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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, 2004

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

     For the transition period from _________________ to ___________________

                         Commission file number 0-27227

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

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

2300 North Loop Road, Hayward, California                         94502
(Address of principal executive offices)                        (Zip Code)

30806 Santana Street, Hayward, California                         94544
(Former 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:

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

       None.                                       NASD OTC Bulletin Board

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

                         Common Stock, $0.001 par value
                                (Title of Class)

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

         Yes [ x]          No [ ]

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

State issuer's revenues for its most recent fiscal year: $15,136,592

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, 2005 was $0.93, based on the last sale
price of $0.93 as reported by the NASD Over-The-Counter Bulletin Board.

As of March 23, 2005, Registrant had outstanding 14,516,605 shares of common
stock, its only class of common equity outstanding.

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

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                                TABLE OF CONTENTS

PART I.........................................................................1
   ITEM 1.       DESCRIPTION OF BUSINESS.......................................1
     FORWARD-LOOKING STATEMENTS................................................1
     BACKGROUND................................................................1
     THE COMPANY...............................................................1
     BUSINESS PLAN.............................................................2
     PRODUCTS AND SERVICES.....................................................4
     INDUSTRY OVERVIEW.........................................................4
     COMPETITION...............................................................6
     MARKET STRATEGIES.........................................................8
     REGULATION................................................................8
     EMPLOYEES................................................................12
     INTELLECTUAL PROPERTY....................................................12
   ITEM 2.       DESCRIPTION OF PROPERTY......................................12
   ITEM 3.       LEGAL PROCEEDINGS............................................12
   ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........12
PART II.......................................................................13
   ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....13
     MARKET INFORMATION.......................................................13
     HOLDERS..................................................................13
     DIVIDENDS................................................................13
   ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....14
     INTRODUCTION.............................................................14
     CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS...............15
     FACTORS THAT COULD AFFECT FUTURE RESULTS.................................15
     OVERVIEW.................................................................16
     RESULTS OF OPERATIONS....................................................16
     LIQUIDITY AND CAPITAL RESOURCES..........................................17
     CRITICAL ACCOUNTING POLICIES.............................................20
     RECENT ACCOUNTING PRONOUNCEMENTS.........................................21
   ITEM 7.       FINANCIAL STATEMENTS.........................................23
   ITEM 8.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS................23
   ITEM 8A.      CONTROLS AND PROCEDURES......................................23
PART III......................................................................24
   ITEM 9.       DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                 PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT...24
     OFFICERS AND DIRECTORS...................................................24
     KEY EMPLOYEES............................................................25
     MEDICAL ADVISORY BOARD...................................................26
     SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..................27
   ITEM 10.      EXECUTIVE COMPENSATION.......................................28
     REMUNERATION PAID TO EXECUTIVES..........................................28
     REMUNERATION PAID TO DIRECTORS...........................................29
     EMPLOYMENT AGREEMENTS....................................................29
     EMPLOYEE BENEFITS........................................................29
   ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                 AND MANAGEMENT...............................................30
   ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............31
   ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K.............................32
     EXHIBITS.................................................................32
     FORM 8-K REPORTS.........................................................32
   ITEM 14.      PRINCIPAL ACCOUNTANT FEES AND SERVICES.......................33
CONSOLIDATED FINANCIAL STATEMENTS.............................................F1
SIGNATURES....................................................................38

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

FORWARD-LOOKING STATEMENTS

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

BACKGROUND

      Allergy Research Group, Inc. (SYMBOL: ALRG) (the "Company" or "Allergy
Research Group"), together with wholly owned subsidiary, Nutricology, Inc.,
strives to be an innovative leader in nutraceutical research and product
formulation. Through Nutricology, Inc., the Company has produced quality,
hypoallergenic nutritional supplements since 1980 and currently supplies
products to 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.

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, PhD.

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

      We sell our products worldwide to healthcare professionals, who recognize
the Company for the quality, purity and efficacy of its targeted nutritional
supplement line. Currently, we supply products to approximately 4,000 physicians
and health care practitioners worldwide, including accounts in the United
States, Japan, China, Taiwan, the United Kingdom, South Korea, Jamaica, New
Zealand, Mexico, Turkey, Norway, Denmark, Switzerland, Italy, Ireland,
Philippines, Russia, South Africa and Singapore.

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

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

BUSINESS PLAN

      COMPANY GROWTH STRATEGY

      We intend to expand the Company's position in the vitamin and nutritional
supplements markets. Specifically, our strategy continues to be to:

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

      o     continue the growth of our balanced distribution network;

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

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

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

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

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

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      PRODUCT RESEARCH AND DEVELOPMENT

      We strive to make the Company a leader in vitamin and nutritional
supplement product development and intend to continue our commitment to research
and development to create new products and existing product line extensions. In
2004 and 2003, we spent $298,899 and $254,780, 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 our product development history, we believe that we have
built a reputation in the nutritional supplement industry for innovative
products. The Company continues to develop new product concepts that we
anticipate will capture additional market share in our existing domestic and
international business.

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

      MANUFACTURING AND PRODUCT QUALITY

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

      The Company currently does not have facilities for the manufacture of
encapsulated and liquid products, and we are using outside vendors for this
purpose. As of December 31, 2004, a concentration of approximately 51% of our
manufacturing was distributed among four separate vendors. The largest
manufacturer and supplier of raw materials supplies 24% of our needs, with the
remaining three vendors all 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 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.

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PRODUCTS AND SERVICES

      Our vitamin and nutritional supplement line consists of more than 200
products. The Company has one product catalog for the retail market (marketed
under the Nutricology(R) label) and another catalog for the professional market
(marketed under the Allergy Research Group(R) label). Both catalogs include the
following categories of products: Amino Acids, Antioxidant Formulas,
Bioenergetic Nutrients, Bioflavonoids, Brain Support Products, Comprehensive
Nutrient Formulas, Essential Fatty Acids, Gastrointestinal Health Products,
Immune Support Products, Liver Support Products, Multiple Vitamin/Mineral
Formulas, Musculoskeletal Support Products, Organic Glandulars, Selenium
Products, Specialty Products, Vitamin B Products, and Vitamin C Products.
Approximately 80% of our products were formulated by Allergy Research
Group/NutriCology and are contract manufactured and distributed by the Company.
Another 20% of the products are produced by other companies in the industry and
distributed by the Company through licensing agreements, under our label.

INDUSTRY OVERVIEW

      On January 26, 2005, NutraIngredients-USA.com, in an article entitled
AMERICANS PICK ORGANIC OVER NATURAL, cited the Natural Marketing Institute's
annual report for 2004 retail sales in projecting industry growth. According to
the report, retail sales within the "consumer packaged goods health and wellness
industry" reached $68.6 billion in the United States in 2004. Growth in the
industry was up 8.5% over 2003, rising from $63.2 billion in 2003. Sales of
vitamins, minerals and herbal and dietary supplements rose 6% over 2003 to $19
billion in 2004. NMI predicts retail sales of approximately $75 billion for the
consumer packaged goods health and wellness industry for 2005. The 2004 data
represents a 7.6% overall compounded annual growth rate since 2001. On January
10, 2005, the National Heart, Lung and Blood Institute reported that up to 52%
of the U.S. population reports using dietary supplements.

      According to the PHARMACEUTICAL & MEDICAL PACKAGING NEWS (September 2004),
The Freedonia Group (Cleveland) estimated, in its research report released July
2004 (the "Freedonia Report"), that global demand for nutritional supplements
alone will grow by 6.1% each year through 2008. The report valued the current
world market at $7.1 billion and estimated growth to approximately $9.6 billion
in 2008. The Freedonia Group acknowledged that certain products - namely,
chitosan, gingko biloba, glucosamine, omega-3, fatty acids and soy isoflavones -
are currently driving growth. The Freedonia Report is considered conservative
when compared to other industry estimates.

      On April 1, 2004, the National Academies of Science Institute of Medicine
("IOM"), in a report entitled "Dietary Supplements: A Framework for Evaluating
Safety," reported that annual U.S. sales of dietary supplements was approaching
$16 billion, with an average of 1,000 new products being developed each year and
an approximately 29,000 products currently available to the U.S. consumer. The
report was commissioned by the FDA.

      Despite its estimates of growth in the industry, The Freedonia Group
warned that proposed GMPs (good manufacturing practices) could affect the
legitimacy of the industry. The GMPs include strict standards for manufacturing,
packaging and labeling to assure consistency and potency of dietary supplement
products. The new GMPs would also require product-specific packaging. The IOM,
which advocates additional restrictions on the industry, on January 12, 2005,
released a report through its committee on Complementary and Alternative
Medicine in the United States. In that report, the IOM expressed concerns over
product consistency and quality despite increasing popularity in the U.S.
market, citing the lack of GMPs.

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      The IOM joins pharmaceutical and medical interests in a self-serving and
increasingly vehement attack on the nutritional supplements and alternative
medicine industry, advocating revisions to DSHEA (see "Government Regulation"
below) and other U.S. and foreign government restrictions that could cripple the
industry by limiting consumer access to dietary supplement products and
alternative medicine and increasing costs to manufacturers of these products.
The Council for Responsible Nutrition criticized the IOM report, citing the
strong safety record of dietary supplements, but restrictions on manufacturers'
ability to advertise the efficacy of vitamin, mineral and dietary supplement
products limits response to criticism from the pharmaceutical industry. There
appears to be an ongoing campaign to label nutritional supplement products as
"unsafe" despite their track record.

      At the same time, increased U.S. and foreign regulation of the industry
continues to affect manufacturers. The FDA indicated in November 2004 that it
will release GMPs for dietary supplements while, at the same time, stating that
it will increase regulation of new dietary ingredients. Currently, manufacturers
are required to provide pre-market safety notifications for new dietary
ingredients ("NDIs") to the FDA 75 days before a product containing the
ingredient is introduced to the market. The FDA indicated that it will increase
enforcement of the notification requirements.

      So far, attempts to increase government regulation of the industry have
met with some success in non-U.S. jurisdictions, including some jurisdictions in
which we currently sell products, like New Zealand and the United Kingdom. See
"Government Regulation." The European Union Food Supplements Directive is
scheduled to go into effect in August 2005 and will control food supplement
sales and manufacturing in 25 nations. Among other restrictions, the law (a)
will allow only certain vitamins and minerals to be sold and will limit potency
levels to one to three times the Recommended Daily Allowance ("RDA"), (b) will
outlaw many popular nutrients such as chromium picolinate, and (c) will outlaw
entire product categories such as amino acids. Under related legislation - the
Traditional Medicines Directive - herbs may be reclassified as drugs and
regulated accordingly. Overall, it is anticipated that approximately 5,000
products currently sold in England, Ireland, Holland and Sweden will be
outlawed.

      New Zealand recently placed regulation of the nutritional supplements
industry there under the same organization that regulates Australia's
anti-supplement industry, while Canada harmonized its regulatory scheme to that
of Australia in 2003. Several South American countries - including Brazil,
Argentina, Paraguay and Uraguay - have recently agreed to harmonize supplement
regulation with the European Union Food Supplements Directive. Chile and Bolivia
are expected to follow suit.

      More pervasive are proposals submitted by the Codex Alimentarius
Commission, or Codex, an agency created in 1963 by two U.N. organizations - the
Food and Agriculture Organization and the World Health Organization. The Codex
Committee on Nutrition and Foods for Special Dietary Uses ("CCNFSDU") began
discussions on guidelines for vitamin and mineral supplements in the 1990's and
recently completed work on DRAFT GUIDELINES FOR VITAMIN AND MINERAL FOOD
SUPPLEMENTS and submitted them for adoption by the Codex Alimentarius Commission
at the Commission's July 2005 meeting. These guidelines apply to vitamin and
mineral food supplements intended for use in supplementing the daily diet with
vitamins and/or minerals. However, food supplements containing vitamins and/or
minerals as well as other ingredients would also need to be in conformity with
the specific rules on vitamins and minerals laid down in the Guidelines.

      Although there has been some disagreement between the United States and
the European Union, the final guidelines are expected to regulate the maximum
amount of vitamins and minerals that can be placed in food supplements. These
restrictions are expected to lower the dosage of U.S.-manufactured products to
standards set by foreign jurisdictions, enabling foreign manufacturers to better
compete with U.S. companies. We are unable to predict the impact of the proposed
or any final Codex guidelines on our sales to foreign markets. In addition, we
are unable to predict how guidelines adopted by Codex would affect the United


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

      Despite increased regulation and negative publicity by competitors in the
pharmaceutical industry, public awareness of the positive effects of vitamins
and nutritional supplements on health has been heightened by widely publicized
reports of scientific findings supporting such claims. Many studies have
indicated a correlation between the regular consumption of selected vitamins and
nutritional supplements and reduced incidences of a wide range of conditions,
including cancer, heart disease, stroke, arthritis, osteoporosis, mental
fatigue, depression, declining immune function, macular degeneration, memory
loss and neural tube birth defects.

      We expect that the aging of the United States population, together with a
corresponding increased focus on preventative health measures, to continue to
influence the demand for vitamins and nutritional supplement products. According
to the United States Census Bureau, through 2010, the 35-and-older age group of
consumers, which represents a substantial majority of regular users of vitamin
and nutritional supplements, is expected to grow significantly faster than the
general United States population. In marketing our products, we will need to
focus on understanding consumer needs, introducing new products to meet those
needs and winning the trust of consumers through the quality and efficacy of our
products. In addition, an increasing number of people living the "low-carb
lifestyle" require nutritional supplements to prevent deficiencies resulting
from the omission of fruits and vegetables from their diet. This represents a
new market for vitamin, mineral and herbal products.

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

COMPETITION

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

      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 and
tablets). We believe that our ability to offer a broad range of high quality
products with diversity of form and potency is an important factor in our


                                      -6-
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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.

      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.

                                      -7-
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      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.

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

MARKET STRATEGIES

      We have divided sales into multiple market channels:

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

            o     Distributor accounts - Sales to distributors (to be resold to
                  the professional or retail markets) (43%).

            o     Retail accounts - Direct sales to consumers (15%).

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

      The Company markets its products through the use of trade shows, direct
marketing to physicians, nutritionists, chiropractors and health care
professionals, contractual arrangements with distributors (who market the
products themselves), advertising in trade magazines, health-oriented radio talk
shows, direct sales to health food stores and pharmacies, and direct catalog
sales to consumers. Our direct sales team currently consists of 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 scientific 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


                                      -8-
<PAGE>

"FDA"), the Federal Trade Commission (the "FTC"), and the United States
Department of Agriculture and the Environmental Protection Agency ("EPA"). These
activities are also regulated by various agencies of the states, localities and
foreign countries in which the Company's products are manufactured, distributed
and sold. The FDA, in particular, regulates the formulation, manufacture and
labeling of vitamin and other nutritional supplements in the United States.

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

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

      DSHEA has come under attack as a result of negative publicity surrounding
some herbal products, such as ephedra, and new legislation is being proposed in
both the Senate and House of Representatives that could result in significantly
greater regulation of the VMS industry. At least one of the proposals would
impose pre-market approval processes for dietary supplements. 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. As
indicated above, in November 2004 the FDA announced its intention to release
CGMPs, citing the establishment of these standards as a priority.

      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.

                                      -9-
<PAGE>

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

      Products marketed by the Company are classified as dietary supplements
under the FFDC Act, and are therefore subject to DSHEA and, if adopted, the
proposed regulations. In addition to these regulations, 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


                                      -10-
<PAGE>

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

      The European Union Food Supplements Directive is scheduled to go into
effect in August 2005 and will control food supplement sales and manufacturing
in 25 nations. Among other restrictions, the law (a) will allow only certain
vitamins and minerals to be sold and will limit potency levels to one to three
times the Recommended Daily Allowance ("RDA"), (b) will outlaw many popular
nutrients such as chromium picolinate, and (c) will outlaw entire product
categories such as amino acids. Under related legislation - the Traditional
Medicines Directive - herbs may be reclassified as drugs and regulated
accordingly. Overall, it is anticipated that approximately 5,000 products
currently sold in England, Ireland, Holland and Sweden will be outlawed. New
Zealand recently placed regulation of the nutritional supplements industry there
under the same organization that regulates Australia's anti-supplement industry,
while Canada harmonized its regulatory scheme to that of Australia in 2003.
Several South American countries - including Brazil, Argentina, Paraguay and
Uraguay - have recently agreed to harmonize supplement regulation with the
European Union Food Supplements Directive. Chile and Bolivia are expected to
follow suit.

      The Codex Committee on Nutrition and Foods for Special Dietary Uses
("CCNFSDU") began discussions on guidelines for vitamin and mineral supplements
in the 1990's and recently completed work on DRAFT GUIDELINES FOR VITAMIN AND
MINERAL FOOD SUPPLEMENTS and submitted them for adoption by the Codex
Alimentarius Commission at the Commission's July 2005 meeting. These guidelines
apply to vitamin and mineral food supplements intended for use in supplementing
the daily diet with vitamins and/or minerals. However, food supplements
containing vitamins and/or minerals as well as other ingredients would also need
to be in conformity with the specific rules on vitamins and minerals laid down
in the Guidelines. Although the FDA has stated that the Codex guidelines will
not affect the availability of supplement products to U.S. consumers, the United
States is a member of the World Trade Organization ("WTO") and a refusal to
harmonize U.S. laws to the guidelines could result in a finding by the WTO
dispute resolution panel that the U.S. is engaging in unfair trade practices. In
the event of such a finding, the United States could become subject to sanctions
in the form of tariffs and pressure will be on Congress to harmonize U.S.
standards with those adopted by the WTO. In the event U.S. laws are not
harmonized to Codex, we would likely experience increased competition in
countries that do as a result of dosage restrictions that would require U.S.
manufacturers to lower dosages in order to market products in those
jurisdictions.

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

                                      -11-
<PAGE>

      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 30
full-time and three part-time employees. The Company does not have any
collective bargaining agreements with its employees and we believe our employee
relations are good.


INTELLECTUAL PROPERTY

      Our trademarks are valuable assets that are very important to the
marketing of our products. Our policy is to pursue registrations for all of the
trademarks associated with our key products. The Company has approximately 14
trademark registrations with the United States Patent and Trademark Office,
including for Allergy Research Group(R) and NutriCology(R). We rely on common
law trademark rights to protect our unregistered trademarks. Common law
trademark rights do not provide the Company with the same level of protection as
would U.S. federal registered trademarks. In addition, common law trademark
rights extend only to the geographic area in which the trademark is actually
used, while U.S. federal registration prohibits the use of the trademark by any
third party anywhere in the United States. Currently, we have obtained no
patents for our vitamin and nutritional supplement products.

ITEM 2. DESCRIPTION OF PROPERTY

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

ITEM 3. LEGAL PROCEEDINGS

      There have been no changes to the legal proceedings previously disclosed
in our periodic reports.

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

      None.

                                      -12-
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

      The Company's Common Stock is traded on the Over-the-Counter ("OTC")
Bulletin Board under the symbol "ALRG." The following table sets forth the
trading history of the Common Stock on the OTC Bulletin Board for each quarter
of fiscal years ended December 31, 2003 and 2004, as reported by Yahoo! Finance.
The quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.

           Quarter          Quarter         Quarter
           Ending             High            Low
           ------             ----            ---
          3/31/2003          $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
          3/31/2004          $1.50           $0.73
          6/30/2004          $1.25           $0.85
          9/30/2004          $1.10           $0.85
          12/31/2004         $1.14           $0.85
          3/8/2005*          $1.12           $0.93

*Reflects partial period.

HOLDERS

      As of December 31, 2004, 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.

                                      -13-
<PAGE>
<TABLE>

EQUITY COMPENSATION PLAN INFORMATION

--------------------------------------------------------------------------------------------------
                                (a)                          (b)                    (c)
--------------------------------------------------------------------------------------------------
Plan category                   Number of                Weighted-average       Number of
                                securities to be          exercise price of     securities
                                issued upon               outstanding           remaining
                                exercise of               options, warrants     available for
                                outstanding               and rights            future issuance
                                options, warrants                               under equity
                                and rights                                      compensation plans
                                                                                (excluding
                                                                                securities
                                                                                reflected in
                                                                                column (a))
--------------------------------------------------------------------------------------------------
<S>                            <C>                         <C>                    <C>
Equity
compensation plans
approved by
security holders               338,750                     $0.40                  661,250
--------------------------------------------------------------------------------------------------
Equity
compensation plans
not approved by
security holders                     0                     $0.00                        0
--------------------------------------------------------------------------------------------------
Total                          338,750                     $0.40                  661,250
--------------------------------------------------------------------------------------------------
</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
of our financial condition, changes in financial condition and results of
operations. The MD&A is organized as follows:

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

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

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

                                      -14-
<PAGE>

      o     RESULTS OF OPERATIONS. This section provides an analysis of our
            results of operations for the years ended December 31, 2004 compared
            to 2003. A brief description is provided of transactions and events
            that impact the comparability of the results being analyzed.

      o     LIQUIDITY AND CAPITAL RESOURCES. This section provides an analysis
            of our financial condition and cash flows as of and for the year
            ended December 31, 2004.

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

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

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS

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

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.

                                      -15-
<PAGE>

OVERVIEW

      BUSINESS DESCRIPTION. We strive to be an innovative leader in
nutraceutical research and product formulation. Since 1980, we have produced
quality, hypoallergenic nutritional supplements and supplied products to
physicians and health care practitioners worldwide. We develop, contract
manufacture, market and sell our own brands, including vitamins and nutritional
supplements, throughout the world under the NutriCology(R) and Allergy Research
Group(R) labels. Our products are distributed through distributors, to medical
and professional accounts, retail stores and consumers directly. We offer a line
of approximately 200 products, including vitamins in both multivitamin and
single-entity formulas, minerals, and herbals. Our products are manufactured in
various forms, including capsules, tablets, softgels, powders (drink mixes), and
liquids. Our principal executive offices are located at 2300 North Loop Road,
Alameda, California 94502 and our telephone number is (800) 545-9960.

      FUTURE OPERATIONS. The success of our future operations will depend to a
great extent on the operations, financial condition, and management of the
Company. We intend to expand our position in the vitamin and nutritional
supplements markets. Specifically, our strategy continues to be to: (i) develop
new brands and product line extensions, as well as new products, through our
commitment to research and development; (ii) continue the growth of our balanced
distribution network; (iii) build our execution skills through new operations
processes and decision support systems; (iv) achieve cost superiority through
formal productivity benchmarking and continuous improvement programs; and (v)
continue to improve upon our comprehensive e-commerce plan. We believe that our
history and reputation in the field, multiple distribution channels, broad
portfolio of products and packaging and distribution capabilities position us to
be a long-term competitor in the vitamin and nutritional supplements industries.

      Dr. Hoang will continue to work 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
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.

                                      -16-
<PAGE>

      FISCAL YEAR ENDED DECEMBER 31, 2004 COMPARED TO DECEMBER 31, 2003

      REVENUES. During the fiscal year ended December 31, 2004, we had net sales
of $15,136,592, representing an increase of $1,483,736 from net sales of
$13,652,856 during fiscal year ended December 31, 2003. The overall increase of
11% was driven by an increase in direct sales to retail customers of
approximately 38%, an increase in sales to distributors of approximately 4%, and
an increase in sales directly to professionals and health food stores of
approximately 11%. 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 $843,120 to $8,667,078 for the year
ended December 31, 2004, compared to $7,823,958 for the year ended December 31,
2003. The increase in cost of sales corresponds with the increase in sales.
Gross profit margins remained stable at approximately 43% for 2004 and 2003.

      OPERATING EXPENSES. Total operating expenses increased by approximately
$414,306 or 11% to $4,281,120 for the year ended December 31, 2004 from
$3,866,814 for the year ended December 31, 2003, primarily attributable to the
timing of officers bonuses (none in 2003 for the CEO and VP/Secretary),
increased matching contributions to our 401(k) plan for all participants, and
increased credit card processing fees. These increases were partially offset by
a reduction in our outside sales staff in 2003, a reduction in depreciation
expense associated with fully depreciated assets that are still in good working
condition and, reduced equipment rental fees due to the purchase of equipment.

      INTEREST EXPENSE. There was no interest expense incurred during 2004
because the line of credit was not used. During 2003 interest expense was
$1,170.

      INCOME TAXES. As of December 31, 2004 and 2003 we accrued $104,960 and
$134,408, respectively, of income tax payable and recognized a provision for
income tax expense of $930,661 and $328,393, respectively. As of December 31,
2004, our parent company has approximately $600,000 in state net operating loss
carryforwards, which expire principally in 2005, and have not been recognized.

      NET INCOME. During the period ended December 31, 2004, we experienced net
income of $1,282,736, as compared to net income of $1,643,770 for the period
ended December 31, 2003. The overall decrease is due to the increase in
operating expenses and income tax expense.

      EARNINGS PER SHARE. Earnings per share have decreased to $0.09 per share
for the year ended December 31, 2004, versus $0.11 per share for the same period
in 2003.

LIQUIDITY AND CAPITAL RESOURCES

      For the past five years combined we have generated net income of
$4,515,901. We believe that we will continue to generate net income, so long as
we continue to generate sales at the current level. We are currently financing
our operations through cash generated by operating activities.

      FISCAL YEAR ENDED DECEMBER 31, 2004 COMPARED TO DECEMBER 31, 2003

      Cash Flows

      OPERATING ACTIVITIES. Net cash flow provided by operating activities was
$417,573 and $1,609,484 for the years ended December 31, 2004 and 2003,
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. The decrease in cash flows provided by operating
activities from year to year is predominately explained by our increase in


                                      -17-
<PAGE>

inventory, which was necessary due to: (a) increased demand for new products,
(b) purchases of larger quantities of imported raw materials in order to avoid
delays in receiving the material, (c) stocking of finished goods in anticipation
of the down time associated with our move to a new location in early 2005, and
(c) purchases of larger amounts of inventory from one of our vendors who
accounts for more than ten percent of our purchases. This particular vendor is
experiencing financial difficulties. In order to avoid any potential shortages,
we increased our purchases from this vendor during the third quarter. The vendor
then reorganized during the fourth quarter and we resumed our normal purchasing
pattern with that vendor. It is our current understanding that the vendor will
continue in operation. While our inventory has increased, we have not
experienced a corresponding increase in accounts payable because we have
sufficient cash resources to pay our vendors, enabling us to take advantage of
available trade discounts resulting in reduced cost of products.

      INVESTING ACTIVITIES. Net cash flows provided by investing activities
during 2004 and 2003 was $13,736 and $3,314, respectively, and primarily
resulted from repayments from officers for an outstanding loan, offset by
purchases of computer equipment and copy machines (2003).

      FINANCING ACTIVITIES. Net cash flows provided by financing activities were
$9,800 in 2004, which represents the cash proceeds of stock options that were
exercised during the year. Net cash flows used in financing activities during
2003 was $248,271, consisting primarily of purchases of treasury stock and
repayments on capital lease obligations, partially offset by stock options which
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 could 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.
From the inception of the plan through December 31, 2004, 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.

      Current Financial Condition/Risk Analysis

      At December 31, 2004, the Company had positive working capital of
$4,960,277, compared to working capital at December 31, 2003 of $3,503,764.
Working capital increased as a result of our cash flows generated from operating
activities, which has increased our cash position and allowed us to minimize
outstanding liabilities. Approximately 97% of our current liabilities are due
within 60 days or less and approximately 96% 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 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 2004, we experienced a concentration of approximately 51% of our
manufacturing with four separate vendors (concentration ranging from 24% 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.

                                      -18-
<PAGE>

      Approximately 11% of our total sales in 2004 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.

      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 and other potential military action. Any economic
downturn resulting from such activities could adversely impact our results of
operations, impair our ability to raise capital, or otherwise adversely affect
our ability to grow our business. In 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.
The FDA indicated in November 2004 that the release of final CGMPs is a priority
for this fiscal year.

      Although there are certain small business exemptions under the labeling
requirements, the FDA estimates that the proposed rule will have a significant
impact on small businesses under the Regulatory Flexibility Act, with small
business bearing a proportionately larger cost than large businesses. As
originally proposed, the 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:

                                      -19-
<PAGE>
<TABLE>

  --------------------------- -------------------------------------------------------------------------------------
         Contractual
         Obligations                                         Payments Due by Period
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
                                                    Less
                                                    Than 1               1-3             4 - 5         After 5
                                   Total             Year               Years            Years          Years
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
<S>                                <C>                  <C>                 <C>           <C>       <C>
  Line of Credit(1)
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Capital Lease
  Obligations
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Operating Leases(2)              $2,880,000           $288,000            $864,000      $576,000  $1,152,000
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Purchase Obligations(3)            $462,115           $462,115
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Total Cash Contractual
  Obligations                      $3,342,115           $750,115            $864,000      $576,000  $1,152,000
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
</TABLE>

(1)      This represents our borrowings under the line of credit with Merrill
         Lynch, which had a zero balance as December 31, 2004 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, 2004, the interest rate on the line of credit was
         5.14% per annum. Because the line of credit is secured by substantially
         all of the assets of the Company, if we were to fall into default under
         the terms of our agreement with Merrill Lynch it could have material
         adverse impact on our business and financial position. The CEO of the
         Company has personally guaranteed the line of credit.
(2)      Represents our new Alameda, California location lease with AriBen
         Corporation, a related party. See "Related Party Transactions" under
         Item 12.
(3)      Represents contracts associated with the facility move to Alameda.
         Includes a coordinator for the warehouse move and warehouse equipment
         upgrades, new phone and communication system and leasehold improvements
         payable to AriBen Corporation of $350,000.

CRITICAL ACCOUNTING POLICIES

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

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

      INCOME TAXES

      We record a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. We have considered future
market growth, forecasted earnings, future taxable income, the mix of earnings
in the jurisdictions in which we operate, and prudent and feasible tax planning
strategies in determining the need for a valuation allowance. In the event we
were to determine that we would not be able to realize all or part of our net


                                      -20-
<PAGE>

deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to earnings in the period in which we make such determination.
Likewise, if we later determine that it is more likely than not that the net
deferred tax assets would be realized, we would reverse the applicable portion
of the previously provided valuation allowance. In order for us to realize our
deferred tax assets we must be able to generate sufficient taxable income in the
tax jurisdictions in which the deferred tax assets are located.

      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. We calculate our current and deferred tax provision
based on estimates and assumptions that could differ from the actual results
reflected in income tax returns filed during the subsequent year. Fluctuations
in the actual outcome of these future tax consequences could materially impact
our financial position or our results of operations. 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. No deferred tax asset has been
recognized as of December 31, 2004.

      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, of which, SFAS 123R is the only one that may have a
significant effect on our financial statements:

                                      -21-
<PAGE>

      March 2004 - EITF reached consensus on EITF Issue No. 03-6, "Participating
Securities and the Two Class Method under FASB Statement No. 128" ("EITF 03-6").
EITF 03-6 addresses a number of questions regarding the computation of earnings
per share by companies that have issued securities other than common stock that
contractually entitle the holder to participate in the dividends and earnings of
the company when, and if, it declares dividends on its common stock. EITF 03-6
also provides further guidance in applying the two-class method of calculating
earnings per share, clarifying what constitutes a participating security and how
to apply the two-class method of computing earnings per share once it is
determined that a security is participating, including how to allocate
undistributed earnings to such a security. EITF 03-6 is effective for fiscal
periods beginning after March 31, 2004 and requires retroactive restatement of
prior earning per share amounts. This statement does not affect the Company.

      June 2004 - EITF Issue No. 02-14, "WHETHER AN INVESTOR SHOULD APPLY THE
EQUITY METHOD OF ACCOUNTING TO INVESTMENTS OTHER THAN COMMON STOCK." EITF Issue
No. 02-14 addresses whether the equity method of accounting applies when an
investor does not have an investment in voting common stock of an investee but
exercises significant influence through other means. EITF Issue No. 02-14 states
that an investor should only apply the equity method of accounting when it has
investments in either common stock or in-substance common stock of a
corporation, provided that the investor has the ability to exercise significant
influence over the operating and financial policies of the investee. The
accounting provisions of EITF Issue No. 02-14 are effective for the reporting
period beginning after September 15, 2004. This statement does not affect the
Company.

      November 2004 - SFAS No. 151, "Inventory Costs, an amendment of ARB No.
43, Chapter 4." The amendments made by SFAS No. 151 clarify that abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges and require the
allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after November 23, 2004. The
Company does not believe the adoption of SFAS No. 151 will have a material
impact on our financial position, results of operations or cash flows.

      December 2004 - Revision of Statement of Financial Accounting Standards
No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" (SFAS 123R). SFAS 123R
supersedes APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and
its related implementation guidance. SFAS 123R establishes standards for the
accounting for transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
SFAS 123R does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in SFAS 123 as
originally issued and EITF Issue No. 96-18, "ACCOUNTING FOR EQUITY INSTRUMENTS
THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH
SELLING, GOODS OR SERVICES." SFAS 123R is effective for interim reporting period
that begins after June 15, 2005. The Company is evaluating the requirements of
SFAS 123R and expects that the adoption of SFAS 123R may have a material impact
on the Company's consolidated results of operations and earnings per share. The
Company has not yet determined the method of adoption or the effect of adopting
SFAS 123R, and it has not determined whether the adoption will result in amounts
that are similar to the current pro forma disclosures under SFAS 123.

      December 2004 - SFAS No. 152, "Accounting for Real Estate Time-Sharing
Transactions - an amendment of FASB Statements No. 66 and 67," which discusses
the accounting and reporting of real estate time-sharing transactions. This
Statement is effective for financial statements for fiscal years beginning after
June 15, 2005, and restatement of previously issued financial statements is not
permitted. This statement does not affect the Company.

                                      -22-
<PAGE>

      December 2004 - SFAS No. 153, "Exchanges of Nonmonetary Assets - an
amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged and provided an exception to the basic measurement
principle (fair value) for exchanges of similar productive assets. That
exception required that some nonmonetary exchanges, although commercially
substantive, be recorded on a carryover basis. This Statement eliminates the
exception to fair value for exchanges of similar productive assets and replaces
it with a general exception for exchange transactions that do not have
commercial substance--that is, transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. The provisions of
this Statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005, applied prospectively. This statement
does not affect the Company.

ITEM 7. FINANCIAL STATEMENTS

      Please see our audited consolidated financial statements for the year
ended December 31, 2004, 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.

                                      -23-
<PAGE>

                                    PART III

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

OFFICERS AND DIRECTORS

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

NAME                                  POSITION HELD(1)
----                                  ----------------

Stephen Levine, Ph.D.                 Chief Executive Officer, Chief Financial
2300 North Loop Road                  Officer, and Chairman of the Board
Alameda, CA 94502

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

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

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

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

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

      STEPHEN LEVINE, PH.D. (55) 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 and Secretary of the Company.

      FRED SALOMON (66) 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.

                                      -24-
<PAGE>

      SUSAN LEVINE (51) 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 (77) was appointed to the Company's Board of Directors on November
8, 2000. From 1955 to present, Mr. Kane has acted as the sole owner and chief
executive officer of Kane Steel, a company that has current gross sales of $25
million and over 120 employees. Mr. Kane also started K-TRON International
("KTII") in 1964. KTII was the first to digitize weigh feeding, which is a
system used to continuously weigh and feed material for the process industries.
KTII is listed on the over-the-counter market and is a $120 million company
today, with plants in Switzerland and the United States. In addition, Mr. Kane
started K-FLOW International ("KFI") in 1980 to manufacture a patented mass flow
meter. KFI was merged into the instrument division of the Swiss firm Asea Braun
Bavari in 1991. Expanding into the health field ten years ago, Mr. Kane and his
wife Patricia, a Ph.D., founded BodyBio Corporation, a specialized laboratory
analysis service utilized by physicians worldwide in interpreting blood test
results. Mr. Kane is currently the chief executive officer of BodyBio
Corporation. Mr. Kane has been a student of science and medicine for most of his
adult life, and holds a degree from Temple University. Mr. Kane's particular
focus has been on fatty acid metabolism. He has been a visiting professor at the
Wharton School of Business in Philadelphia and instructs physicians in a
biomedical course on lipid metabolism five times yearly. Mr. Kane holds several
U.S. patents on steel structures, instrumentation and biochemistry. The city of
Millville, New Jersey recognized Mr. Kane as one of the three leading
industrialists of the last half century.

KEY EMPLOYEES

      CLINTON ABBOTT has served as Operations Manager of the Company since
October 1999. Mr. Abbott has filled various roles for the Company: from July
1999 to September 1999, he acted as Pharmacy Market Development Manager; from
September 1998 to July 1999 he acted as Purchasing and Facilities Manager; from
April 1997 to September 1998 he acted as Purchasing/Warehouse Manager; and from
December 1996 to April 1997, he acted as Purchasing Manager. Mr. Abbott brings
20 years of experience with two of the largest pharmaceutical wholesalers in the
U.S., Cardinal Health ($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 for the Company. One
of the most senior employees at the Company, Ms. Amarante has been with the
Company since 1990 filling many roles, primarily in the accounting department.
Prior to joining the Company, Ms. Amarante worked in the Accounting Department
for First Select Visa for five years. Ms. Amarante was educated in Portugal and
holds a Bachelors of Arts degree in Education.

      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.

                                      -25-
<PAGE>

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

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

MEDICAL ADVISORY BOARD

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

      DR. JEFFRY ANDERSON. Dr. Anderson is Medical Advisory Board co-chairman
with Dr. Stephen Levine. Dr. Anderson also carries on a Marin County based
medical practice. Dr. Anderson consults with Dr. Levine to develop state of the
art designer supplements the Company is known for originating. Prior to his
consulting work with the Company, Dr. Anderson was in private practice in Marin
County for approximately 25 years. He has been working with Dr. Levine for
approximately the past ten years, at the same time acting as a consulting
physician for other companies. He is best known for his ground-breaking work in
the fields of Chronic Fatigue Syndrome and 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
since 1999. He specializes in cardiovascular health, using a preventive medical
approach in both his cardiovascular and anti-aging protocols. Dr. Ghaly has
appeared on several local television programs focusing on cardiovascular health,
as well as lecturing at conferences worldwide, most notably in the Soviet Union
in 1992 at the Cardiovascular Institute. Dr. Ghaly has acted as a diplomat for
the American Board of Anti-Aging Medicine (June 1999) and for the American Board
of Anesthesiology (March 1975). For the past five years, he has been engaged in
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.

                                      -26-
<PAGE>

      DR. BA HOANG. Dr. Hoang has been an employee of the Company since January
2000. He is also a scientific advisor with Get Well International, Inc., and
research consultant for the Institute of Transplant Research at the University
of California Davis. From 1996 to 1998, Dr. Hoang acted as founder and director
of the Research of the Natural Immune Supplements Corp., where he focused on
research and development of natural supplements for chronic infectious diseases,
chronic viral infections, allergy, asthma, auto-immune diseases and immune
suppressed conditions. From 1995 to present, Dr. Hoang has acted as research
collaborator of the Biochemistry Department of the Royal Holloway University of
London, where he works on the investigation of anti-HIV1 activities and the mode
of action of herbal species. He is the co-receiver of the Wellcome Trust Grant.
From 1993 to 1996, Dr. Hoang was senior research associate St. Petersburg
Pediatric Medical Academy, Russia, where he conducted research for the
development of a new approach to the diagnosis and treatment of Auto-Immune
Thrombocytopenic Purpura Asthma. Dr. Hoang has received the Visa O1 for persons
with extraordinary ability in science, and has published several articles in
medical journals.

      DR. MICHAEL ROSENBAUM MD. Dr. Rosenbaum has been consulting with Dr.
Levine since inception of NutriCology. He is an original member in the
Orthomolecular Medical Society under Linus Pauling. Dr. Rosenbaum previously
held the position of President of the Orthomolecular Medical Society and is an
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. All of the
responsibilities which would normally fall upon an audit committee under the
provisions of the Securities Act of 1934 and the Corporate Fraud Accountability
Act of 2002 are and will be the responsibility of the full Board. It is the
practice of the Board to review the Company's audited annual financial
statements and unaudited quarterly financial statements with the Company's
independent auditors. Our independent director has the opportunity to separately
review our financial statements with our auditor.

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 2004 under Section 16(a) of
the Securities Exchange Act of 1934, were timely filed.

                                      -27-
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

REMUNERATION PAID TO EXECUTIVES

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

<TABLE>
                                          SUMMARY COMPENSATION TABLE

                                                                         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  2002        250,000      90,000                                                         16,505
                     2003        299,846           -                                                         10,890
                     2004        324,477     125,000                                                         25,422

Manfred (Fred)       2002(2)      43,077      25,000
Salomon,             2003        112,308     100,000                                  98,250                  3,923
President            2004        120,923     120,000                                                         12,231


Susan Levine,        2002        141,940      50,000                                                          7,500
Secretary            2003        179,255                                                                      8,743
                     2004        195,517      50,000                                                         19,580
</TABLE>

      (1)   Includes matching funds contributed under the Company's 401(K) Plan,
            auto allowances (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, 2004, we did not grant any stock
options to executive officers. Options granted in 2003 are included in the table
below:

<TABLE>
------------------------- ---------------------- ----------------------- ---------------------- ----------------------
                          Number of Securities   % of Total
                          Underlying Options/    Options/SAR's Granted
                          SARs                   to Employees in         Exercise or Base       Expiration
Name                      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.

                                      -28-
<PAGE>
<TABLE>

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

                           Shares Acquired on                           Exercisable/          Exercisable/
Name                       Exercise (#)           Value Realized ($)    Unexercisable         Unexercisable
-------------------------- ---------------------- --------------------- --------------------- ----------------------
<S>                                            <C>                   <C>      <C>    <C>          <C>      <C>
Manfred Salomon                                0                     0        98,250/0            $102,180/0(1)

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

REMUNERATION PAID TO DIRECTORS

     No remuneration was paid to the Company's directors during its fiscal year
ended December 31, 2004.

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

                                      -29-
<PAGE>

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

      RULE 401(k) RETIREMENT PLAN. In January 1997, the Company adopted the
NutriCology, Inc. 401(k) Retirement Plan (the "401(k) Plan"). Eligible employees
may contribute any portion of their annual compensation, subject to the
limitations established annually by the Internal Revenue Service, and the
Company will match 50 percent of an employee's contribution, limited to 5% of
the employee's compensation. Total provisions with respect to these plans
approximated $43,600 and $91,000, for the years ended December 31, 2003 and
2004, 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
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, 2004
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.

                                      -30-
<PAGE>
<TABLE>
------------------------------ ----------------------------------- ---------------------------- --------------------
                                 Name and Address of Beneficial       Amount and Nature of          Percent of
Title of Class                               Owner                    Beneficial Ownership          Class(1)(2)
------------------------------ ----------------------------------- ---------------------------- --------------------
<C>                            <C>                                              <C>                       <C>
$.001 par value common stock   Stephen A. Levine, Ph.D.                         10,113,250                71%(3)
                               2300 North Loop Road
                               Alameda, CA 94502

$.001 par value common stock   Susan D. Levine                                  10,113,250(4)             71%
                               2300 North Loop Road
                               Alameda, CA 94502

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

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

</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, 2004, 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 14,516,605 shares outstanding on March 8, 2005.
(3)   Represents shares held jointly with the Company's Secretary, Susan D.
      Levine, as community property.
(4)   Includes 10,113,250 shares held jointly with our Chief Executive Officer,
      Stephen A. Levine.
(5)   Includes options to purchase 98,250 shares of common stock at an exercise
      price of $.40 per share which are fully vested.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

                                      -31-
<PAGE>

      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
was 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 $3,088 and $5,137 for the years ended December 31 2004 and December
31, 2003, respectively. The Company's audited financial statements indicate that
as of December 31, 2004 and 2003, the amounts due from Dr. Levine were $28,818
and $55,730, respectively.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

<TABLE>

ITEM                                                                                           EXH. NO.
----                                                                                           --------
<S>                                                                                              <C>
Registrant's Articles of Incorporation*                                                          3.1
Registrant's Articles of Amendment to Articles of Incorporation dated January 15, 1998*          3.2
Registrant's Bylaws*
3.3
Form of Common Stock Certificate*                                                                4.1
Form of Non-Qualified Stock Option*                                                              4.2
Form of Incentive Stock Option*                                                                  4.3
Form of Common Stock Purchase Warrant*                                                           4.4
1998 Stock Option Plan*                                                                          4.5
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
Lease between Registrant and AriBen Corporation dated January 4, 2005***                        10.5
Consent of Independent Auditor                                                                  23.1
Certificate of Stephen A. Levine required by Rule 13a-14(a) or Rule 15d-14(a) of the
  Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley
  Act of 2002                                                                                     31
Certificate of Stephen A. Levine pursuant to 18 U.S.C. Section 1350, as adopted pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002                                                32
Haight-Ashbury Free Medical Clinic Design Research Survey*                                      99.1

</TABLE>

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

***Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on
Form 8-K filed on January 4, 2005.
# Registrant requested confidential treatment pursuant to Rule 406 for a portion
of the referenced exhibit and separately filed such exhibit with the Commission
in conjunction with the filing of its registration statement of Form 10-SB.

(b)   Form 8-K Reports

      A Current Report on Form 8-K was filed with the Commission on January 4,
2005 under Item 1.01 (Entry Into a Material Definitive Agreement) disclosing the
lease with AriBen Corporation, a single-purpose entity wholly-owned be Stephen
and Susan Levine, our CEO and Secretary, respectively.

                                      -32-
<PAGE>

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, 2004 and 2003. The Board of
Directors of the Company, in its discretion, may direct the appointment of
different public accountants at any time during the year if the Board believes
that a change would be in the best interests of our stockholders. The Board of
Directors has considered the audit fees, audit-related fees, tax fees and other
fees paid to the Company's accountants, as disclosed below, and determined that
the payment of such fees is compatible with maintaining the independence of the
accountants.

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

Audit Fees

      The aggregate fees billed by Clancy and Co., P.L.L.C. for professional
services rendered for the audit of the Company's annual financial statements on
Form 10-KSB and the reviews of the financial statements included in the
Company's Form 10-QSB's for the fiscal years ended December 31, 2004 and 2003
was $42,500 and $40,500, respectively.

Audit-Related Fees

      None.

Tax Fees

      The aggregate fees billed for tax compliance rendered by our independent
auditors for the years ended December 31, 2003 and 2004 was $5,000 for each
year.

All Other Fees

      None.

Audit Committee Pre-Approval Policies and Procedures

      The Company does not currently have an Audit Committee. The Company's
current policy is that the Board of Directors pre-approves all audit and
non-audit services that are to be performed and fees to be charged by our
independent auditor to assure that the provision of these services does not
impair the independence of such auditor. The Board of Directors pre-approved all
audit services and fees of our independent auditor for the years ended December
31, 2004 and 2003. Our independent auditors did not provide us with any
non-audit services during the periods indicated above.

                                      -33-
<PAGE>


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



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

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

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

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

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

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



                                       F1
<PAGE>


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

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

We have audited the accompanying consolidated balance sheet of Allergy Research
Group, Inc., a Florida Corporation, and Subsidiary (the "Company") as of
December 31, 2004 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for two preceding years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2004, 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 22, 2005


                                       F2
<PAGE>
<TABLE>

                        ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                                CONSOLIDATED BALANCE SHEET
                                     DECEMBER 31, 2004

ASSETS
------
Current assets
<S>                                                                            <C>
   Cash and cash equivalents                                                   $ 2,145,638
   Accounts receivable, net of allowance for doubtful accounts of $45,000          758,068
   Inventories (Note 3)                                                          2,550,315
   Prepaid expenses and other current assets                                       197,275
   Prepaid income taxes                                                             61,858
                                                                               ------------
Total current assets                                                             5,713,154
                                                                               ------------

Property and equipment, net (Note 4)                                               120,583
                                                                               ------------

Other assets
   Related party receivables - due from officers (Note 2)                           28,818
   Intangible assets, net of amortization of $29,753 (Note 5)                       13,180
                                                                               ------------
Total other assets                                                                  41,998
                                                                               ------------

TOTAL ASSETS                                                                   $ 5,875,735
                                                                               ============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
   Accounts payable                                                            $   340,215
   Accrued expenses (Note 6)                                                       307,702
   Income taxes payable (Note 10)                                                  104,960
                                                                               ------------
Total Current Liabilities                                                          752,877
                                                                               ------------

Commitments and Contingencies (Note 11)                                                 --

Stockholders' equity
Preferred stock:  $0.25 par value, authorized: 1,000,000
     issued and outstanding:  None                                                    None
Common stock: $0.001 par value, authorized shares: 100,000,000;
     issued: 15,105,355, outstanding: 14,516,605                                    15,105
Additional paid-in capital                                                       1,149,705
Retained earnings                                                                4,237,649
Less:  treasury stock, at cost (588,750 shares)                                   (279,601)
                                                                               ------------
Total stockholders' equity                                                       5,122,858
                                                                               ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $ 5,875,735
                                                                               ============



        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>

                                            F3
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                         CONSOLIDATED INCOME STATEMENTS
                 FOR THE YEARS ENDED DECMEBER 31, 2004 AND 2003

                                                     2004               2003
                                                 -------------     -------------

Net sales                                        $ 15,136,592      $ 13,652,856
Costs of sales                                      8,667,078         7,823,958
                                                 -------------     -------------
Gross margin                                        6,469,514         5,828,898
                                                 -------------     -------------

Operating expenses
   Selling, general and administrative              3,982,221         3,612,034
   Research and development                           298,899           254,780
                                                 -------------     -------------
Total operating expenses                            4,281,120         3,866,814
                                                 -------------     -------------

Earnings from operations                            2,188,394         1,962,084
                                                 -------------     -------------

Other income (expense)
   Interest income                                     25,003            11,249
   Interest expense                                        --            (1,170)
                                                 -------------     -------------
Total other income (expense)                           25,003            10,079
                                                 -------------     -------------

Earnings before income taxes                        2,213,397         1,972,163

Provision for income taxes (Note 10)                  930,661           328,393
                                                 -------------     -------------

Net earnings available to common stockholders    $  1,282,736      $  1,643,770
                                                 =============     =============

Basic earnings per share                         $       0.09      $       0.11
                                                 =============     =============

Diluted earnings per share                       $       0.09      $       0.11
                                                 =============     =============


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

                                       F4
<PAGE>
<TABLE>


                                            ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                                    CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                          FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


                                                    COMMON       COMMON      ADDITIONAL
                                       PREFERRED     STOCK       STOCK         PAID-IN       RETAINED      TREASURY
                                         STOCK      SHARES       AMOUNT        CAPITAL       EARNINGS       STOCK        TOTAL
                                       ---------------------------------------------------------------------------------------------
<S>                                       <C>     <C>              <C>          <C>           <C>           <C>         <C>
BALANCE, DECEMBER 31, 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
Exercise of employee stock options
     [24,500 shares]                       -           -                 -           4,585             -        5,215         9,800
Net earnings                               -           -                 -               -     1,282,736            -     1,282,736
                                       ---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004                 -      15,105,355      $ 15,105 $    1,149,705     $4,237,649   $(279,601)  $  5,122,858
                                       =============================================================================================

                            THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
                                                                F5
<PAGE>
<TABLE>

                                  ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 FOR THE YEARS ENDED DECEMBER 31, 2004AND 2003

                                                                                 2004              2003
                                                                             ------------      ------------
<S>                                                                          <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net earnings                                                                 $ 1,282,736       $ 1,643,770
                                                                             ------------      ------------
Adjustments to reconcile net earnings to net cash provided by operating
    activities:
     Depreciation and amortization                                               132,222           171,254
     Change in provision for doubtful accounts                                    (9,000)              116
     Change in deferred taxes                                                    284,024           120,061
Changes in assets and liabilities
    (Increase) decrease in accounts receivable                                   (71,121)          (86,506)
    (Increase) decrease in inventories                                          (953,588)            4,862
    (Increase) decrease in prepaid expenses and other current assets            (161,027)           21,163
    (Increase) decrease in security deposits                                      18,019            11,711
     Increase (decrease) in accounts payable                                    (120,626)         (282,928)
     Increase (decrease) in accrued liabilities                                   45,382           (57,742)
     Increase (decrease) in income taxes payable                                 (29,448)           63,693
                                                                             ------------      ------------
Net cash flows provided by operating activities                                  417,573         1,609,484
                                                                             ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
   Acquisition of property and equipment                                         (11,806)          (68,187)
   Expenditures for intangible assets, trademarks                                 (1,370)             (460)
   Repayments from officers                                                       26,912            71,961
                                                                             ------------      ------------
Net cash flows provided by investing activities                                   13,736             3,314
                                                                             ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
   Purchases of treasury stock                                                        --          (207,500)
   Exercise of employee stock options                                              9,800             8,000
   Repayments on capital lease obligations                                            --           (48,771)
                                                                             ------------      ------------
Net cash flows provided by (used in) financing activities                          9,800          (248,271)
                                                                             ------------      ------------

Increase in cash and cash equivalents                                            441,109         1,364,527
Cash and cash equivalents, beginning of year                                   1,704,529           340,002
                                                                             ------------      ------------
Cash and cash equivalents, end of year                                       $ 2,145,638       $ 1,704,529
                                                                             ============      ============

CASH PAID FOR:
   Interest                                                                  $        --       $     1,170
                                                                             ============      ============

   Income taxes                                                              $   602,798       $   143,035
                                                                             ============      ============


                  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
                                                      F6
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004


NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-------------------------------------------------

DESCRIPTION OF BUSINESS

Allergy Research Group, Inc. (the "Company"), together with its wholly-owned
subsidiary, Nutricology, Inc., strives to be an innovative leader in
nutraceutical research and product formulation. Since 1980, Nutricology, Inc.
has produced quality, hypoallergenic nutritional supplements and currently
supplies products to physicians and health care practitioners worldwide.
Nutricology, Inc. was acquired by the Company in February 1998. The Company is
headquartered in Alameda, California and the Company's shares are quoted on the
"Over-the-counter (OTC) Bulletin Board."

The Company sells its products (i) directly to consumers and to medical,
professional and retailers and (ii) through distributors who sell products to
professionals and retailers. The Company develops, contract manufactures,
markets and sells its own brand of products, including vitamins and nutritional
supplements, throughout the world under the NutriCology(R) and Allergy Research
Group(R) labels. 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) and liquids. 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:
developing, marketing and distributing natural nutritional supplements. The
Company's sales are primarily to distributors (43%) and to health care
professionals and health food stores (42%) throughout the United States. The
Company has one customer that accounts for approximately 11% of its sales, or
$1,665,000 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.

                                       F7
<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 accounted for approximately 11%
(2003: 12%) of sales and one customer (2003: two customers) that individually
accounted for more than 10% of total accounts receivable.

(c) Purchases - The Company purchases raw materials and uses outside vendors for
the manufacture of products. The Company has one vendor (2003: three vendors)
that individually accounted for more than 10% of total vendor purchases,
representing approximately 24% (2003: 49%) of the Company's manufacturers and
suppliers of raw materials. In 2004, three vendors each individually accounted
for 9% of purchases, whereas in 2003 they were at 10%.

(d) Product - The Company has one product that individually accounts for more
than 10% of its sales dollars. In 2003 there were two products, but one of the
products slipped to 9% during 2004.

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

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

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

REVENUE RECOGNITION - Revenue is recognized when the product is shipped and the
risks and rewards of ownership have transferred to the customer. The Company
recognizes shipping and handling fees as revenue, and the related expenses as a
component of cost of sales. All internal handling charges are charged to
selling, general and administrative expenses. Revenues are presented net of
returns and allowances. Sales returns and allowances for 2004 and 2003 were
$1,479,779 and $1,286,389, respectively.

ALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company establishes an allowance for
doubtful accounts to ensure accounts receivables are not overstated due to
uncollectibility. Bad debt reserves are maintained based on a variety of
factors, including the length of time receivables are past due, historical
experience and a detailed review of certain individual customer accounts. The
Company reviews a customer's credit history before extending credit, however, a
specific reserve for individual accounts is recorded when the Company becomes
aware of a customer's inability to meet its financial obligations, such as in
the case of bankruptcy filings or deterioration in the customer's operating
results or financial position. If circumstances related to customers change,
estimates of the recoverability of receivables would be further adjusted.

                                       F8
<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 totaled $298,899 for 2004 (2003: $254,780).

ADVERTISING COSTS - Advertising costs are expensed as incurred and totaled
$78,404 in 2004 (2003: $59,920).

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

EARNINGS PER SHARE - Basic earnings per share ("EPS") is calculated using net
earnings and the weighted-average number of shares outstanding during the
reporting period. Diluted EPS includes the effect from potential issuance of
common stock, such as stock issuable pursuant to the exercise of stock options.
Total potential common shares not included in the computation of dilutive EPS
for 2003 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:

<TABLE>
                                                               2004             2003
                                                           ------------     ------------
<S>                                                        <C>              <C>
Numerator: net earnings                                    $ 1,282,736      $ 1,643,770

Denominator:
  Weighted-average shares used to compute basic EPS         14,508,955       14,712,489
  Dilutive potential common shares                             206,289          106,346
                                                           ------------     ------------
  Weighted-average shares used to compute diluted EPS       14,715,244       14,818,835

Basic net earnings per share:                              $      0.09      $      0.11
                                                           ============     ============

Diluted net earnings per share:                            $      0.09      $      0.11
                                                           ============     ============
</TABLE>

STOCK-BASED COMPENSATION - The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation
cost for stock options, if any, is measured as the excess of the quoted market
price of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock. Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. The Company has elected
to remain on its current method of accounting as described above, and has
adopted the pro forma disclosure requirements of SFAS No. 123 only. See Note 9
for a description of the stock-based compensation plan.

                                       F9
<PAGE>

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:

<TABLE>
                                                              2004                  2003
                                                         ----------------     -----------------
<S>                                                       <C>                   <C>
Net earnings, as reported                                 $ 15,136,592          $  1,643,770
Less: stock-based compensation cost, net of tax                 -                   (114,964)
Pro forma net earnings                                    $ 15,136,592          $  1,528,806


Basic net earnings per share
     As reported                                          $       0.11          $       0.11
     Pro forma                                            $       0.10          $       0.10

Diluted net earnings per share
     As reported                                          $       0.11          $       0.11
     Pro forma                                            $       0.10          $       0.10
</TABLE>

The weighted average fair value on the date of grant was $0.30. 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 2003: dividend yield of 0%, expected volatility of 99%,
risk-free interest rate of 2.25%, and expected life of five years.

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 and other current assets, amounts due from officers, accounts payable
and other accruals, the carrying amounts approximate fair value due to their
short maturities.

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

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 pronouncements during 2004, of which SFAS 123R is the only
one that may have a significant effect on the financial statements:

In March 2004, the EITF reached consensus on EITF Issue No. 03-6, "Participating
Securities and the Two Class Method under FASB Statement No. 128" ("EITF 03-6").
EITF 03-6 addresses a number of questions regarding the computation of earnings
per share by companies that have issued securities other than common stock that
contractually entitle the holder to participate in the dividends and earnings of
the company when, and if, it declares dividends on its common stock. EITF 03-6
also provides further guidance in applying the two-class method of calculating


                                      F10
<PAGE>

earnings per share, clarifying what constitutes a participating security and how
to apply the two-class method of computing earnings per share once it is
determined that a security is participating, including how to allocate
undistributed earnings to such a security. EITF 03-6 is effective for fiscal
periods beginning after March 31, 2004 and requires retroactive restatement of
prior earning per share amounts. This statement does not affect the Company.

In June 2004, the FASB issued EITF Issue No. 02-14, "WHETHER AN INVESTOR SHOULD
APPLY THE EQUITY METHOD OF ACCOUNTING TO INVESTMENTS OTHER THAN COMMON STOCK."
EITF Issue No. 02-14 addresses whether the equity method of accounting applies
when an investor does not have an investment in voting common stock of an
investee but exercises significant influence through other means. EITF Issue No.
02-14 states that an investor should only apply the equity method of accounting
when it has investments in either common stock or in-substance common stock of a
corporation, provided that the investor has the ability to exercise significant
influence over the operating and financial policies of the investee. The
accounting provisions of EITF Issue No. 02-14 are effective for the reporting
period beginning after September 15, 2004. This statement does not affect the
Company.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4." The amendments made by SFAS No. 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after November 23, 2004. The
Company does not believe the adoption of SFAS No. 151 will have a material
impact on our financial position, results of operations or cash flows.

In December 2004, the FASB issued a revision of Statement of Financial
Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" (SFAS
123R). SFAS 123R supersedes APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES," and its related implementation guidance. SFAS 123R establishes
standards for the accounting for transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments or that may be settled by the issuance of
those equity instruments. SFAS 123R does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
SFAS 123 as originally issued and EITF Issue No. 96-18, "ACCOUNTING FOR EQUITY
INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN
CONJUNCTION WITH SELLING, GOODS OR SERVICES." SFAS 123R is effective for interim
reporting period that begins after June 15, 2005. The Company is evaluating the
requirements of SFAS 123R and expects that the adoption of SFAS 123R may have a
material impact on the Company's consolidated results of operations and earnings
per share. The Company has not yet determined the method of adoption or the
effect of adopting SFAS 123R, and it has not determined whether the adoption
will result in amounts that are similar to the current pro forma disclosures
under SFAS 123.

In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67,"
which discusses the accounting and reporting of real estate time-sharing
transactions. This Statement is effective for financial statements for fiscal
years beginning after June 15, 2005, and restatement of previously issued
financial statements is not permitted. This statement does not affect the
Company.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an amendment of APB Opinion No. 29." The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged and provided an exception to the basic measurement
principle (fair value) for exchanges of similar productive assets. That
exception required that some nonmonetary exchanges, although commercially
substantive, be recorded on a carryover basis. This Statement eliminates the
exception to fair value for exchanges of similar productive assets and replaces


                                      F11
<PAGE>

it with a general exception for exchange transactions that do not have
commercial substance--that is, transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. The provisions of
this Statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005, applied prospectively. This statement
does not affect the Company.

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

DUE FROM OFFICERS - These loans represent a series of non-interest bearing
advances primarily during 1997 and a final advance during 1999 to the CEO. The
advances began accruing interest in 2000 at the rate of 8% per annum. The amount
due from officers at December 31, 2004 was $28,818. 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.

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


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

Inventories consist of the following:

Raw materials                                       $    1,453,023
Finished goods                                           1,047,466
Supplies                                                    99,826
Reserve for obsolescence                                   (50,000)
                                                    ---------------
Total                                               $    2,550,315
                                                    ===============


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

Property and equipment consist of the following:

Machinery and equipment                             $     705,207
Office equipment                                          191,497
Vehicles                                                   67,762
Furniture and fixtures                                    144,830
Computer equipment                                         67,338
Computer software                                          74,775
Leasehold improvements                                     99,204
                                                    --------------
Total                                                   1,350,613
Less accumulated depreciation                           1,230,030
                                                    --------------
Net book value                                      $     120,583
                                                    ==============

Depreciation expense charged to operations for 2004 was $126,646 (2003:
$165,669).

                                      F12
<PAGE>

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

Intangible assets consist of the following:

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


Amortization expense charged to operations for 2004 was $5,576 (2003: $5,585).


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

Accrued expenses consist of the following:
Accrued settlement fee (Note 11)                    $      151,500
Accrued expenses                                            92,849
Accrued vacation                                            33,131
Accrued payroll                                             23,611
Accrued sales tax                                            6,611
                                                    ---------------
                                                    $      307,702
                                                    ===============


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

The Company has a 401(k) Retirement Plan and eligible employees may contribute
any portion of their annual compensation, subject to the limitations established
annually by the Internal Revenue Service, and the Company will match 50 percent
of an employee's contribution, limited to 5% of the employee's compensation.
Total contributions by the Company with respect to these plans for 2004
approximated $91,000 (2003: $44,000).


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

On May 3, 2002, the Company announced a stock repurchase plan, whereby the
Company could repurchase between 1,000,000 and 2,500,000 shares of the Company's
common stock in open market transactions, from time to time, during the
following two years in compliance with Rule 10b-18 of the Securities Exchange
Act of 1934 and all other applicable securities regulations. Repurchases of
common shares in the open market provided shares for issuance to employees under
stock option and stock purchase plans. From inception of the plan through
December 31, 2004, 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 588,750 of which 338,750 shares remain unexercised under stock
option grant agreements.


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

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

                                      F13
<PAGE>

The following is a summary of stock option transactions:


                                    SHARES UNDER           WEIGHTED-AVERAGE
                                        OPTION              EXERCISE PRICE
                                 -------------------       ------------------
OUTSTANDING AT 12/31/02                    150,000              $ 2.00
Exercised                                  (20,000)              (0.02)
Forfeited                                        -                   -
Granted                                    383,250               (0.20)
                                 -------------------       ------------------
OUTSTANDING AT 12/31/03                    513,250                0.88
Exercised                                  (24,500)              (0.03)
Forfeited                                 (150,000)              (0.83)
Granted                                          -                   -
                                 -------------------       ------------------
OUTSTANDING AT 12/31/04                    338,750              $ 0.40
                                 ===================       ==================

Options outstanding and exercisable at December 31, 2004 were 338,750
exercisable at $0.40 per share. The weighted-average exercise price of options
outstanding and exercisable at December 31, 2004 was $0.40 per share and the
weighted-average remaining contractual life was 3.3 years.


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

THE COMPONENTS OF PROVISION FOR INCOME TAXES ARE AS FOLLOWS:

<TABLE>
                                                      2004                   2003
                                               ------------------    ------------------
<S>                                            <C>                   <C>
U.S. federal income tax - AMT                  $               -     $          28,359
U.S. federal income tax - based on income                524,960                     -
State taxes - based on income                            121,677               179,973
Change in deferred taxes - federal                       168,338                94,595
Change in deferred taxes - state                         115,686                25,466
                                               ------------------    ------------------
                                               $         930,661     $         328,393
                                               ==================    ==================

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

                                                                       2004                 2003
                                                                 ------------------    ---------------

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           5.5%                 9.1%
Other                                                                  12.3%                 6.1%
Changes in the valuation allowance                                     (9.8)%              (52.5%)
                                                                 ------------------    ---------------
Income tax expense - effective rate                                    42.0%                16.7%
                                                                 ==================    ===============
</TABLE>


INCOME TAXES CURRENTLY PAYABLE CONSIST OF THE FOLLOWING:

U.S. federal income taxes - based on income                      $    104,960
CA state taxes - based on income                                            -
                                                                 -------------
                                                                 $    104,960
                                                                 =============

                                      F14
<PAGE>

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:

                                                          2004           2003
                                                        ---------      ---------
DEFERRED TAX ASSETS:
--------------------
Net operating loss carryforwards                        $ 54,000       $318,801
Expenses not currently deductible for tax purposes            --          5,693
                                                        ---------      ---------
Total                                                     54,000        324,949
Valuation allowance                                      (54,000)            --
                                                        ---------      ---------
Net deferred tax asset                                        --        324,494


DEFERRED TAX LIABILITIES:
-------------------------
Depreciation                                                  --         40,470
                                                        ---------      ---------
Net deferred tax asset                                  $     --       $284,024
                                                        =========      =========

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

The net change in the valuation allowance for 2004 was an increase of
approximately $54,000 (2003: a decrease of approximately $430,000), which is
principally the result of the availability and / or utilization of net operating
loss carryforwards to offset taxable income.

As of December 31, 2004, the Company has available state net operating loss
carryforwards (parent company level) of approximately $600,000, which expire
principally in 2005. 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 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 11 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

OPERATING LEASES, FACILITY MOVE AND RELATED OBLIGATIONS

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

                                      F15
<PAGE>

Rent expense charged to operations during the periods presented in the income
statements was under the previous lease and was approximately $256,000 for 2004
(2003: $384,000). All other significant equipment leases were canceled during
2004, through the purchase or return of the equipment.

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

         2005                        $   288,000
         2006 - 2008                 $   864,000
         2009                        $   288,000

The Company sublet a portion of its space during 2003 and the total amount of
minimum rentals received under non-cancelable subleases was $10,175.

LINE OF CREDIT

The Company has a Merrill Lynch Working Capital Management Account ("WCMA"),
which provides for a line of credit up to $1,500,000 with interest due monthly
at the variable interest rate of 2.75% plus the One-Month London Interbank
Offered Rate ("LIBOR"), the total of which equaled 5.14% on December 31, 2004.
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, 2005.

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.

                          END OF FINANCIAL STATEMENTS.


                                      F16
<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, 2005                       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, 2005                       By: /s/Stephen A. Levine
                                               ---------------------------------
                                           Stephen A. Levine, Ph.D., CEO, CFO
                                           and Director



Date: March 30, 2005                       By: /s/Susan D. Levine
                                               ---------------------------------
                                           Susan D. Levine, Director


Date: March 30, 2005                       By: /s/Ed Kane
                                               ---------------------------------
                                           Ed Kane, Director


                                       38