<PAGE>

                     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, 2007

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

     For the transition period from _________________ to ___________________

                         Commission file number 0-27227

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

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

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

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

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

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

            None.                           NASD OTC Bulletin Board

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

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

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

         Yes [X]          No [ ]

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

State issuer's revenues for its most recent fiscal year: $16,725,246

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 24, 2008 was $0.78, based on the last
sale price of $0.78 as reported by the Financial Industry Regulatory Authority's
("FINRA") Over-The-Counter Bulletin Board.

As of March 24, 2008, Registrant had outstanding 14,416,950 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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<S>     <C>
                                         TABLE OF CONTENTS

PART I...........................................................................................1

   ITEM 1.     DESCRIPTION OF BUSINESS...........................................................1
     FORWARD-LOOKING STATEMENTS..................................................................1
     BACKGROUND..................................................................................1
     THE COMPANY.................................................................................1
     BUSINESS PLAN...............................................................................2
     PRODUCTS AND SERVICES.......................................................................3
     INDUSTRY OVERVIEW...........................................................................4
     COMPETITION.................................................................................5
     MARKET STRATEGIES...........................................................................6
     REGULATION..................................................................................7
     EMPLOYEES...................................................................................9
     INTELLECTUAL PROPERTY.......................................................................9
     AVAILABLE INFORMATION.......................................................................9
   ITEM 2.     DESCRIPTION OF PROPERTY...........................................................9
   ITEM 3.     LEGAL PROCEEDINGS................................................................10
   ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................10

PART II.........................................................................................11

   ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................11
     MARKET INFORMATION.........................................................................11
     HOLDERS....................................................................................11
     DIVIDENDS..................................................................................11
     RECENT SALES OF UNREGISTERED STOCK.........................................................11
     EQUITY COMPENSATION PLAN INFORMATION.......................................................12
   ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........................12
     INTRODUCTION...............................................................................12
     CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS.................................13
     FACTORS THAT COULD AFFECT FUTURE RESULTS...................................................13
     OVERVIEW...................................................................................14
     RESULTS OF OPERATIONS......................................................................15
     LIQUIDITY AND CAPITAL RESOURCES............................................................16
     CRITICAL ACCOUNTING POLICIES...............................................................19
     RECENT ACCOUNTING PRONOUNCEMENTS...........................................................20
   ITEM 7.     FINANCIAL STATEMENTS.............................................................21
   ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS....................................21
   ITEM 8A(T). CONTROLS AND PROCEDURES..........................................................21
   ITEM 8B.    OTHER INFORMATION................................................................22

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

   ITEM 9.     DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
   COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT............................................23
     OFFICERS AND DIRECTORS.....................................................................23
     KEY EMPLOYEES..............................................................................24
     MEDICAL ADVISORY BOARD.....................................................................25
     SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE....................................26
   ITEM 10.     EXECUTIVE COMPENSATION..........................................................26
     REMUNERATION PAID TO EXECUTIVES............................................................26
     REMUNERATION PAID TO DIRECTORS.............................................................27
     EMPLOYMENT AGREEMENTS......................................................................27
     EMPLOYEE BENEFITS..........................................................................27
   ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................29
   ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................29
   ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K................................................30
     EXHIBITS...................................................................................30
     FORM 8-K REPORTS...........................................................................31
   ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES .........................................31

SIGNATURES......................................................................................48


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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 statements 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 to 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 its wholly owned subsidiary, Nutricology, Inc.,
strives to be an innovative leader in nutraceutical research and product
formulation. Through Nutricology, Inc., the Company has produced quality,
hypoallergenic nutritional supplements since 1980 and currently supplies
products to over 4,000 physicians and health care practitioners worldwide. The
Company was the first in the U.S. to introduce a number of specialty products,
including melatonin (a neurohormone), germanium sesquioxide (a trace mineral),
AntiOx(TM) (a broad-spectrum antioxidant), BufferED Vitamin C and Nattokinase
(an enzyme derived from boiled soybeans).

THE COMPANY

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

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

      We sell our products worldwide to healthcare professionals and other
consumers, who recognize the Company for the quality, purity and efficacy of its
targeted nutritional supplement line. Currently, we supply products to over
4,000 physicians and health care practitioners worldwide, including accounts in
the United States, Japan, China, Taiwan, the United Kingdom, Germany, South
Korea, Jamaica, New Zealand, Mexico, Turkey, Norway, Denmark, Switzerland,
Italy, Ireland, Philippines, Russia, South Africa and Singapore. The United
States accounts for approximately 87% of sales before returns, discounts and
allowances, with the United Kingdom, Japan and Canada producing 7%, 2% and 1% of
sales, respectively. Financial information regarding our revenue, income and
assets can be found in our audited financial statements filed as part of this
Report.


                                       1


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      We develop, contract manufacture, market and sell our own branded
products, including vitamins and nutritional supplements under the NutriCology
and Allergy Research Group labels. In addition, approximately 20% of the
products we distribute are produced by other manufacturers in the industry and
sold under our label under certain licensing arrangements. Our products are
distributed through distributors to medical and professional accounts and to
retailers. We also sell direct to healthcare professionals and to consumers via
the Internet and telephone sales. See "Market Strategies" below. We offer a line
of approximately 280 products, including vitamins in both multivitamin and
single-entity formulas, minerals and herbals. Our products are manufactured in
various forms, including capsules, tablets, softgels, powders (drink mixes), and
liquids. Due to the nature of our business, the Company must carry a significant
amount of inventory at all times in order to meet rapid delivery requirements.
The Company does not have a significant amount of backorders at any given time
and does not offer payment terms in excess of 30 days.

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

BUSINESS PLAN

      COMPANY GROWTH STRATEGY

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

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

      o     continue the growth of our balanced distribution network;

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

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

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

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

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


                                       2


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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
2007 and 2006, we spent $255,300 and $257,691, respectively, on research and
development. The nutritional supplement industry is influenced by products that
become popular due to changing consumer interests in health, appearance and
longevity, new research coming out on existing compounds or new compounds being
discovered along with public and media attention to these same interests. We
believe it is important to develop new products in these industries in order to
capitalize on new market opportunities, to strengthen relationships with
customers by meeting demand and to increase market share. In addition, we
believe that continually introducing new products is important to preserving and
enhancing gross margins due to the relatively short life cycle of some products.
Our involvement in the research and development of nutraceuticals that could
have pharmaceutical potential may enable us to expand our nutritional supplement
product line and open a new potential revenue stream through joint ownership of
patents.

      As a result of our product development history, we believe that we have
built a reputation in the nutritional supplement industry for innovation. The
Company continues to develop new product concepts that we anticipate will
capture additional market share in our existing domestic and international
business.

      MANUFACTURING AND PRODUCT QUALITY

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

      The Company currently does not have facilities for the manufacture of
encapsulated and liquid products, and we are using outside vendors for this
purpose. As of December 31, 2007, a concentration of approximately 61% of our
manufacturing was distributed among four separate vendors. The four individual
manufacturers and suppliers of raw materials accounted for approximately 27%,
14% and two vendors at 10%. We are committed to providing the highest quality
products, and require our manufacturers to provide evidence that they have met
our standards. Our outside vendors are required to manufacture our products in
accordance with the applicable Current Good Manufacturing Practices ("cGMPs") of
the United States Food and Drug Administration ("FDA") applicable to food and
other applicable regulatory and compendial manufacturing standards, such as
United States Pharmacopoeia ("USP"). Raw materials and finished products undergo
random sample quality testing procedures, including weight, purity, heavy metals
and microbiological testing. In order to assure that our products meet the high
standards we require, we randomly take raw materials and samples from our
manufacturers to independent laboratories for testing.

PRODUCTS AND SERVICES

      Our vitamin and nutritional supplement line consists of approximately 280
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.


                                       3


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Approximately 80% of our products were formulated by Allergy Research
Group/NutriCology and are contract manufactured and distributed by the Company.
Another 20% of the products are produced by other companies in the industry and
distributed by the Company through licensing agreements, under our label.

INDUSTRY OVERVIEW

      According to NUTRITION BUSINESS JOURNAL, the current overall global
nutrition industry is estimated at approximately $226 billion, while the
NATIONAL BUSINESS SUPPLEMENT BUSINESS REPORT 2007, released in September 2007,
estimates that U.S. dietary supplement sales reached $22.5 billion in 2006,
representing a 5.4% growth rate from the previous year. A report published by
Koncept Analytics in November 2007 indicates that the health practitioner
channel has emerged as the fasted growing channel for nutritional supplement
sales.

      An article published in FOOD NAVIGATOR USA on January 2, 2008 states that
a recent report by The Hartman Group identified five trends expected to impact
consumer spending in the food and beverage industry during 2008. The report
indicated that (1) consumers are pursuing higher quality brands and products,
(2) consumers are looking for products to address health and wellness issues
focused on digestion, sustained energy and immunity, (3) consumers are focusing
more attention on healthy eating habits, including avoiding foods they perceive
as causing allergic reactions, such as wheat, gluten, corn, soy, dairy, potatoes
and peanuts, (4) concerns regarding weight management, blood sugar regulation
and digestive health have consumers looking for products to help address these
issues, and (5) supplement users, in particular, are focused on products that
will address the issues of healthy aging, balanced energy and inflammation.

      According to an article published by NUTRA INGREDIENTS USA on February 11,
2008, a recent report by The Hartman Group indicates that consumers continue to
look for high-quality supplements to address these concerns. The research
results disclosed in the article indicate that, when a health concern presents
itself, most consumers will examine their diet first and, where changes in diet
will not remedy the situation, they tend to turn to supplements to correct or
balance the condition. The Hartman Group published its own article in FOOD
NAVIGATOR USA on October 25, 2007, indicating that consumers place a lot of
emphasis on the quality of products purchased.

      According to its website, The Hartman Group is a premier provider of
consumer insights in the health and wellness industry, employing innovative
proprietary research techniques designed to resolve the contradictions that
exist between what consumers say and their actual behavior. Based on these
recent reports, we anticipate that continuing consumer care over health and
wellness will result in continued, but modest growth in the U.S. dietary
supplement industry.

       Continuing efforts to implement more restrictive regulation of the
industry in the European Union and other non-U.S. markets makes it more
difficult to predict growth in the global market. Multiple Directives have been
proposed in the European Union which would lower doses on existing products in
that market and make other products unavailable. As the EU continues to press
the Codex Alimentarius Commission, or Codex, an agency created in 1963 by two UN
organizations - the Food and Agriculture Organization and the World Health
Organization - to harmonize its efforts to develop comprehensive international
regulation of the industry to match the EU's own efforts, it is likely that our
access to international markets may be effected. See "Regulation" below for
further discussion of those proposals.

      While the worldwide market continues to be affected by increased
regulation and scrutiny in the industry, primarily as a result of concerns
expressed by groups representing the pharmaceutical industry as to the
consistency and quality of nutritional supplements, the U.S market is not immune
to such efforts. In 2007, the FDA adopted good manufacturing practices ("GMPs")
for nutritional supplements, as well as adverse material event reporting
requirements. However, it is our position that these types of regulations have a
positive effect on the U.S. market as they tend to build consumer trust and
awareness. See "Regulations" below for additional information on U.S. regulation
of the industry.


                                       4


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      Outside of efforts to increase regulation of dietary supplements both
inside and outside of the United States, the pharmaceutical industry continues
to make efforts to discredit the efficacy of nutritional supplements.
Restrictions on the nutritional supplement manufacturer's ability to advertise
the efficacy of vitamin, mineral and dietary supplement products makes it
difficult to address such criticisms. At the same time, the industry must
overcome the bad publicity of instances where supplements resulted in health
related issues or have been misused, either as a result of consumer misuse in
exceeding recommended dosages or through the use of supplements by well-known
athletes in contravention of the rules and regulations set forth by their
self-regulating agencies and associations. It is impossible to predict what
impact those events have had or will have on general consumer spending.

      In recent years, the industry has experienced consolidation, with smaller
companies being absorbed into larger competitors through mergers or
acquisitions. This trend appears to continue and is likely due to the inability
of smaller companies to compete with the greater resources of larger competitors
who can spend more money developing distribution channels, advertising products
and meeting the financial demands of compliance with new and more pervasive
regulation in the industry.

      We expect 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 in the
U.S. market. As reported by The Hartman Group, the use of multi-vitamins has
become well-established and there is continued interest by consumers in products
that target specific issues, such as aging and sustained energy. 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. Because consumer trends indicate an
increased emphasis on the quality of dietary supplements as well as on
hypo-allergenic properties, we believe that we are well-positioned to maintain
or even increase market share over the next year. As indicated above, current
industry trends indicate that sales through health care practitioners continue
to be a successful distribution method, and we will continue to target
professionals as our primary channel of distribution.

COMPETITION

      The industry has seen a consolidation of vitamin and supplement companies
in recent years, including 2007. We compete with both large, nationally known
manufacturers and 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
the functional food sector. Functional foods include breakfast cereals,
fortified breads, cholesterol-lowering margarines and yogurt drinks, among
others. As indicated above under "Industry Overview," research done by The
Hartman Group indicates that consumers tend to make changes to their diets first
before turning to supplements to address potential health concerns.

      Also as discussed under "Industry Overview" above, sales through health
care practitioners has emerged as the fastest distribution channel. Sales
through professionals continues to be our primary distribution channel as well.
Our principal competitors in the professional market are Atrium Biotechnologies,
Inc., Thorne, and Metagenics. Other larger competitors, such as NBTY, will
likely continue to rely on mass market merchandisers, drug store chains,
supermarkets, convenience stores and club stores for direct sales to consumers.
Although there has been little growth through these channels, it offers them
broader access to consumers. We will also continue to market our products
through our website, health food stores, healthcare practitioners and
independent distributors, where we hope to cater to consumers looking for
high-quality, specialty products. We believe that we can build up our reputation


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for quality and efficacy through our current marketing methods 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.

      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 280 different
vitamin and nutritional supplement products with varying degrees of potency and
in a variety of forms (including capsules, liquids, powders, softgels and
tablets). We believe that our ability to offer a broad range of high quality
products with diversity of form and potency is an important factor in our
ability to obtain market share in a highly competitive industry.

      Some of our competitors in the health and nutritional supplement business
may be better funded and possess better marketing resources. We plan to compete
primarily on the basis of superior service and differentiate the Company by
marketing our 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.

      Our ability to continue to compete in the non-U.S. markets where our
products are sold will depend on whether and to what extent currently proposed
regulations are adopted. Clearly, if allowable dosages on some of our products
are reduced in the EU or other markets, we will need to be able to quickly make
adjustments to meet the new standards. If we are required to sell products in
lower dosages in those markets, it may affect consumer perception of the
efficacy of nutritional supplements in general, or our products in particular,
which may impact the market for dietary supplements in those markets. We
continue to closely monitor those markets to ensure that we are ready to meet
any new requirements and to market our products effectively.

MARKET STRATEGIES

      We have divided sales into multiple market channels:

      o     Healthfood stores and professional accounts - Physicians,
            nutritionists, chiropractors and health care professionals (40%).

      o     Distributor accounts - Sales to distributors (to be resold to the
            professional or retail markets) (49%).

      o     Retail accounts - Direct sales to consumers (11%).

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

      The Company markets its products through the use of trade shows, direct
marketing to physicians, nutritionists, chiropractors and health care
professionals, 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 and Internet sales to consumers. Our
direct sales team currently consists of a national sales manager and one
contracted sales representative covering critical territories and markets. The
national sales manager and the sales representative, combined with internal
support staff, are focused on informing existing customers of our newest
products. Through a combination of sales calls to key accounts, direct
telemarketing, the Company's scientific newsletter "Focus," and extensive market
specific mailings, we anticipate increased sales over the next year.


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<PAGE>

REGULATION

      In October 1994, the Dietary Supplement Health and Education Act of 1994
("DSHEA") was enacted to revise provisions of the Federal Food, Drug and
Cosmetic Act (the "FFDC Act") concerning the composition and labeling of dietary
supplements. DSHEA states that dietary supplements do not require approval from
the United States Food and Drug Administration, or FDA, before they can be
marketed so long as the manufacturer is not introducing new dietary ingredients.
The burden is placed on manufacturers to determine that the dietary supplements
they manufactured are safe and that any representations or claims made about
them are substantiated by adequate evidence. Unless the manufacturer is
introducing a new dietary ingredient, it does not have to provide the FDA with
this evidence either before or after it markets its products. As a result,
supplements do not require FDA registration prior to production or sale.

      Manufacturers must still be able to demonstrate that all ingredients in
their products are already recognized as a food substance and are present in the
U.S. food supply. If not, they must show why any new ingredients are expected to
be safe for use in dietary supplements. Any new dietary ingredients must be
added to an approved list of ingredients. As a result, the introduction of new
ingredients can slow the process of getting new products to market and add costs
associated with meeting certain notice requirements.

      Despite the provisions in DSHEA intended to avoid intensive regulation of
the dietary supplement industry, the manufacturing, processing, formulating,
packaging, labeling and advertising of dietary supplements in the United States
are still subject to varying degrees of regulation by one or more federal
agencies, including the FDA, the Federal Trade Commission (the "FTC"), and the
United States Department of Agriculture and the Environmental Protection Agency
("EPA"). These activities are also regulated by various agencies of the states,
localities and foreign countries where products are manufactured, distributed
and/or sold. The FDA, in particular, regulates the formulation, manufacture and
labeling of vitamins and nutritional supplements in the United States and DSHEA
has come under repeated attack by the pharmaceutical industry in attempts to
increase regulation of dietary supplements which may compete for consumers
seeking more holistic approaches to health care. As a result, new legislation is
consistently proposed in both the Senate and House of Representatives that
could, if adopted, result in significantly greater regulation of the VMS
industry.

      The industry has formed a coalition comprised of dietary supplement
manufacturers, industry trade associations and other supporters to help defeat
challenges to DSHEA. However, at this time, we cannot predict with any certainty
what changes may be implemented or how they will impact the Company's business
or results of operations. In 2007, the FDA adopted final dietary supplement
current good manufacturing practices (cGMPs), which we believe will help the
dietary supplement industry gain consumer trust and provide greater consistency
in the quality of products sold into the U.S. market. The cGMPs were adopted
with a phase-in period for compliance, giving companies our size until mid-2009
to comply with the new standards. We have already begun work to implement new
standards, and are working with our manufacturers to ensure that they will be in
full-compliance by the effective date.

      On December 22, 2006, the United States also adopted the Dietary
Supplement and Non-Prescription Drug Consumer Protection Act (the "AER Bill").
The AER Bill, which took effect the end of 2007, provides a reporting system for
serious adverse events associated with dietary supplements and over-the-counter
("OTC") drugs. Serious events include those that result in death, a
life-threatening experience, inpatient hospitalization, disability or
incapacity, birth defect, or medical/surgical intervention to prevent one of
these outcomes. The law requires manufacturers, packers and distributors to
report serious adverse events associated with their products within 15 days
after they receive notice of the event. As with the adoption of the cGMPs, we
feel that the AER Bill helps to bolster consumer trust in the industry.


                                       7


<PAGE>

      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,
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 are met. Such statements, commonly referred
to as "structure function" claims, may describe how particular nutritional
supplements affect the structure, function or general well-being of the body
(e.g. "promotes your cardiovascular health").

      On March 19, 2003, the FDA issued security guidance documents to ensure
the safety and security of the U.S. food supply. These 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. These guidance documents and heightened surveillance are
part of Operation Liberty Shield, a comprehensive national plan designed to
increase protections for U.S. citizens and infrastructure while maintaining the
free flow of goods with minimal disruption to the economy or American way of
life. The FDA guidance documents are not regulations and are not mandatory, but
they do provide FDA recommendations, which are generally followed throughout the
industry. It is unclear what, if any, impact compliance with the guidance
documents by firms that produce, process, distribute, pack or transport food
ingredients has had on the dietary supplement industry.

           Governmental regulations in the international marketplace are more
unsettled, as the EU continues to work toward harmonizing regulations within its
member nations while, at the same time, working with Codex to bring its
guidelines into harmony with EU proposals. As indicated above, the EU, among
other nations, has proposed several Directives, including the EU's Food
Supplements Directive of 2002, which would (a) allow only certain vitamins and
minerals to be sold and limit potency levels to one to three times the
Recommended Daily Allowance ("RDA"), and (b) ban many popular nutrients and
entire product categories, placing them under regulations imposed on drug
products. Currently, much of the discussion appears to be related to the methods
used to determine what doses are considered safe for consumers, with industry
advocates arguing that the means to determine doses recommended to authorities
and Codex were not scientifically proven. We continue to monitor these
discussions. Although compliance with foreign regulation is generally the
responsibility of our distributors in those jurisdictions, it is unclear what
impact these regulations would have on consumer perception of dietary
supplements sold in lower dosages, while other products we may currently sell in
those jurisdictions may be banned entirely. We are unable to determine at this
time what impact the implementation of new regulations or adoption of new
guidelines by Codex will have on current markets for our products.

      In July 2005, Codex adopted Guidelines for Vitamin and Mineral Food
Supplements (the "Guidelines"). The Guidelines only apply to supplements that
contain vitamins and minerals that are regulated as foods. As indicated above,
the Guidelines provide criteria for establishing maximum amounts of vitamins and
minerals per daily portion of the supplement as recommended by the manufacturer,
which is the current focus of discussion. They also address the packaging and
labeling of supplements.

      The FDA has stated that the Codex Guidelines will not affect the
availability of supplement products to U.S. consumers and, at this time, we do
not expect that they will impact our sales in the U.S. market. We cannot predict
the nature of any future laws, regulations, interpretations or applications in
any of the jurisdictions where our products are sold, nor can we determine what
effect additional governmental regulations or administrative orders, when and if
promulgated, would have on the Company's business in the future. They could
require the reformulation of certain products to meet new standards, the recall


                                       8


<PAGE>

or discontinuance of certain products not capable of reformulation, additional
recordkeeping, 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. Currently, we do not believe that compliance
with the provisions of national, state and local environmental laws and
regulations has not had a material adverse effect upon the capital expenditures,
earnings, financial position, liquidity or competitive position of the Company.

      Because we do not currently manufacture pharmaceuticals and nutraceutical
products through the Company, but only conduct literature work and patent
applications for potential products, we do not currently anticipate application
of regulations governing our activities in those fields. With respect to the
manufacture of our vitamin and nutritional supplement products, our outside
vendors are required to manufacture our products in accordance with all
applicable governmental regulations, including the new cGMPs.

EMPLOYEES

      As of the date of this report, the Company employs 31 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 26 trademark
registrations with the United States Patent and Trademark Office, including for
Allergy Research Group(R) anD NutriCology(R). We rely on common law trademark
rights to protect our unregistered trademarks. Common laW trademark rights do
not provide the Company with the same level of protection as would U.S. federal
registered trademarks. In addition, common law trademark rights extend only to
the geographic area in which the trademark is actually used, while U.S. federal
registration prohibits the use of the trademark by any third party anywhere in
the United States. Currently, we have obtained no patents for our vitamin and
nutritional supplement products. However, we have been granted one patent for
the treatment of ITP, idiopathic thrombocytopenia, which is a common bleeding
malady. The related research could lead to a strict pharmaceutical product with
patent protection.

AVAILABLE INFORMATION

      Copies of this report and our most recent proxy statement may be obtained
by notifying the Company in writing at its physical address. The public may also
read and copy any materials filed with the SEC at the SEC's Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549, or through the SEC website
at www.sec.gov. The Public Reference Room may be contacted at (800) SEC-0330. We
post a link to all Section 16 reports filed with the SEC on our website at
www.allergyresearchgroup.com. You may also access our other reports via that
link to the SEC website.

ITEM 2.    DESCRIPTION OF PROPERTY

      Our 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 founder and Chief Executive Officer and Chief
Financial Officer, Dr. Stephen Levine, and its Secretary and Vice President,
Susan Levine, both of whom are also members of our Board of Directors. These
facilities consist of approximately 29,821 square feet of office and warehouse
space. The lease, which has a term of ten years (due to expire on January 31,
2010) 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.


                                       9


<PAGE>

ITEM 3.    LEGAL PROCEEDINGS

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

      On or about November 1, 2007, Steven and Kimberly Bronson filed a
Complaint for Court-Ordered Inspection of Corporate Records with the Circuit
Court of the 15th Judicial District in and for Palm Beach, Florida. The
complaint alleges that the Bronsons are entitled to inspect and make copies of
corporate and accounting records of the Company which are not publicly
available. The request for inspection submitted by the Bronsons was denied by
the Company based on the inability of the Company to disclose these records
without violating Regulation FD of the Securities Exchange Act of 1934, as
amended, and because of the prior publication of correspondence and documents
exchanged between the Company and the Bronsons, by Mr. Bronson. It is also our
position that Mr. Bronson's stated purposes for requesting the information can
be satisfied through information which has already been made publicly available
by the Company. We will vigorously defend against this
action.

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

      On December 6, 2007, we held our annual meeting of shareholders at which
the shareholders voted to (1) re-elect each of the Company's directors, and (2)
ratify the selection of the Company's independent auditor for the fiscal year
ending December 31, 2007. The voting totals were as follows:

-------------------------------- -------------- ------------ ------------------
                                      For                         Withheld
-------------------------------- -------------- ------------ ------------------
(1) Director - Stephen Levine      13,465,071                      787,145
-------------------------------- -------------- ------------ ------------------
(1) Director - Susan Levine        13,460,071                      792,145
-------------------------------- -------------- ------------ ------------------
(1) Director - Edward Kane         13,459,971                      792,245
-------------------------------- -------------- ------------ ------------------
                                      For          Against        Abstained
-------------------------------- -------------- ------------ ------------------
(2) Independent Auditors           14,213,031       6,540          32,643
-------------------------------- -------------- ------------ ------------------


                                       10


<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

      The Company's Common Stock is traded on the Financial Industry Regulatory
Authority's ("FINRA") Over-the-Counter Bulletin Board ("OTCBB") under the symbol
"ALRG." The following table sets forth the trading history of the Common Stock
on the OTCBB for each quarter of fiscal years ended December 31, 2006 and 2007,
and the partial period ended March 24, 2008, 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

             3/31/2006          $1.12           $0.81
             6/30/2006          $0.95           $0.85
             9/30/2006          $0.90           $0.55
             12/31/2006         $0.87           $0.69
             3/31/2007          $0.90           $0.79
             6/30/2007          $0.85           $0.67
             9/30/2007          $0.95           $0.70
             12/31/2007         $0.93           $0.81
             3/24/2008*         $0.87           $0.72

*Reflects partial period.

HOLDERS

      As of March 18, 2008, there were approximately 85 holders of record of the
Company's Common Stock as reported by our independent transfer agent. The Board
of Directors believes that the number of beneficial owners is substantially
greater than the number of record holders because a significant portion of our
outstanding Common Stock is held in broker "street names" for the benefit of
individual investors.

DIVIDENDS

      We have never paid a cash dividend on our common stock. Payment of
dividends is at the discretion of the Board of Directors. To date, the Board of
Directors has elected to retain earnings for operations and has no current plans
to pay dividends in 2008.

RECENT SALES OF UNREGISTERED STOCK

      None.


                                       11


<PAGE>

<TABLE>
<S>     <C>
EQUITY COMPENSATION PLAN INFORMATION

--------------------------------------------------------------------------------------------------------------
                                (a)                             (b)                            (c)
--------------------------------------------------------------------------------------------------------------
Plan category                   Number of                       Weighted-average               Number of
                                securities to be                exercise price of              securities
                                issued upon                     outstanding                    remaining
                                exercise of                     options, warrants              available for
                                outstanding                     and rights                     future issuance
                                options, warrants                                              under equity
                                and rights                                                     compensation
                                                                                               plans
                                                                                               (excluding
                                                                                               securities
                                                                                               reflected in
                                                                                               column
                                                                                               (a))
--------------------------------------------------------------------------------------------------------------
Equity
compensation plans
approved by
security holders                   293,750                          $0.40                        576,750

--------------------------------------------------------------------------------------------------------------
Equity
compensation plans
not approved by
security holders                         0                          $0.00                              0

--------------------------------------------------------------------------------------------------------------

Total                              293,750                          $0.40                        576,750
</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.


                                       12


<PAGE>

      o     RESULTS OF OPERATIONS. This section provides an analysis of our
            results of operations for the fiscal year ended December 31, 2007
            compared to 2006. 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, 2007.

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

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

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS

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

      FACTORS THAT COULD AFFECT FUTURE RESULTS

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

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

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

      o     Overall customer demand for our various products.


                                       13


<PAGE>

      o     Volume of products ordered.
      o     Mix of products purchased by our customers.
      o     Prices at which we sell our products.
      o     Our ability to manage our cost structure for capital expenditures
            and operating expenses such as salaries and benefits, freight and
            royalties.
      o     Our ability to match operating costs to shifting volume levels.
      o     Increases in the cost of raw materials and other supplies, which may
            impact pricing, our ability to compete or result in lower profit
            margins if prices are not raised on related products.
      o     The impact of competitive products.
      o     Adequacy and availability of insurance coverage.
      o     Our inability to gain and/or hold market share.
      o     Exposure to and expense of resolving and defending product liability
            claims and other litigation.
      o     Consumer acceptance of our products.
      o     Managing and maintaining growth.
      o     Customer demands and changes in industry trends.
      o     Market and industry conditions including pricing, demand for
            products, levels of trade inventories, raw materials availability
            and changes in applicable laws and government regulation.
      o     The success of product development and new product introductions
            into the marketplace.
      o     Slow or negative growth in the nutritional supplement industry.
      o     The departure of key members of management.
      o     Our ability to efficiently manufacture our products.
      o     Unexpected customer bankruptcy.
      o     The effect of SFAS 123R on future stock-based compensation.
      o     The majority of the members on our board of directors are also
            members of management. We have no plans to add additional
            independent directors at this time.
      o     The implementation of additional internal controls under Item 404 of
            the Sarbanes-Oxley Act of 2002, as required for small business
            issuers.
      o     Costs of compliance with new laws and regulations impacting our
            industry, including but not limited to the newly adopted cGMPs.
      o     Limitations on future financing.
      o     Increases in the cost of borrowings and unavailability of debt or
            equity capital.

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, as well as other consumers.
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 via our website and telephone orders. We offer a
line of approximately 280 products, including vitamins in both multivitamin and
single-entity formulas, minerals, and herbals. Our products are manufactured in
various forms, including capsules, tablets, softgels, powders (drink mixes), and
liquids. We also distribute certain third-party manufactured products under our
labels. These third-party products account for approximately 20% of all products
offered by the Company. Our principal executive offices are located at 2300
North Loop Road, Alameda, California 94502 and our telephone number is (800)
545-9960.

      FUTURE OPERATIONS. The success of our future operations will depend to a
great extent on the operations, financial condition, and management of the
Company. We intend to expand our position in the vitamin and nutritional
supplements markets. Specifically, our strategy continues to be to: (i) develop
new brands and product line extensions, as well as new products, through our


                                       14


<PAGE>

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.

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

RESULTS OF OPERATIONS

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

      FISCAL YEAR ENDED DECEMBER 31, 2007 COMPARED TO DECEMBER 31, 2006

The following table and discussion is a summary of our consolidated results of
operations:

<TABLE>
<S>     <C>
-------------------------------------------  -----------------------------------------------------
                                                       Twelve months ended December 31,
-------------------------------------------  -----------------------------------------------------
                                                                                $           %
                                                                             Change      Change
-------------------------------------------  -------------- -------------- ----------- -----------
                                                                              from        from
-------------------------------------------  -------------- -------------- ----------- -----------
                                                  2007           2006         2006*       2006*
-------------------------------------------  -------------- -------------- ----------- -----------
Revenues                                        $16,725,246    $16,273,465    +451,781         +3%
-------------------------------------------  -------------- -------------- ----------- -----------
Cost of Sales                                    10,340,573     10,193,737    -146,836         -1%
-------------------------------------------  -------------- -------------- ----------- -----------
Gross Profit                                      6,384,673      6,079,728
-------------------------------------------  -------------- -------------- ----------- -----------
Gross Profit as a % of Sales                          38.2%          37.4%
-------------------------------------------  -------------- -------------- ----------- -----------
Operating Expenses:
-------------------------------------------  -------------- -------------- ----------- -----------
   Selling, General and Administrative            4,479,727      4,193,887    -285,840         -7%
-------------------------------------------  -------------- -------------- ----------- -----------
   Research and Development                         255,300        257,691      +2,391         +1%
-------------------------------------------  -------------- -------------- ----------- -----------
Operating Expenses                                4,735,027      4,451,578    -283,449         -6%
-------------------------------------------  -------------- -------------- ----------- -----------
Earnings from Operations                          1,649,646      1,628,150
-------------------------------------------  -------------- -------------- ----------- -----------
Interest Income                                     195,669        134,024     +61,645        +46%
-------------------------------------------  -------------- -------------- ----------- -----------
Net Earnings Before Tax                           1,845,315      1,762,174
-------------------------------------------  -------------- -------------- ----------- -----------
Provision for Income Tax                            721,396        666,198     -55,198         -8%
-------------------------------------------  -------------- -------------- ----------- -----------
Net Earnings                                     $1,123,919    $ 1,095,976     +27,943         +3%
                                                 ==========    ===========
-------------------------------------------  -------------- -------------- ----------- -----------
</TABLE>
___________
     * + = Favorable change to NET EARNINGS; - = Unfavorable change to NET
EARNINGS.


      REVENUES. Our revenues grew at a modest rate during 2007. The majority of
the increase is attributable to increased sales to distributors with a small
increase in retail sales, while sales to wholesale accounts decreased. The
overall increase in sales is primarily due to the introduction of new products
and the result of promotional activities.


                                       15


<PAGE>

      COST OF SALES. Cost of sales increased as a direct result of the increase
in sales. We continue to make a concerted effort to determine that our
manufacturers are maintaining the high standards we and our customers expect. We
expect our cost of sales as a percentage of net sales to fluctuate somewhat as
our product mix fluctuates. Our average selling price and related material cost
used to manufacture our product has been relatively consistent and we expect
this trend to continue for the foreseeable future. Gross profit margins
increased slightly for the period over period comparison primarily as a result
of increased prices on 50 items beginning in February 2007.

      OPERATING EXPENSES. General and administrative expenses increased due to
an increase in payroll expense associated with the addition of a National
Accounts Manager, salary increases for line staff, increased attendance at trade
shows, printing of a new catalog in 2007 and increased sales promotions
utilizing samples. We anticipate that general and administrative expenses will
continue to increase over the long term as our business continues to grow and
the costs associated with being a public company continue to increase as a
result of our required reporting requirements, including but not limited to
expenses incurred to comply with the Sarbanes-Oxley Act of 2002 (including,
among other things, compliance with Item 404 financial controls).

      RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased during 2007 due to a reallocation of resources. However, we anticipate
that research and development expense could increase over the long term as a
result of the growth of the products we offer, new product opportunities and our
continued efforts to invest in the future and strengthen our position within the
nutritional and supplement market.

      INTEREST. Due to our increased cash balance and because we placed excess
cash in short-term certificates of deposits, interest income increased for the
year to date over the comparative prior period.

      INCOME TAXES. Provision for income taxes represents federal and state
income taxes based on earnings and changes to deferred taxes.

      NET EARNINGS. Net earnings before tax increased due to the increase in
sales and interest income offset by increased general and administrative costs;
however, increased provision for income tax resulted in decreased net earnings.

      SEASONALITY. Historically, we have experienced little seasonal fluctuation
in revenues; however, during the spring and fall we traditionally attend two
trade shows geared toward the retail market. Show discounts are offered and the
retail distributors tend to purchase higher quantities due to the discounts. We
attend trade shows geared toward the professional market throughout the year,
but the shows are smaller and tend to not have an immediate effect on sales.
These shows are useful because they provide personal contact with the
professional market and potentially increase sales in the long run.

      As of December 31, 2007, to the best of our knowledge, no known trends or
demands, commitments, events or uncertainties, except as discussed below, have
existed which will have a material effect on our liquidity.

LIQUIDITY AND CAPITAL RESOURCES

      For the past five years combined we have generated aggregate net income of
$6,355,270. We believe that we will continue to generate net income so long as
we continue to generate sales at the current level, and we are currently
financing our operations through cash generated by operating activities.

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

      FISCAL YEAR ENDED DECEMBER 31, 2007 COMPARED TO DECEMBER 31, 2006


                                       16


<PAGE>

      Cash Flows

      OPERATING ACTIVITIES. Net cash flows provided by operating activities was
$1,807,691 and $685,010 for the years ended December 31, 2007 and 2006,
respectively. Net cash provided by operating activities for both periods
primarily reflects net earnings and net changes in operating assets and
liabilities such as accounts receivable, inventory and accounts payable. Cash
generated by operating activities for 2007 is primarily explained by decreases
in inventory levels of $456,787 due to an effort to reduce the inventory on
hand, a decrease in prepaid expenses and other assets of $75,197, an increase in
accounts payable and accrued expenses of $111,641, and an increase in income
taxes payable of $118,809, offset by an increase in accounts receivable of
$153,616. Cash generated by operating activities for 2006 is primarily explained
by increases in inventory levels of $503,512 due to increased purchases to
obtain favorable pricing, to fulfill minimum purchase requirements of certain
vendors, and to obtain quantity discounts, and an increase in accounts payable
and accrued expenses of $96,753.

      INVESTING ACTIVITIES. Net cash flows used in investing activities for the
twelve months ended December 31, 2007 and 2006 was $43,742 and $13,431,
respectively, for a new label printer, computer equipment and software in 2007
and equipment upgrades in 2006.

      FINANCING ACTIVITIES. Net cash flows used by financing activities for 2007
represents $80,196 in cash paid for the purchase of 97,800 shares of our common
stock offset by cash proceeds received of $16,000 for exercise of employee stock
options. There were no cash flows from financing activities during 2006.

      Current Financial Condition/Risk Analysis

      At December 31, 2007, the Company had positive working capital of
$7,998,279, compared to working capital at December 31, 2006 of $6,912,473.
Working capital increased as a result of our cash flows generated from operating
activities. Approximately 90% of our account receivables and nearly 100% of our
current liabilities are due within 60 days or less. We have focused our cash
management efforts on actively managing our receivables and payables. We finance
our inventory and accounts receivable through earnings 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 2007, we experienced a concentration of approximately 61% of our
manufacturing with four separate vendors (concentration ranging from 10% to 27%
with each individual vendor). We do not currently have written contracts with
any of our manufacturers, but rely on long-term personal and professional
relationships. We believe that we have good relations with all of our current
manufacturers and suppliers. We believe that, due to the large number of
businesses performing this type of service in the industry, we would have little
difficulty in finding viable alternatives in the event any one of these vendors
became unable or determined not to continue manufacturing our products; however,
we can offer no guarantees that we would be able to replace these manufacturers
and bring them up to speed on our products without at least a temporary
disruption in the manufacturing and distribution process. Because we do not have
written agreements with our manufacturers, we also have no rights of indemnity
with respect to the products manufactured by them in the event a claim is
brought against the Company based on the effects of those products.

      Approximately 11% of our total sales in 2007 and 2006 were attributable to
the same distributor. In the event we were to lose that account, we anticipate
that we would be able to convert the business to sell directly to the customers
of that distributor. As converted sales would be at a higher margin, we do not
believe the loss of the account would have a material negative impact on sales;
however, we can offer no guarantee as to what extent these customers would begin
to purchase products directly from the Company.


                                       17


<PAGE>

      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.

      An economic downturn resulting from such activities could adversely impact
our results of operations, impair our ability to raise capital, or otherwise
adversely affect our ability to grow our business.

      In response to past terrorist activities and possible future attacks, 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, the FDA recently adopted current good manufacturing practice
(cGMP) regulations for dietary ingredients and dietary supplements. The new
rules establish new standards or cGMPs to help reduce the risk associated with
adulterated or misbranded dietary supplements, as well as establish
industry-wide standards necessary to ensure that dietary supplements are
manufactured consistently as to identify purity, quality, strength and
composition. The new rules contain requirements for the design and construction
of physical plants, and establish quality control procedures and procedures for
testing manufactured dietary ingredients and dietary supplements. Finally, the
rules include requirements for maintenance of records and handling of consumer
complaints related to the cGMPs. As a small business, we qualify for a delayed
implementation process, giving us until mid-2009 to comply, which will allow us
to spread the cost somewhat over the implementation period. However, we cannot
predict with certainty any impact of such costs on our results of operations or
financial condition. The FDA estimates that the proposed rule will have a
significant impact on small businesses under the Regulatory Flexibility Act,
with small business bearing a proportionately larger cost than large businesses.

      Our line of credit with Merrill Lynch Working Capital Management Account
will expire on November 30, 2008 and is expected to be renewed. In the event we
were unable to renew or obtain a new line of credit with this or another banking
facility, we may not be able to allow for unexpected or emergency expenses which
may arise during the course of our operations. In that event, we may be required
to raise additional capital through the sale of equity or debt instruments, and
we can offer no guarantee that such financing would be on terms favorable to the
Company or that such financing would be available to the Company as needed.


                                       18


<PAGE>

<TABLE>
<S>     <C>
      CONTRACTUAL OBLIGATIONS. Our Contractual Obligations and Commercial
Commitments are detailed below:

  --------------------------- -------------------------------------------------------------------------------------
                                                             Payments Due by Period
  --------------------------- -------------------------------------------------------------------------------------
                                                     Less
        Contractual                                  Than 1               1-3             4 - 5         After 5
        Obligations                Total              Year               Years            Years          Years
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Line of Credit(1)                         -                  -                   -             -               -
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Capital Lease Obligations                 -                  -                   -             -               -
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Operating Leases(2)              $2,196,000           $288,000            $864,000      $576,000        $468,000
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Purchase Obligations(3)          $2,067,343         $2,067,343                   -             -               -
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
  Total Cash Contractual
  Obligations                      $4,263,343         $2,355,343            $864,000      $576,000        $468,000
  --------------------------- ---------------- ------------------ ------------------- ------------- ---------------
</TABLE>

(1)      This represents our borrowings under the line of credit with Merrill
         Lynch, which had a zero balance as December 31, 2007 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, 2007, the interest rate on the line of credit was
         7.38% 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; however, as of
         February 1, 2007 the personal guarantee has been waived.
(2)      Represents our Alameda, California location lease with AriBen
         Corporation, a related party. See "Related Party Transactions" under
         Item 12.
(3)      Represents outstanding purchase orders for inventory.

CRITICAL ACCOUNTING POLICIES

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

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

      INCOME TAXES

      SFAS No. 109, "ACCOUNTING FOR INCOME TAXES," and the related
interpretations and guidance including FIN 48, "ACCOUNTING FOR UNCERTAINTY IN
INCOME TAXES-AN INTERPRETATION OF FASB STATEMENT NO. 109 ", 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. Variations in the actual outcome of these future tax
consequences could materially impact our financial position, results of
operations, or cash flows. Accruals for tax contingencies are provided for in
accordance with the requirements of SFAS No. 5, for which there were none as of
December 31, 2007.


                                       19


<PAGE>

        ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

      INVENTORY

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

      In February 2007, the FASB issued SFAS No. 159, "THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT OF SFAS
115", ("SFAS 159"). Subsequent measurements for the financial instruments and
liabilities an entity elects to fair value will be recognized in earnings. SFAS
159 also establishes additional disclosure requirements. SFAS 159 is effective
for fiscal years beginning after November 15, 2007, with early adoption
permitted provided that the entity also adopts SFAS No. 157, "Fair Value
Measurements" ("SFAS 157"). The Company does not expect the new standard to have
any material impact on its financial statements.

      In June 2007, the FASB ratified the Emerging Issues Task Force ("EITF")
Issue No. 07-3, "ACCOUNTING FOR NONREFUNDABLE ADVANCE PAYMENTS FOR GOODS OR
SERVICES TO BE USED IN FUTURE RESEARCH AND DEVELOPMENT ACTIVITIES", (EITF 07-3).
EITF 07-3 requires non-refundable advance payments for goods and services to be
used in future research and development activities to be recorded as an asset
and the payments to be expensed when the research and development activities are
performed. EITF 07-3 is effective, on a prospective basis, for fiscal years
beginning after December 15, 2007 and will be adopted in the first quarter of
fiscal 2008. The Company does not expect the new standard to have any material
impact on its financial statements.


                                       20


<PAGE>

      In December 2007, the FASB issued SFAS No. 141(R) "BUSINESS COMBINATIONS",
("SFAS 141(R)"). This Statement replaces the original FASB Statement No. 141.
This Statement retains the fundamental requirements in Statement 141 that the
acquisition method of accounting (which Statement 141 called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. The objective of this SFAS 141(R) is
to improve the relevance, and comparability of the information that a reporting
entity provides in its financial reports about a business combination and its
effects. To accomplish that, SFAS 141(R) establishes principles and requirements
for how the acquirer: (1) Recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. (2)Recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase. (3)
Determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008 and may not be applied
before that date. The Company does not expect the new standard to have any
material impact on its financial statements.

      In December 2007, the FASB issued SFAS No. 160 "NONCONTROLLING INTERESTS
IN CONSOLIDATED FINANCIAL STATEMENTS - AN AMENDMENT OF ARB NO. 51", ("SFAS
160"). This Statement amends the original Accounting Review Board (ARB) No. 51
"Consolidated Financial Statements" to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This Statement is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008 and may not be applied before that date.
The Company is does not currently expect the new standard to have any material
impact on its financial statements.

ITEM 7.    FINANCIAL STATEMENTS

      Please see our audited consolidated financial statements for the year
ended December 31, 2007, attached hereto.

ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

      None.

ITEM 8A(T). CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES.

     As of December 31, 2007, an evaluation was carried out under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our 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 upon that evaluation, the Chief Executive Officer and
the Chief Financial Officer concluded that the design and operation of these
disclosure controls and procedures were effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in applicable rules and forms.


                                       21


<PAGE>

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.

     Our management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule 13a-15(f) and
15d-15f under the Securities Exchange Act of 1934. Our internal control system
is designed to provide reasonable assurance to our management and board of
directors regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles in the United States. Our internal control over
financial reporting includes those policies and procedures that:

     - Pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company;

     - Provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and

     - Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that could
have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

     Management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2007. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated
Framework. The COSO framework summarizes each of the components of a company's
internal control system, including (i) the control environment, (ii) risk
assessment, (iii) control activities, (iv) information and communication, and
(v) monitoring. We used a consulting firm to assist management with its
assessment of the effectiveness of our internal controls over financial
reporting. Based on management's assessment and those criteria, management
believes that, as of December 31, 2007, the Company maintained effective
internal control over financial reporting.

     This annual report does not include an attestation of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report of the effectiveness on the design and operation
of our internal control over financial reporting was not subject to attestation
by the Company's registered public accounting firm pursuant to temporary rules
of the Securities and Exchange Commission that permit the Company to provide
only management's report in this annual report.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
     There was no change in the Company's internal control over financial
reporting identified in connection with the evaluation required by Rule
13a-15(d) and Rule 15d-15(d) of the Exchange Act that occurred during the period
covered by this report that has materially affected, or reasonably likely to
materially affect, the Company's internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

     None.


                                       22


<PAGE>

                                    PART III

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

OFFICERS AND DIRECTORS

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

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

Stephen Levine, Ph.D.                 Chief Executive Officer, Chief Financial
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 and 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. (58) served as the Company's Chief Executive Officer
from December 1997 to January 1999, recommenced service to the Company in that
capacity in January 2000 upon resignation of the interim CEO, and has held the
position since that time. Dr. Levine also serves as Chairman of the Board and a
Director of the Company positions held since December 1997, and, in January
2001, was appointed Chief Financial Officer of the Company. In addition to these
various roles, Dr. Levine is solely responsible for all scientific research and
development of new products. He has been involved in the nutraceutical industry
for over 25 years and is in a unique position to receive invaluable scientific
information from the nutraceutical community. His network of associates includes
renowned medical doctors, researchers and industry leaders. Dr. Levine graduated
cum laude from the State University College in Buffalo, New York and received
his Ph.D. from the University of California, Berkeley. In 1979, Dr. Levine
founded NutriCology and was employed as its owner and operator from that time
until 1998, when NutriCology was acquired by the Company. Dr. Levine is the
author of AntiOxidant Adaptation, Its Role in Free Radical Pathology. Dr.
Levine's reputation and talent in the industry are world-renowned. Dr. Levine is
the husband of Susan Levine, who acts as Vice-President, Secretary and Director
of the Company.


                                       23


<PAGE>

     FRED SALOMON (69) has served as President since August 12, 2003. He was
hired in 2002 to fill the role of Director of Operations. Mr. Salomon is
responsible for the daily operation of the business. He oversees all aspects of
day-to-day operations. He also works with Ms. Levine on marketing concerns. Mr.
Salomon brings 40 years of executive management experience. He comes from the
home-sewing and craft industry, where he managed and grew several businesses. He
also founded his own company, which he sold to the McCall Pattern Company, where
he served as Chief Operating Officer of their national distribution company,
NMI, Inc. From July 1982 through June 2002, Mr. Salomon was general manager of
Lion Notions, Inc. and Fantasy Importers, Inc., both privately held
corporations.

     SUSAN LEVINE (54) is a cofounder of the Company and has served as the
Secretary, Vice-President and Director to the Company since December 1997. Ms.
Levine resigned her board membership temporarily between January 1999 and
January 2000. Since 1980, Ms. Levine has worked with her husband, Dr. Stephen
Levine, in the creation and development of the Company. Ms. Levine currently
plans and regularly attends tradeshows on the Company's behalf. Prior to working
for the Company, Ms. Levine was the Director of Senior Housing ECHO, a
non-profit organization located in Hayward, California, where her duties
included grant writing and coordination of workers for social programs.

     ED KANE (80) 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., including Cardinal Health where he held the title 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.

      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.


                                       24


<PAGE>

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 15 years, at the same time acting as a consulting
physician for other companies. He is best known for his ground-breaking work in
the fields of Chronic Fatigue Syndrome and Fibromyalgia. Dr. Anderson was one of
the first Bay Area physicians to focus on the causes of Chronic Fatigue. His
extensive work in immune system dysfunctions makes him the perfect choice to
help head up the Company's Medical Advisory Board. Dr. Anderson received his
M.D. from the Indiana University School of Medicine in 1969.

      DR. BA HOANG. Dr. Hoang was an employee of the Company from January 2000
to October 2005. He is also a scientific advisor with Get Well International,
Inc., and research consultant for the Institute of Transplant Research at the
University of California Davis. From 1996 to 1998, Dr. Hoang acted as founder
and director of the Research of the Natural Immune Supplements Corp., where he
focused on research and development of natural supplements for chronic
infectious diseases, chronic viral infections, allergy, asthma, autoimmune
diseases and immune suppressed conditions. From 1995 to present, Dr. Hoang has
acted as research collaborator of the Biochemistry Department of the Royal
Holloway University of London, where he works on the investigation of anti-HIV1
activities and the mode of action of herbal species. He is the co-receiver of
the Wellcome Trust Grant. From 1993 to 1996, Dr. Hoang was senior research
associate at St. Petersburg Pediatric Medical Academy, Russia, where he
conducted research for the development of a new approach to the diagnosis and
treatment of Auto-Immune Thrombocytopenic Purpura Asthma. Dr. Hoang has received
the Visa O1 from the United States for persons with extraordinary ability in
science, and has published several articles in medical journals.

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

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

      Our success is substantially dependent upon the efforts of Dr. Stephen
Levine. The loss of Dr. Levine, whom we regard as the Company's visionary and
whose reputation in the industry is known internationally, would have a material
adverse effect on the Company's business if a suitable replacement could not be


                                       25


<PAGE>

found. Due to his reputation and talent, we believe it would be difficult to
replace Dr. Levine. Our future success is likely to depend substantially on our
continued ability to attract and retain highly qualified personnel, and the
competition for such personnel is intense.

      The Company currently does not have an audit committee. All of the
responsibilities which would normally fall upon an audit committee under the
provisions of the Securities Act of 1934 and the Corporate Fraud Accountability
Act of 2002 are and will be the responsibility of the full Board. It is the
practice of the Board to review the Company's audited annual financial
statements and unaudited quarterly financial statements with the Company's
independent auditors. Our independent director has the opportunity to separately
review our financial statements with our auditor.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     To our knowledge, all reports that were required to be filed by our
directors, officers or principal shareholders during 2007 under Section 16(a) of
the Securities Exchange Act of 1934 were timely filed.

ITEM 10.   EXECUTIVE COMPENSATION

REMUNERATION PAID TO EXECUTIVES

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

<TABLE>
<S>     <C>
                                              SUMMARY COMPENSATION TABLE

                                                                           Long Term Compensation
                                                                   -------------------------------------
                                      Annual Compensation                   Awards             Payouts
                              ------------------------------------ -------------------------- ----------
                                                         Other                   Securities
                                                         Annual      Restricted    Under-                 All Other
Name and                                                 Compen-       Stock       lying         LTIP      Compen-
Principal                        Salary       Bonus      sation       Award(s)    Options       Payouts    sation
Position               Year      ($)(6)        ($)         ($)          ($)         (#)           ($)        ($)
-------------------- -------- ------------- ---------- ----------- ------------ ------------- ---------- ------------
Stephen Levine, CEO    2005        309,616    100,000                                                      20,422(1)
                       2006        309,616     90,000                                                      20,422(1)
                       2007        323,359     90,000                                                      20,672(2)

Manfred (Fred)         2005        115,385    100,000                                                      10,500(3)
Salomon,               2006        115,385     90,000                                                      10,500(3)
President              2007        120,461    100,000                                                      11,000(3)

Susan Levine,          2005        186,562     40,000                                                      18,006(4)
Secretary              2006        186,562     36,000                                                      18,006(4)
                       2007        194,651     36,000                                                      18,256(5)
</TABLE>

(1)      Represents 401(k) matching funds of $11,000, long-term disability
         policy of $2,427 and a life insurance policy of $6,995.
(2)      Represents 401(k) matching funds of $11,250, long-term disability of
         $2,427 and a life insurance policy of $6,995.
(3)      Represents 401(k) matching funds.
(4)      Represents 401(k) matching funds of $11,000, long-term disability
         policy of $2,251 and a life insurance policy of $4,755.
(5)      Represents 401(k) matching funds of $11,250, long-term disability
         policy of $2,251 and a life insurance policy of $4,755.
(6)      There has not been a salary increase for officers since 2003. The 2007
         wages higher than 2005 and 2006 due to our bi-weekly processing of
         payroll and the timing of payments.


                                       26


<PAGE>

     During the fiscal years ended December 31, 2007 and 2006, we did not grant
any stock options to executive officers. Options granted in 2003 are included in
the table below:

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

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

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

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

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

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

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

REMUNERATION PAID TO DIRECTORS

     With the exception of compensation paid to officers, no remuneration was
paid to the Company's directors during its fiscal year ended December 31, 2006;
however, during 2007 we compensated our independent director $1,500 per meeting
attended ($6,000).

EMPLOYMENT AGREEMENTS

     The Company does not have a current employment agreement with any of its
officers, including its Chief Executive Officer and its President.

EMPLOYEE BENEFITS

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


                                       27


<PAGE>

      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 after 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 lower than the fair market
value of the Common Stock on the date of grant.

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

      RULE 401(K) RETIREMENT PLAN. In January 1997, the Company adopted the
NutriCology, Inc. 401(k) Retirement Plan (the "401(k) Plan"). Eligible employees
may contribute any portion of their annual compensation, subject to the
limitations established annually by the Internal Revenue Service, and the
Company will match 100 percent of an employee's contribution, limited to 5% of
the employee's compensation. Total provisions with respect to these plans
approximated $94,000 and $76,000, for the years ended December 31, 2007 and
2006, respectively. The lesser amount in 2006 is due to a refund of 2005
matching which was applied to 2006 and reduced the amount the company had to
pay.

      CAFETERIA PLAN. In May 1999, the Company adopted the NutriCology,
Inc./Allergy Research Group, Inc. Cafeteria Plan pursuant to section 125 of the
Internal Revenue Code ("Cafeteria Plan"), retroactive to January 1999. Eligible
employees may contribute a portion of their upcoming pay to special funds or
accounts to pay for certain benefits under the Cafeteria Plan, including health
care reimbursement, day-care assistance and insurance premiums on health care
insurance programs. Ordinarily, these expenses would be paid with out-of-pocket,
taxable dollars. Under the Cafeteria Plan, the amounts contributed are not
subject to Federal income or Social Security taxes. Employees may submit
requests for reimbursement of these expenses to the administrator of the
Cafeteria Plan, BenefitStreet, at any time during a plan year. At the end of
each plan year, the employees forfeit any unspent monies unless requests for
reimbursement are made no later than 90 days after the end of the year. In 2005,
the plan was amended to allow eligible expenses to include those incurred
through March 15 of the following year. We automatically contribute enough of
the employee's compensation to pay for insurance coverage provided under our
health plan; however, it is up to the employee to determine the amount of any
additional contributions.


                                       28


<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table provides information as of December 31, 2007
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 5% of its outstanding Common Stock, and
(iv) the directors and officers as a group. Except as otherwise indicated, the
persons named in the table have sole voting and investing power with respect to
all shares of Common Stock owned by them.

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

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

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

$.001 par value          Officers and Directors
common stock             as a group                                        10,114,750            70%
</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, 2007, 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 or the group.
(2)      Percentages are based on 14,463,805 shares outstanding on December 31,
         2007.
(3)      Represents shares held jointly with the Company's Secretary, Susan D.
         Levine, and Chief Executive Officer, Dr. Stephen A. Levine, as
         community property.
(4)      Includes 10,113,250 shares held jointly by our Chief Executive Officer,
         Dr. Stephen A. Levine, and our Secretary, Susan D. Levine.
(5)      Includes options to purchase 98,250 shares of common stock at an
         exercise price of $.40 per share which are fully vested.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

      On June 13, 2007 we agreed to purchase 97,800 shares of outstanding common
stock for $0.82 per share for an aggregate purchase price of $80,196 from Rae
Levine, Dr. Levine's mother. The purchase price was based on the ten-day average
closing price of our common stock on the Over-the-Counter Bulletin Board
immediately preceding board approval of the transaction. The repurchased shares
were added to our outstanding treasury stock and are available for reissuance


                                       29


<PAGE>

under our 1998 Incentive Stock Option Plan. The determination to directly
repurchase the shares was based, in part, on the potential impact of a sale into
the market on our other shareholders due to the thinly traded market for our
stock, and on the availability of cash resources for the purchase.

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

      In 2005, we reimbursed AriBen Corporation for some of the tenant
improvements that were built out to our specifications in the amount of
$350,000. We believe that the new facilities provide a more geographically
beneficial location, closer to our existing and potential workforce, and the
facilities can accommodate internal manufacturing, greater quality control and
expansion better than our prior facilities.

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

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

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

Registrant's Articles of Incorporation*                                      3.1
Registrant's Articles of Amendment to Articles of Incorporation dated
  January 15, 1998*                                                          3.2
Registrant's Bylaws*                                                         3.3
Form of Common Stock Certificate*                                            4.1
Form of Non-Qualified Stock Option*                                          4.2
Form of Incentive Stock Option*                                              4.3
Form of Common Stock Purchase Warrant*                                       4.4
1998 Stock Option Plan*                                                      4.5
License Agreement between Registrant and Jim Cassidy dated March 21, 2000*  10.1
Option Agreement between Registrant, Dr. Ba Hoang and PhytoPharm PLC*#      10.2
Code of Business Conduct and Ethics**                                       10.3
Lease between Registrant and AriBen Corporation dated January 4, 2005***    10.4
Subsidiaries of the Registrant                                              21
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


* 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.


                                       30


<PAGE>

(b)   Form 8-K Reports

           None

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

RELATIONSHIP WITH INDEPENDENT AUDITORS

      The firm of Clancy and Co., P.L.L.C. served as the Company's independent
public accountants for the years ended December 31, 2007 and 2006. 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, 2007 and 2006
was $61,800 and $52,000, respectively.

      AUDIT-RELATED FEES

      None.

      TAX FEES

      The aggregate fees billed for tax compliance rendered by our independent
auditors for the year ended December 31, 2007 was $6,200 and 2006 was $6,000.

      ALL OTHER FEES

      None.

      AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

      The Company does not currently have an Audit Committee. The Company's
current policy is that the Board of Directors pre-approves all audit and
non-audit services that are to be performed and fees to be charged by our
independent auditor to assure that the provision of these services does not
impair the independence of such auditor. The Board of Directors pre-approved all
audit services and fees of our independent auditor for the years ended December
31, 2007 and 2006. Our independent auditors did not provide us with any
non-audit services during the periods indicated above.


                                       31


<PAGE>

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



Report of Independent Registered Public Accounting Firm..................... F-2

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

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

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

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

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


                                      F-1


<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, 2007 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the two preceding years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards established by the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2007, and the consolidated results of their
operations and their cash flows for the periods indicated above, in conformity
with generally accepted accounting principles in the United States of America.



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

March 28, 2008


                                      F-2


<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2007

ASSETS
------
Current assets
   Cash and cash equivalents                                        $ 4,859,156
   Accounts receivable, net                                             972,354
   Inventories, net (Note 3)                                          2,620,337
   Prepaid state income taxes (Note 10)                                   1,621
   Prepaid expenses and other current assets                            218,447
                                                                    -----------
Total current assets                                                  8,671,915
                                                                    -----------

Property and equipment, net (Note 4)                                    477,967
                                                                    -----------

Intangible assets, net (Note 5)                                          13,180
                                                                    -----------

TOTAL ASSETS                                                        $ 9,163,062
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
   Accounts payable                                                 $   234,531
   Accrued expenses (Note 6)                                            262,822
   Income taxes payable (Note 10)                                       130,767
   Deferred tax liability (Note 10)                                      45,516
                                                                    -----------
Total current liabilities                                               673,636
                                                                    -----------

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: 14,463,805                            15,105
Additional paid-in capital                                            1,158,127
Retained earnings                                                     7,666,413
Less:  treasury stock, at cost (641,550 shares)                        (350,219)
                                                                    -----------
Total stockholders' equity                                            8,489,426
                                                                    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 9,163,062
                                                                    ===========


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

                                      F-3


<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                         CONSOLIDATED INCOME STATEMENTS
                 FOR THE YEARS ENDED DECMEBER 31, 2007 AND 2006


                                                         2007            2006
                                                     -----------     -----------

Net sales                                            $16,725,246     $16,273,465
Costs of sales                                        10,340,573      10,193,737
                                                     -----------     -----------
Gross margin                                           6,384,673       6,079,728
                                                     -----------     -----------

Operating expenses
   Selling, general and administrative                 4,479,727       4,193,887
   Research and development                              255,300         257,691
                                                     -----------     -----------
Total operating expenses                               4,735,027       4,451,578
                                                     -----------     -----------

Earnings from operations                               1,649,646       1,628,150

Other income
   Interest income                                       195,669         134,024
                                                     -----------     -----------

Earnings before income taxes                           1,845,315       1,762,174

Provision for income taxes (Note 10)                     721,396         666,198
                                                     -----------     -----------

Net earnings available to common stockholders        $ 1,123,919     $ 1,095,976
                                                     ===========     ===========

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

Diluted earnings per share                           $      0.08     $      0.07
                                                     ===========     ===========


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

                                      F-4


<PAGE>

<TABLE>
<S>     <C>
                                           ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                                    CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                          FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006


                                                COMMON         COMMON     ADDITIONAL
                                PREFERRED       STOCK          STOCK        PAID-IN       RETAINED     TREASURY
                                  STOCK         SHARES         AMOUNT       CAPITAL       EARNINGS       STOCK         TOTAL
                               --------------------------------------------------------------------------------------------------


BALANCE, DECEMBER 31, 2005             --     15,105,355    $    15,105   $ 1,150,641   $ 5,446,518   $  (278,537)   $ 6,333,727
Net earnings                           --             --             --            --     1,095,976            --      1,095,976
                               --------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2006             --     15,105,355         15,105     1,150,641     6,542,494      (278,537)     7,429,703
Exercise of employee stock
  options [40,000 shares]              --             --             --         7,486            --         8,514         16,000
                               --------------------------------------------------------------------------------------------------
Purchase of treasury shares
       [97,800 shares]                                                                                    (80,196)       (80,196)
                               --------------------------------------------------------------------------------------------------
Net earnings                           --             --             --            --     1,123,919            --      1,123,919
                               --------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2007             --     15,105,355    $    15,105   $ 1,158,127   $ 7,666,413   $  (350,219)   $ 8,489,426
                               ==================================================================================================


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

                                                               F-5


<PAGE>

                             ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                            FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006


                                                                             2007             2006
                                                                         -----------      -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings                                                             $ 1,123,919      $ 1,095,976
                                                                         -----------      -----------
Adjustments to reconcile net earnings to net cash provided by
  operating activities:
     Depreciation                                                             69,825           72,308
     Change in deferred taxes                                                  5,129           21,683
Changes in assets and liabilities
    (Increase) decrease in accounts receivable                              (153,616)         136,205
    (Increase) decrease in inventories                                       456,787         (503,512)
    (Increase) decrease in prepaid expenses and other current assets          75,197          (18,593)
     Increase (decrease) in accounts payable and accrued expenses            111,641          (96,753)
     Increase (decrease) in income taxes payable                             118,809          (22,304)
                                                                         -----------      -----------
Net cash flows provided by operating activities                            1,807,691          685,010
                                                                         -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Acquisition of property and equipment                                     (43,742)         (13,431)
                                                                         -----------      -----------
Net cash flows used in investing activities                                  (43,742)         (13,431)
                                                                         -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Acquisition of Treasury Shares                                            (80,196)              --
   Exercise of employee stock options                                         16,000               --
                                                                         -----------      -----------
Net cash flows provided by financing activities                              (64,196)              --
                                                                         -----------      -----------

Increase in cash and cash equivalents                                      1,699,753          671,579
Cash and cash equivalents, beginning of year                               3,159,403        2,487,824
                                                                         -----------      -----------
Cash and cash equivalents, end of year                                   $ 4,859,156      $ 3,159,403
                                                                         ===========      ===========

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

   Income taxes                                                          $   510,904      $   754,182
                                                                         ===========      ===========


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

                                                 F-6
</TABLE>


<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2007

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

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

The Company sells its products directly to consumers and to medical
professionals and retailers, and through distributors who sell products to
professionals and retailers. The Company develops, contract manufactures,
markets and sells its own brand of products, including vitamins and nutritional
supplements, throughout the world under the NutriCology(R) and Allergy Research
Group(R) labels, and distributes third-party products under these brands
representing approximately 20% of its total products. The Company offers a line
of approximately 280 products, including vitamins in both multivitamin and
single-entity formulas, minerals and herbals. The Company's products are
manufactured in various forms, including capsules, tablets, softgels, powders
(drink mixes) and liquids. The Company's liquid and powder products are packaged
by outside vendors and manufacturers. The Company is expanding its research on
nutraceuticals and continues to add new products to its existing product line.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING - The financial statements and accompanying notes are
prepared in accordance with accounting principles generally accepted in the
United States of America.

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 (50%) and to health care
professionals and health food stores (38%) throughout the United States. During
the years ended December 31, 2007 and 2006, the Company recorded net sales
throughout the U.S., Asia and Europe as determined by the final destination of
the product. Approximately 90% of the sales are within the United States. All
company identifiable assets are located in the United States.

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.


                                      F-7


<PAGE>

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
interest-bearing investments purchased with original maturities of three months
or less to be cash equivalents. The fair value of these investments approximates
their carrying value.

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 and Accounts Receivable - The Company has one customer that accounted
for approximately 11% of sales in both 2007 and 2006 and four customers that
individually accounted for more than 10% of total accounts receivable at
December 31, 2007.

(c) Purchases - The Company purchases raw materials and uses outside vendors for
the manufacture of products. The Company has four vendors (2006 two vendors)
that individually accounted for more than 10% of total vendor purchases,
representing approximately 61% (2006: 42%) of the Company's manufacturers and
suppliers of raw materials.

(d) Product - The Company has no products that individually account for more
than 10% of its sales dollars.

INVENTORIES - Inventories consist of raw materials and finished goods. Raw
materials consist of bulk product that has not been mixed or encapsulated.
Finished goods consist of product that has been encapsulated or made into tablet
form and that has been packaged for sale. Inventories are stated at the lower of
cost or market, with cost computed on a first-in, first-out basis. Provision is
made for obsolete, slow-moving or defective items where appropriate. The amount
of any provision (reversal) is recognized as a component of cost of sales in the
period the provision (reversal) occurs. At December 31, 2007, reserve for
obsolescence was $50,000. The Company has not had any material inventory
write-offs for the period from January 1, 2006 to December 31, 2007.

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 - In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
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, discounts and allowances for 2007 and
2006 were $1,535,507 and $1,514,533, respectively.


                                      F-8


<PAGE>

ALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company presents accounts receivable, net
of 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. Allowance for doubtful accounts was $45,000 at December 31,
2007. The Company has not had any material accounts receivable write-offs for
the period from January 1, 2006 to December 31, 2007.

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 and include occupancy, payroll,
employee benefits, and other head-count related costs associated with selling,
general and administrative personnel, advertising, promotions, tradeshows,
seminars and other marketing-related programs. Advertising costs are expensed as
incurred and totaled $61,658 in 2007 (2006: $62,745). Research and development
costs are charged to operations when incurred and include payroll, employee
benefits, and other head-count related costs associated with product
development. Research and development costs are included in operating expenses
and totaled $255,300 for 2007 (2006: $257,691).

INCOME TAXES - The Company accounts for income taxes under the liability method
of accounting for income taxes in accordance with the provisions of SFAS 109,
"ACCOUNTING FOR INCOME TAXES", (SFAS 109) and related interpretations and
guidance including FIN 48, "ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES-AN
INTERPRETATION OF FASB STATEMENT NO. 109 ", ("FIN 48"). Current income tax
expense or benefit is the amount of income taxes expected to be payable or
refundable for the current year. A deferred income tax asset or liability is
computed for the expected future impact of differences between the financial
reporting and tax basis of assets and liabilities and for the expected future
tax benefit to be derived from tax credits and loss carryforwards. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. All tax positions are first analyzed to determine if the
weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of any related appeals
or litigation processes. After the initial analysis, the tax benefit is measured
as the largest amount that is more than 50% likely of being realized upon
ultimate settlement.

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.


                                      F-9


<PAGE>

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

<TABLE>
<S>     <C>
                                                                 2007            2006
                                                             -----------     -----------
Numerator: net earnings available to common stockholders     $ 1,123,919     $ 1,095,976

Denominator:
  Weighted-average shares used to compute basic EPS           14,498,628      14,521,605
  Dilutive potential common shares                               158,653         178,795
                                                             -----------     -----------
  Weighted-average shares used to compute diluted EPS         14,657,281      14,700,400

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

Diluted net earnings per share:                              $      0.08     $      0.07
                                                             ===========     ===========
</TABLE>

STOCK-BASED COMPENSATION - The Company adopted SFAS No. 123 (revised 2004),
"SHARE-BASED PAYMENT", ("SFAS 123(R)"), on January 1, 2006, which requires the
measurement and recognition of compensation expense for all share-based awards
made to employees and directors, based on estimated fair values. Prior to the
adoption of SFAS 123(R), the Company accounted for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." Under the
intrinsic value method that was used to account for stock-based awards prior to
January 1, 2006, which had been allowed under the original provisions of SFAS
123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", compensation expense is recorded
on the date of grant if the current market price of the underlying stock
exceeded the exercise price. Any compensation expense is recorded on a
straight-line basis over the vesting period of the grant. The adoption of this
standard had no impact to the Company's financial position, results of
operations or cash flows as the Company's previous stock-based compensation
awards were fully vested as of January 1, 2006, and there have been no grants
during the current year. See Note 9 for a description of the Company's stock
option plan.

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

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

RECENT ACCOUNTING PRONOUNCEMENTS - During 2007, the Financial Accounting
Standards Board ("FASB") issued the following recent accounting pronouncements:

In February 2007, the FASB issued SFAS No. 159, "THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES- INCLUDING AN AMENDMENT OF SFAS 115",
("SFAS 159"). Subsequent measurements for the financial instruments and
liabilities an entity elects to fair value will be recognized in earnings. SFAS
159 also establishes additional disclosure requirements. SFAS 159 is effective
for fiscal years beginning after November 15, 2007, with early adoption
permitted provided that the entity also adopts SFAS No. 157, "FAIR VALUE
MEASUREMENTS" ("SFAS 157"),. The Company does not expect the new standard to
have any material impact on its financial statements.


                                      F-10


<PAGE>

In June 2007, the FASB ratified the Emerging Issues Task Force ("EITF") Issue
No. 07-3, "ACCOUNTING FOR NONREFUNDABLE ADVANCE PAYMENTS FOR GOODS OR SERVICES
TO BE USED IN FUTURE RESEARCH AND DEVELOPMENT ACTIVITIES", (EITF 07-3). EITF
07-3 requires non-refundable advance payments for goods and services to be used
in future research and development activities to be recorded as an asset and the
payments to be expensed when the research and development activities are
performed. EITF 07-3 is effective, on a prospective basis, for fiscal years
beginning after December 15, 2007 and will be adopted in the first quarter of
fiscal 2008. The Company is currently evaluating the potential impact this
standard may have on its consolidated financial position, cash flows and results
of operations, but does not believe the impact of the adoption will be material.

In December 2007, the FASB issued SFAS No. 141(R), "BUSINESS COMBINATIONS,"
("SFAS 141(R)"). This Statement replaces the original FASB Statement No. 141.
This Statement retains the fundamental requirements in Statement 141 that the
acquisition method of accounting (which Statement 141 called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. The objective of this SFAS 141(R) is
to improve the relevance, and comparability of the information that a reporting
entity provides in its financial reports about a business combination and its
effects. To accomplish that, SFAS 141(R) establishes principles and requirements
for how the acquirer: (1) Recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. (2)Recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase. (3)
Determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This Statement applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008 and may not be applied
before that date. The Company does not currently expect the new standard to have
any material impact on its financial statements.

In December 2007, the FASB issued SFAS No. 160, "NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS - AN AMENDMENT OF ARB NO. 51" ("SFAS 160").
This Statement amends the original Accounting Review Board (ARB) No. 51
"Consolidated Financial Statements" to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This Statement is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008 and may not be applied before that date.
The Company does not currently expect the new standard to have any material
impact on its financial statements.

Other recent accounting pronouncements issued by the FASB (including the EITF),
the American Institute of Certified Public Accountants ("AICPA"), and the SEC
did not or are not believed by management to have a material impact on the
Company's present or future financial statements.


NOTE 2 - RELATED PARTY 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 leased premises consist of approximately
29,821 square feet of office and industrial space. The non-cancelable 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)


                                      F-11


<PAGE>

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

Inventories consist of the following:

Raw materials                                                       $ 1,719,426
Finished goods                                                          842,700
Supplies                                                                108,211
Reserve for obsolescence                                                (50,000)
                                                                    -----------
Total                                                               $ 2,620,337
                                                                    ===========


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

Property and equipment consist of the following:

Machinery and equipment                                             $   736,244
Office equipment                                                        240,473
Furniture and fixtures                                                  152,662
Computer equipment                                                       99,176
Computer software                                                        79,981
Leasehold improvements                                                  402,902
                                                                    -----------
Total                                                                 1,711,438
Less accumulated depreciation                                        (1,233,471)
                                                                    -----------
Net book value                                                      $   477,967
                                                                    ===========

Depreciation expense charged to operations for 2007 was $69,825 (2006: $72,308).


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

Intangible assets consist of the following:

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

No amortization expense was charged to operations for either of the periods
presented.


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

Accrued expenses consist of the following:

Accrued expenses                                                         167,719
Accrued vacation
                                                                          48,000
Accrued payroll
                                                                          40,614
Accrued sales tax
                                                                           6,489
                                                                     -----------
                                                                     $   262,822
                                                                     ===========


                                      F-12


<PAGE>

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

The Company has a 401(k) Retirement Plan and eligible employees may contribute
any portion of their annual compensation, subject to the limitations established
annually by the Internal Revenue Service, and the Company matches 100% of an
employee's contribution, limited to 5% of the employee's compensation. Total
contributions by the Company with respect to these plans for 2007 approximated
$94,000 (2006: $76,000). The decrease is due to a refund of 2005 matching which
was applied to 2006 and reduced the amount the Company had to pay.


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
the Company's stock option plan. (See Note 9)

From inception of the plan through December 31, 2002, the Company repurchased
383,250 shares of common stock for $81,573. On May 12, 2003, all of the
repurchased shares of common stock were granted to employees under the 1998
Stock Option Plan. During December 2003, the Company repurchased 250,000 shares
of common stock from its Chief Executive Officer for $207,500. During 2007, the
Company purchased 97,800 shares from the Chief Executive Officer's mother for
$80,196. Total shares held in treasury are 641,550 of which 293,750 shares
remain unexercised under stock option grant agreements.


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

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

The following is a summary of stock option transactions:

                                                                     WEIGHTED-
                                                                     AVERAGE
                                                  SHARES UNDER       EXERCISE
                                                    OPTION            PRICE
                                                 ------------       ---------
OUTSTANDING AT 12/31/05                               338,750           0.40
Exercised                                                  --             --
Forfeited                                                  --             --
Granted                                                    --             --
                                                 ------------       ---------
OUTSTANDING AT 12/31/06                               333,750       $   0.40
Exercised                                             (40,000)         (0.40)
Forfeited                                                  --             --
Granted                                                    --             --
                                                 ------------       ---------
OUTSTANDING AT 12/31/07                               293,750       $   0.40
                                                 ============       =========

Options outstanding and exercisable at December 31, 2007 were 293,750
exercisable at $0.40 per share. The weighted-average exercise price of options
outstanding and exercisable at December 31, 2007 was $0.40 per share and the
weighted-average remaining contractual life was 0.4 years.


                                      F-13


<PAGE>

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

The Company files income tax returns in the United States federal jurisdiction
and certain states in the United States. With a few exceptions, the Company is
no longer subject to U.S. federal, state or non-U.S. income tax examination by
tax authorities on tax returns filed before January 31, 2004. The Company
recently filed its U.S. federal return for the years ended December 31, 2007.
These U.S. federal returns are considered open tax years as of the date of these
consolidated financial statements. No tax returns are currently under
examination by any tax authorities.

THE COMPONENTS OF PROVISION FOR INCOME TAXES ARE AS FOLLOWS:

                                                        2007            2006
                                                   ------------     ------------

U.S. federal income tax - based on income               539,787          486,650
State taxes - based on income                           176,480          157,865
Change in deferred taxes - federal
                                                          5,129           17,641
Change in deferred taxes - state
                                                             --            4,042
                                                   ------------     ------------
                                                   $    721,396     $    666,198
                                                   ============     ============

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

                                                       2007             2006
                                                   ------------     ------------

Statutory U.S. federal income tax rate                 34.0%            34.0%
State income taxes, net of related federal
  income tax benefit                                    9.0%             9.0%
Other                                                  (3.9)%           (5.2)%
Changes in the valuation allowance                        -                -
                                                   ------------     ------------
Income tax expense - effective rate                    39.1%            37.8%
                                                   ============     ============

INCOME TAXES CURRENTLY PAYABLE CONSIST OF THE FOLLOWING:

U.S. federal income taxes - based on income        $     53,107
CA state taxes - based on income                         75,665
NY state taxes - based on income                          1,995
                                                   ------------
                                                   $    130,767
                                                   ============

THE INCOME TAX EFFECT OF TEMPORARY DIFFERENCES COMPRISING THE DEFERRED TAX
LIABILITIES ON THE ACCOMPANYING CONSOLIDATED BALANCE SHEET IS A RESULT OF THE
FOLLOWING:

                                                        2007
                                                   ------------
DEFERRED TAX LIABILITIES:
Depreciation                                             45,516
                                                   ------------

Net deferred tax liability                         $     45,516
                                                   ============

The deferred tax consequences of temporary differences in reporting items for
financial statement and income tax purposes are recognized, as appropriate.


                                      F-14


<PAGE>

NOTE 11 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASE

The Company leases office and warehouse space under non-cancelable operating
lease with AriBen Corporation, a related party. (See Note 2) Rent expense
charged to operations during 2007 was $288,000 (2006: $288,000). Future minimum
rental commitments under non-cancelable leases for the next five years are
$288,000 per year.

LINE OF CREDIT

The Company has a Merrill Lynch Working Capital Management Account ("WCMA"),
which provides for a line of credit up to $1,500,000 with interest due monthly
at the variable interest rate of 2.75% plus the One-Month London Interbank
Offered Rate ("LIBOR"), the total of which equaled 7.38% on December 31, 2007.
The line of credit is secured by substantially all of the assets of the Company
and was personally guaranteed by the CEO of the Company (the personal guarantee
was dropped on February 1, 2007). The line of credit expires on November 30,
2008.

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

PURCHASE OBLIGATIONS

As of December 31, 2007, the Company had inventory purchase obligations
approximating $2,067,000, which were incurred as part of the normal course of
business.

LAWSUIT

In March 2006, the Company received a summons from the United States District
Court for the District of Colorado in an action filed by Pure Research Products,
LLC, a division of J.A. Sichel & Associates. The complaint alleges that the
Company violated certain trademarks and exclusive license rights held by Pure
Research Products, LLC during negotiations between the parties and following the
dissolution of those negotiations. The plaintiff in the action is seeking
various forms of injunctive relief against the Company as well as damages to be
proven at trial. The complaint includes a request for treble damages in the
event the plaintiff is successful. The Company intends to vigorously defend
itself against the allegations and is countersuing for breach of contract. No
adjustments were made to our consolidated financial statements for the outcome
of this uncertainty.

On or about November 1, 2007, Steven and Kimberly Bronson filed a Complaint for
Court-Ordered Inspection of Corporate Records with the Circuit Court of the 15th
Judicial District in and for Palm Beach, Florida. The complaint alleges that the
Bronsons are entitled to inspect and make copies of corporate and accounting
records of the Company which are not publicly available. The request for
inspection submitted by the Bronsons was denied by the Company based on the
inability of the Company to disclose these records without violating Regulation
FD of the Securities Exchange Act of 1934, as amended, and because of the prior
publication of correspondence and documents exchanged between the Company and
the Bronsons by Mr. Bronson. It is also our position that Mr. Bronson is not
entitled to obtain these records because the purposes stated can be satisfied
through information which has already been made publicly available by the
Company. We intend to vigorously defend
against this action. No adjustments were made to our consolidated financial
statements for the outcome of this uncertainty.



                                      F-15


<PAGE>

UNASSERTED CLAIMS AND ASSESSMENTS

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



                          END OF FINANCIAL STATEMENTS.



                                      F-16


<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 31, 2008        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 31, 2008         By: /s/ Stephen A. Levine
                                 -----------------------------------------------
                                 Stephen A. Levine, Ph.D., CEO, CFO and Director


Date: March 31, 2008         By: /s/ Susan D. Levine
                                 -----------------------------------------------
                                 Susan D. Levine, Director


Date: March 31, 2008         By: /s/ Ed Kane
                                 -----------------------------------------------
                                 Ed Kane, Director


                                       48