

      (1)   In 1999, the Company issued options to purchase 150,000 shares of
            Common Stock to Susan Levine as compensation for her services as an
            officer of the Company. These options are exercisable for an
            exercise price of $2.00 per share and expire on January 26, 2004.
      (2)   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, 2003.

EMPLOYMENT AGREEMENTS

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

                                       34
<PAGE>

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 up to 15 percent of their annual compensation, subject to certain
limitations, and the Company will match 50 percent of an employee's
contribution. The Company will not match before tax contribution amounts in
excess of 6% of the employee's compensation. Total provisions with respect to
these plans approximated $33,000 and $43,600, for the years ended December 31,
2002 and 2003, 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.com, at any time during a plan year. At the end of
each plan year, the employees will forfeit any unspent monies unless requests
for reimbursement are made no later than 60 days after the end of the year. We
will 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.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table provides information as of December 31, 2003
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.

                                       35
<PAGE>

<TABLE>
------------------------------ ----------------------------------- ---------------------------- --------------------
                                 Name and Address of                  Amount and Nature of          Percent of
Title of Class                    Beneficial Owner                    Beneficial Ownership          Class(1)(2)
------------------------------ ----------------------------------- ---------------------------- --------------------
<S>                            <C>                                               <C>                    <C>
$.001 par value                Stephen A. Levine, Ph.D.
common stock                   30806 Santana Street                              10,113,250             71%(3)
                               Hayward, CA 94544

$.001 par value                Susan D. Levine
common stock                   30806 Santana Street                              10,263,250(4)          71%
                               Hayward, CA 94544

$.001 par value                Manfred Salomon                                       99,750(5)          .7%
common stock                   30806 Santana Street
                               Hayward, CA  94544

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

(1)   Where persons listed on this table have the right to obtain additional
      shares of Common Stock through the exercise of outstanding options or
      warrants or the conversion of convertible securities within 60 days from
      December 31, 2003, 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 14,492,105 shares outstanding on March 8, 2004.
(3)   Represents shares held jointly with the Company's Secretary, Susan D.
      Levine, as community property. Percentage calculation includes currently
      vested options held by Susan D. Levine.
(4)   Includes 10,113,250 shares held jointly with our Chief Executive Officer,
      Stephen A. Levine, and options to purchase 150,000 shares of common stock
      at an exercise price of $2.00 per share which are fully vested.
(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

      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.

      Stephen and Susan Levine loaned NutriCology approximately $286,000 prior
to its reverse acquisition by the Company in 1998. The loan has been offset and
exceeded by advances made to the Levines between 1997 and 1999, seventy-three
percent (73%) of which were made prior to the reverse acquisition. Each advance
has been made as a non-interest bearing, due on demand loan on the books of the
Company. Interest (8% per annum) has been accrued and paid on these loans in the
amount of $5,137 and $8,723 for the years ended December 31 2003 and December
31, 2002, respectively. The Company's audited financial statements indicate that
as of December 31, 2003 and 2002, the amounts due from Dr. Levine were $55,730
and $127,691, respectively.

      In 1999 Dr. Levine stepped down from his CEO position to focus on the
development of new products. He and his wife, Susan Levine, formed Inventive
Biomedical, LLC, a California limited liability company ("IBM"), as a research
and development firm. As of December 31, 2003 and 2002, IBM owes the Company
$5,000 and $15,750, respectively. On January 1, 2004, the Company purchased
IBM's inventory for $7,577, after netting the amount due, the Company paid IBM
$2,577.

                                       36
<PAGE>

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
Subsidiaries of the Registrant                                           21
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
Consent of Independent Auditor                                           23.1
Haight-Ashbury Free Medical Clinic Design Research Survey*               99.1
Certificate of Stephen A. Levine Pursuant to Section
      1350 of Chapter 63 of Title 18 U.S. Code                           99.2

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

(b)   Form 8-K Reports

           None.

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, 2003 and 2002. 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 had determined
that the payment of such fees is compatible with maintaining the independence of
the accountants.

                                       37
<PAGE>

     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, 2003 was $40,050
and December 31, 2002 was $37,315.

Audit-Related Fees

     None.

Tax Fees

     The aggregate fees billed for tax compliance rendered by our independent
auditors for the years ended December 31, 2003 was $5,000 and December 31, 2002
was $6,900. The services comprising these fees include tax consulting and
submitting the tax return.

All Other Fees

     None.

                                       38
<PAGE>

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


Independent Auditors' Report.......................................       F-2

Consolidated Balance Sheet ........................................       F-3

Consolidated Income Statements.....................................       F-4

Consolidated Statements of Changes in Stockholders' Equity.........       F-5

Consolidated Statements of Cash Flows..............................       F-6

Notes to Consolidated Financial Statements.........................   F-7 - F-16

                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


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, 2003 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for two preceding years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these statements based on our audits.

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

In our opinion the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 2003, and the consolidated results of its operations and its cash
flows for the periods indicated in conformity with generally accepted accounting
principles in the United States of America.



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

February 12, 2004

                                      F-2
<PAGE>
<TABLE>
                        ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                                CONSOLIDATED BALANCE SHEET
                                     DECEMBER 31, 2003
<CAPTION>

<S>                                                                           <C>
ASSETS
------
Current assets
   Cash and cash equivalents                                                  $ 1,704,529
   Accounts receivable, net of allowance for doubtful accounts of $54,000         677,947
   Inventories (Note 3)                                                         1,596,727
   Prepaid expenses and other current assets                                       98,106
   Deferred tax assets (Note 11)                                                  284,024
                                                                              ------------
Total current assets                                                            4,361,333
                                                                              ------------

Property and equipment, net (Note 4)                                              235,423
                                                                              ------------

Other assets
   Security deposit                                                                18,019
   Related party receivables - due from officers (Note 2)                          55,730
   Intangible assets, net of amortization of $24,177 (Note 5)                      17,386
                                                                              ------------
Total other assets                                                                 91,135
                                                                              ------------

TOTAL ASSETS                                                                  $ 4,687,891
                                                                              ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
   Accounts payable                                                           $   460,841
   Accrued expenses (Note 6)                                                      262,320
   Income taxes payable (Note 11)                                                 134,408
                                                                              ------------
Total Current Liabilities                                                         857,569
                                                                              ------------

Commitments and Contingencies (Note 12)                                                --

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: 14,492,105                                   15,105
Additional paid-in capital                                                      1,145,120
Retained earnings                                                               2,954,913
Less:  treasury stock, at cost (613,250 shares)                                  (284,816)
                                                                              ------------
Total stockholders' equity                                                      3,830,322
                                                                              ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $ 4,687,891
                                                                              ============

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

                                           F-3
</TABLE>
<PAGE>

<TABLE>
                      ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                             CONSOLIDATED INCOME STATEMENTS
                     FOR THE YEARS ENDED DECMEBER 31, 2003 AND 2002
<CAPTION>

                                                             2003              2002
                                                        -------------     -------------
<S>                                                     <C>               <C>
Net sales                                               $ 13,652,856      $ 12,684,413
Costs of sales                                             7,823,958         7,587,795
                                                        -------------     -------------
Gross margin                                               5,828,898         5,096,618
                                                        -------------     -------------

Operating expenses
   Selling, general and administrative                     3,612,034         3,924,080
   Research and development                                  254,780           260,749
                                                        -------------     -------------
Total operating expenses                                   3,866,814         4,184,829
                                                        -------------     -------------

Earnings from operations                                   1,962,084           911,789
                                                        -------------     -------------

Other income (expense)
   Interest income                                            11,249             9,013
   Interest expense                                           (1,170)          (31,474)
                                                        -------------     -------------
Total other income (expense)                                  10,079           (22,461)
                                                        -------------     -------------

Earnings before income taxes                               1,972,163           889,328

Provision for (benefit from) income taxes (Note 11)          328,393          (108,534)
                                                        -------------     -------------

Net earnings available to common stockholders           $  1,643,770      $    997,862
                                                        =============     =============

Basic earnings per share                                $       0.11      $       0.07
                                                        =============     =============

Diluted earnings per share                              $       0.11      $       0.07
                                                        =============     =============

Basic weighted-average shares outstanding                 14,713,489        14,943,322
                                                        =============     =============

Diluted weighted-average shares outstanding               14,954,107        14,943,322
                                                        =============     =============

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

                                          F-4
</TABLE>
<PAGE>

<TABLE>
                                             ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                           FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
<CAPTION>

                                                   COMMON        COMMON      ADDITIONAL     RETAINED
                                      PREFERRED    STOCK         STOCK        PAID-IN       EARNINGS       TREASURY
                                        STOCK      SHARES        AMOUNT       CAPITAL      (A DEFICIT)       STOCK         TOTAL
                                     -----------------------------------------------------------------------------------------------
<S>                                        <C>   <C>          <C>           <C>           <C>            <C>            <C>
Balance, December 31, 2000                 --    15,055,355   $    15,055   $ 1,133,927   $   (13,276)   $        --    $ 1,135,706
Common stock issued for services           --        50,000            50         7,450            --             --          7,500
Net earnings                               --            --            --            --       326,557             --        326,557
                                     -----------------------------------------------------------------------------------------------
Balance, December 31, 2001                 --    15,105,355        15,105     1,141,377       313,281             --      1,469,763
Repurchase of common stock
   [383,250 shares]                        --            --            --            --            --        (81,573)       (81,573)
Net earnings                               --            --            --            --       997,862             --        997,862
                                     -----------------------------------------------------------------------------------------------
Balance, December 31, 2002                 --    15,105,355        15,105     1,141,377     1,311,143        (81,573)     2,386,052
Repurchase of common stock
   - [250,000 shares]                      --            --            --            --            --       (207,500)      (207,500)
Exercise of employee stock options
     [(20,000 shares)]                     --            --            --         3,743            --          4,257          8,000
Net earnings                               --            --            --            --     1,643,770             --      1,643,770
                                     -----------------------------------------------------------------------------------------------
Balance, December 31, 2003                 --    15,105,355   $    15,105   $ 1,145,120   $ 2,954,913    $  (284,816)   $ 3,830,322
                                     ===============================================================================================

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

                                                                F-5
</TABLE>
<PAGE>
<TABLE>
                             ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                            FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
<CAPTION>

                                                                              2003           2002
                                                                          ------------   ------------
<S>                                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net earnings                                                              $ 1,643,770    $   997,862
                                                                          ------------   ------------
Adjustments to reconcile net earnings to net cash provided by
  operating activities:
     Depreciation and amortization                                            171,254        224,295
     Increase (decrease) in the allowance for doubtful accounts                   116        (36,329)
     Change in deferred taxes                                                 120,061       (183,625)
Changes in assets and liabilities
    (Increase) decrease in accounts receivable                                (86,506)       (20,344)
    (Increase) decrease in inventories                                          4,892        (42,486)
    (Increase) decrease in prepaid expenses and other current assets           21,163         47,898
    (Increase) decrease in security deposits                                   11,711         (8,320)
     Increase (decrease) in accounts payable                                 (282,928)      (272,258)
     Increase (decrease) in accrued liabilities                               (57,742)       106,451
     Increase (decrease) in income taxes payable                               63,693         69,853
                                                                          ------------   ------------
Total adjustments                                                             (34,286)      (114,865)
                                                                          ------------   ------------
Net cash flows provided by operating activities                             1,609,484        882,997
                                                                          ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
   Acquisition of property and equipment                                      (68,187)       (46,227)
   Expenditures for intangible assets, trademarks                                (460)          (650)
   Repayments from officers                                                    71,961         11,110
                                                                          ------------   ------------
Net cash flows provided by (used in) investing activities                       3,314        (35,767)
                                                                          ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
   Purchases of treasury stock                                               (207,500)       (81,573)
   Exercise of employee stock options                                           8,000             --
   Repayments on line of credit                                                    --       (570,064)
   Repayments on capital lease obligations                                    (48,771)       (55,090)
                                                                          ------------   ------------
Net cash flows used in financing activities                                  (248,271)      (706,727)
                                                                          ------------   ------------

Increase in cash and cash equivalents                                       1,364,527        140,503
Cash and cash equivalents, beginning of year                                  340,002        199,499
                                                                          ------------   ------------
Cash and cash equivalents, end of year                                    $ 1,704,529    $   340,002
                                                                          ============   ============

CASH PAID FOR:
   Interest                                                               $     1,170    $    31,474
                                                                          ============   ============

   Income taxes                                                           $   143,035    $     2,462
                                                                          ============   ============

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

                                                 F-6
</TABLE>
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

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 supplies
products to physicians and health care practitioners worldwide. Nutricology,
Inc. was acquired by the Company in February 1998. The Company is headquartered
in Hayward, California and the Company's shares are traded on the Over The
Counter Bulletin Board.

The Company distributes its products through distributors to medical and
professional accounts and to retailers. The Company develops, contract
manufactures, markets and sells branded and private label products, including
vitamins and nutritional supplements, throughout the world under the
NutriCology(R) and Allergy Research Group(R) labels. The Company offers a line
of approximately 200 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), liquids and creams. Approximately 75% of the Company's products,
consisting of capsules and tablets, are packaged in-house. The Company's liquid
and powder products are packaged by outside vendors and manufacturers. The
Company is expanding into the field of research on pharmaceuticals and
nutraceuticals and continues to add new products to its existing product line.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

BUSINESS SEGMENT INFORMATION - The Company operates in one industry segment,
that being developing, marketing and distributing natural nutritional
supplements. The Company's sales are primarily to distributors and health care
professionals throughout the United States. The Company has one customer that
accounts for more than 12% of its sales, or approximately $1,600,000 in sales.

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.

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

                                      F-7
<PAGE>

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 accounts for approximately 12% of
its sales (2002: 11%) and two (2002: one) customer(s) that individually account
for more than 10% of its total accounts receivable.

(c) Purchases - The Company purchases raw materials and uses outside vendors for
the manufacture of its products. The Company has three (2002: one) vendor(s)
that individually accounts for more than 10% of its total vendor purchases,
representing approximately 49% (2002: 31%) of the Company's manufacturers and
suppliers of raw materials.

(d) Product - The Company has two products that individually account 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, net of
an allowance for estimated returns, 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 2003 were $1,286,389 (2002: $1,151,289).

ALLOWANCE FOR DOUBTFUL ACCOUNTS AND RETURN ALLOWANCES - The Company presents
accounts receivable, net of allowances for doubtful accounts and returns, to
ensure accounts receivable are not overstated due to uncollectibility. The
allowances are calculated based on detailed review of certain individual
customer accounts, historical rates and an estimation of the overall economic
conditions affecting the Company's customer base. The Company reviews a
customer's credit history before extending credit. If the financial condition of
its customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required.

                                      F-8
<PAGE>

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 for 2003 were $254,780 (2002: $260,749).

ADVERTISING COSTS - Advertising costs are expensed as incurred and amounted to
$59,920 for 2003 (2002: $73,681).

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

STOCK-BASED COMPENSATION - The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
("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. 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.

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

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.

FAIR VALUE OF FINANCIAL INSTRUMENTS - For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable, prepaid
expenses, amounts due from officers, accounts payable and accrued liabilities,
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.

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

RECENT ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board
issued the following new accounting pronouncements during 2003:

                                      F-9
<PAGE>

Interpretation No. 46 "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" (FIN 46). FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity if
the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003. FIN 46 does not have any impact on the financial position or results of
operations of the Company.

In April 2003, the FASB issued SFAS No. 149, "Accounting for Amendment of
Statement 133 on Derivative Instruments and Hedging Activities," which amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is generally effective for
contracts entered into or modified after June 30, 2003, and all provisions
should be applied prospectively. This statement does not affect the Company.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). This Statement is effective
for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. It is to be implemented by reporting the cumulative effect
of a change in an accounting principle for financial instruments created before
the issuance date of the Statement and still existing at the beginning of the
interim period of adoption. Restatement is not permitted. This statement does
not affect the Company.


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

DUE FROM OFFICERS - These loans represent a series of noninterest 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. The amount
due from officers at December 31, 2003 was $55,730. All accrued interest has
been paid to date.

COMMON STOCK REPURCHASE - During 2003, the Company repurchased 250,000 shares of
common stock from its Chief Executive Officer for $207,500. The transaction was
consummated on terms equivalent to those that prevail in arm's-length
transactions.


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

Inventories consist of the following:

Raw materials                                       $      870,439
Finished goods                                             724,913
Supplies                                                    51,375
Reserve for obsolescence                                   (50,000)
                                                    ---------------
Total                                               $    1,596,727
                                                    ===============

                                      F-10
<PAGE>

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

Property and equipment consist of the following:

Machinery and equipment                             $      725,264
Office equipment                                           230,084
Vehicles                                                    67,762
Furniture and fixtures                                     185,873
Computer equipment                                         228,438
Computer software                                           71,509
Leasehold improvements                                      99,204
                                                    ---------------
Total                                                    1,608,134
Less accumulated depreciation                           (1,372,711)
                                                    ---------------
Net book value                                      $      235,423
                                                    ===============

Depreciation expense charged to operations for 2003 was $165,669 (2002:
$218,895).


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

Intangible assets consists of the following:

Trademarks, gross carrying amount                   $       28,383
Accumulated amortization                                    24,177
                                                    ---------------
Net book value                                               4,206
Customer lists, not subject to amortization                 13,180
                                                    ---------------
                                                    $       17,386
                                                    ===============

Amortization expense charged to operations for 2003 was $5,585 (2002: $5,400).
The remaining aggregate amortization expense for 2004 is $4,206.


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

Accrued expenses consist of the following:

Accrued settlement fee (Note 11)                    $      151,500
Accrued expenses                                            62,630
Accrued vacation                                            34,879
Accrued payroll                                              7,108
Accrued sales tax
                                                             6,204
                                                    ---------------
                                                    $      262,321
                                                    ===============


NOTE 7 - PROFIT SHARING PLAN
----------------------------

The Company has a defined contribution plan, which covers substantially all
employees. The Company's contributions to the plan are made at the sole
discretion of the Company's Board of Directors. Contributions to the plan for
2003 were approximately $44,000 (2002: $33,000).

                                      F-11
<PAGE>

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

On May 3, 2002, the Company announced a stock repurchase plan, whereby the
Company may 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 next 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 will provide shares for issuance to employees under stock option and
stock purchase plans. Since inception of the plan through December 31, 2003, 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.
The Company plans to provide these shares for issuance to employees under stock
option and stock purchase plans. Total shares held in treasury are 613,250 of
which 363,250 shares remain unexercised under stock option grant agreements.


NOTE 9 - 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. Total potential common
shares not included in the computation of dilutive EPS for both periods
presented was 150,000 shares because their impact would be antidilutive based on
current market prices.

The reconciliation of the numerators and denominators of the basic and diluted
EPS calculations was as follows for the years ended December 31, 2003 and 2002:

                                                           2003         2002
                                                       ------------ ------------

NUMERATOR: net earnings                                $ 1,643,770  $   997,862

DENOMINATOR:
  Weighted-average shares used to compute basic EPS     14,712,489   14,943,322
  Dilutive potential common shares                         241,618           --
                                                       ------------ ------------
  Weighted-average shares used to compute diluted EPS   14,954,107   14,943,322

BASIC NET EARNINGS PER SHARE:                          $      0.11  $      0.07
                                                       ============ ============

DILUTED NET EARNINGS PER SHARE:                        $      0.11  $      0.07
                                                       ============ ============


NOTE 10 - STOCK OPTIONS
-----------------------

The Company has authorized 1,000,000 shares of common stock for issuance to
directors and key employees under the 1998 Stock Option Plan (the plan). The
objectives of the plan include attracting and retaining the best personnel,
providing for additional performance incentives, and promoting the success of
the Company by providing directors and key employees the opportunity to acquire
common stock. The options vest immediately and expire five years after the date
issued.

                                      F-12
<PAGE>

The status of the Company's stock option plan is summarized below:

                                            SHARES UNDER           OPTION
                                               OPTION               PRICE
                                           --------------     ----------------

OUTSTANDING AT 12/31/01                          150,000           $ 2.00
Exercised                                             --               --
Forfeited                                             --               --
Granted                                               --               --
                                           --------------     ----------------
OUTSTANDING AT 12/31/02                          150,000           $ 2.00
Exercised                                        (20,000)          $ 0.40
Forfeited                                             --
Granted                                          383,250           $ 0.40
                                           --------------     ----------------
OUTSTANDING AT 12/31/03                          513,250       $ 0.40 - $2.00
                                           ==============     ================

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

NET EARNINGS                                        2003                2002
                                               ---------------     -------------
     As reported                               $    1,643,770      $    997,862
     Pro forma                                 $    1,528,806      $    964,092

BASIC NET EARNINGS PER SHARE
     As reported                               $         0.11      $       0.07
     Pro forma                                 $         0.10      $       0.06

DILUTED NET EARNINGS PER SHARE
     As reported                               $         0.11      $       0.07
     Pro forma                                 $         0.10      $       0.06

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes Option pricing model with the following weighted-average
assumptions used for those options granted in 1999 and 2003, respectively:
dividend yield of 0%, expected volatility of 95% and 99%, risk-free interest
rates of 5% and 2.25%, and expected lives of five years.

Stock options outstanding and exercisable on December 31, 2003 are as follows:

                           SHARES              WEIGHTED        WEIGHTED AVERAGE
                           UNDER               AVERAGE             REMAINING
   EXERCISE PRICE          OPTION           EXERCISE PRICE     CONTRACTUAL LIFE
-------------------- ------------------- -------------------- ------------------
       $ 0.40             363,250               $ 0.13            3.95 years
       $ 2.00             150,000               $ 1.35            0.01 years

                                      F-13
<PAGE>

NOTE 11 - INCOME TAXES
----------------------

THE COMPONENTS OF PROVISION FOR (BENEFIT FROM) INCOME TAXES ARE AS FOLLOWS:

                                                   2003                 2002
                                              --------------      --------------

U.S. federal income tax - AMT                 $      28,359       $          --
CA state taxes - based on income                    179,973              75,091
Change in deferred taxes - federal                   94,595            (145,734)
Change in deferred taxes - state                     25,466             (37,891)
                                              --------------      --------------
                                              $     328,393       $    (108,534)
                                              ==============      ==============

INCOME TAXES CURRENTLY PAYABLE CONSIST OF THE FOLLOWING:

                                                   2003
                                              --------------

U.S. federal income taxes - AMT               $      28,359
CA state taxes - based on income                    106,049
                                              --------------
                                              $     134,408
                                              ==============

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

<TABLE>
<CAPTION>
                                                                   2003              2002
                                                               ------------      ------------
<S>                                                               <C>                <C>
Statutory U.S. federal income tax rate                             34.0%              34.0%
Statutory U.S. federal rate - AMT                                  20.0%                --
State income taxes, net of related federal income tax benefit       9.1%               8.4%
Other                                                               6.1%             (20.6%)
Changes in the valuation allowance                                (52.5%)            (34.0%)
                                                               ------------      ------------
Income tax expense - effective rate                                16.7%             (12.2%)
                                                               ============      ============
</TABLE>

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:

                                                         2003           2002
                                                    -------------  -------------
DEFERRED TAX ASSETS:
--------------------
Net operating loss carryforwards                    $    318,801   $    922,352
Expenses not currently deductible for tax purposes         5,693          5,693
                                                    -------------  -------------
Total                                                    324,494        928,045
Valuation allowance                                           --       (430,795)
                                                    -------------  -------------
Net deferred tax asset                                   324,494        497,250

DEFERRED TAX LIABILITIES:
-------------------------
Depreciation                                              40,470         93,165
                                                    -------------  -------------

Net deferred tax asset                              $    284,024   $    404,085
                                                    =============  =============

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.

                                      F-14
<PAGE>

The net change in the valuation allowance for 2003 was a decrease of
approximately $430,000 (2002: $460,000), which is principally the result of the
utilization of net operating loss carryforwards to offset taxable income. As of
December 31, 2003, the Company has available net operating loss carryforwards
for federal and state income tax purposes of approximately $560,000 and
$1,400,000, which expire through 2019 and 2011, respectively. 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. For taxable years beginning in 2002 and 2003, the State of California
has suspended the net operating loss carryover deduction for two years for
losses incurred before January 1, 2002, and for one year for losses incurred
after January 1, 2002.

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 12 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

OPERATING LEASES

The Company leases office space and equipment under various noncancelable
operating leases which expire through June 2006. Rent expense charged to
operations was approximately $384,000 for 2003 (2002: $421,000).

Future minimum rental commitments under noncancelable leases are as follows:

         2004                        $   271,017
         2005                        $     6,540
         2006                        $     3,270

The Company sublet a portion of its space and the total amount of minimum
rentals received under noncancelable subleases for 2003 was $10,175 (2002:
$91,520).

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"), which equaled 3.878% on December 31, 2003. 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
July 31, 2004.

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.

LAWSUIT

During 2003, the Company was awarded a $250,000 settlement in a lawsuit and a
Florida lawyer asserted a lien claim for 35% of the proceeds plus costs of
$64,000. Management intends to continue to contest the claim; however, outside
counsel for the Company has advised that an unfavorable outcome is reasonably
possible. Accordingly, a provision for loss of $151,500 (see Note 6) has been
charged to operations in the accompanying financial statements for 2003.

                                      F-15
<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: March 30, 2004                      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: March 30, 2004                      By: /s/ Stephen A. Levine
                                              ----------------------------------
                                              Stephen A. Levine, Ph.D., CEO, CFO
                                              and Director


Date: March 30, 2004                      By: /s/ Susan D. Levine
                                              ----------------------------------
                                              Susan D. Levine, Director


Date: March 30, 2004                      By: /s/ Ed Kane
                                              ----------------------------------
                                              Ed Kane, Director

                                       39
<PAGE>

                          ALLERGY RESEARCH GROUP, INC.
                              a Florida corporation
                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                           AND CHIEF FINANCIAL OFFICER


I, Stephen A. Levine, certify that:

      1.    I have reviewed this annual report on Form 10-KSB of Allergy
            Research Group, Inc.;
      2.    Based on my knowledge, this annual report does not contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this annual report;
      3.    Based on my knowledge, the financial statements, and other financial
            information included in this annual report, fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the registrant as of, and for, the periods presented
            in this annual report;
      4.    The registrant's other certifying officers and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
            and have:
            a)    designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;
            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and
            c)    presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;
      5.    The registrant's other certifying officers and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of registrant's board of directors (or
            persons performing the equivalent functions):
            a)    all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and
            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and
      6.    The registrant's other certifying officers and I have indicated in
            this annual report whether there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.


                                                     Date: March 30, 2004

                                                     /s/ Stephen A. Levine
                                                     ---------------------------
                                                     Stephen A. Levine
                                                     Chief Executive Officer and
                                                     Chief Financial Officer

                                       40