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

                                   FORM 10-KSB

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

                   For the Fiscal Year Ended December 31, 2006

[   ]   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: $16,273,465

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 6, 2007 was $0.87, based on the last sale
price of $0.89 as reported by the NASD Over-The-Counter Bulletin Board.

As of March 13, 2007, Registrant had outstanding 14,521,605 shares of common
stock, its only class of common equity outstanding.

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

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                                TABLE OF CONTENTS

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

   ITEM 1.  DESCRIPTION OF BUSINESS............................................1
     FORWARD-LOOKING STATEMENTS................................................1
     BACKGROUND................................................................1
     THE COMPANY...............................................................1
     BUSINESS PLAN.............................................................2
     PRODUCTS AND SERVICES.....................................................3
     INDUSTRY OVERVIEW.........................................................4
     COMPETITION...............................................................5
     MARKET STRATEGIES.........................................................6
     REGULATION................................................................6
     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..............................................20
   ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.....................20
   ITEM 8A. CONTROLS AND PROCEDURES...........................................21
   ITEM 8B. OTHER INFORMATION.................................................21

PART III......................................................................22

   ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
   COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..........................22
     OFFICERS AND DIRECTORS...................................................22
     KEY EMPLOYEES............................................................23
     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....................30
   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....................................................................33

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-KSB, including "Management's Discussion and
Analysis or Plan of Operation" in Item 6, contains forward-looking statements
that involve risks and uncertainties and assumptions that, if they never
materialize or prove incorrect, could cause the results of Allergy Research
Group, Inc. and its consolidated subsidiary (the "Company") to differ materially
from those expressed or implied by such forward-looking statements. All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements, including any projections of revenue, costs
or other financial items; any statements of the plans, strategies and objectives
of management for future operations; any 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 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.

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

      We sell our products worldwide to healthcare professionals, who recognize
the Company for the quality, purity and efficacy of its targeted nutritional
supplement line. Currently, we supply products to over 4,000 physicians and
health care practitioners worldwide, including accounts in the United States,
Japan, China, Taiwan, the United Kingdom, South Korea, Jamaica, New Zealand,
Mexico, Turkey, Norway, Denmark, Switzerland, Italy, Ireland, Philippines,
Russia, South Africa and Singapore. The United States accounts for approximately
87% of sales before returns, discounts and allowances, with England, Japan and
Canada producing 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.

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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 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. The Company's distribution channel to the medical
and professional- practitioners market is pivotal to the successful introduction
of unique products.

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      PRODUCT RESEARCH AND DEVELOPMENT

      We strive to make the Company a leader in vitamin and nutritional
supplement product development and intend to continue our commitment to research
and development to create new products and existing product line extensions In
2006 and 2005, we spent $257,691 and $304,516, 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, 2006, a concentration of approximately 42% of our
manufacturing was distributed among three separate vendors. The three individual
manufacturers and suppliers of raw materials accounted for approximately 21%,
11% and 10% of our needs. We are committed to providing the highest quality
products, and require our manufacturers to provide evidence that they have met
our standards. Our outside vendors are required to manufacture our products in
accordance with the applicable Current Good Manufacturing Practices ("cGMPs") of
the United States Food and Drug Administration ("FDA") applicable to food and
other applicable regulatory and compendial manufacturing standards, such as
United States Pharmacopoeia ("USP"). Raw materials and finished products undergo
random sample quality testing procedures, including weight, purity, heavy metals
and microbiological testing. In order to assure that our products meet the high
standards we require, we randomly take raw materials and samples from our
manufacturers to independent laboratories for testing.

PRODUCTS AND SERVICES

      Our vitamin and nutritional supplement line consists of approximately 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


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

INDUSTRY OVERVIEW

      According to a report entitled NUTRITIONAL SUPPLEMENTS IN THE U.S.,
released by Packaged Facts on November 1, 2006, the U.S. market for nutritional
supplements continues to grow. The report estimated that U.S. sales would
increase to over $6 billion by 2011, and projected that U.S. sales for 2006
would reach approximately $4.7 billion (representing a 1.0% increase over 2005
sales). The report stated that from 2002 to 2006, sales increased by more than
6% despite an approximate loss of 3% in 2005 that was likely due to bad press in
the industry.

      There appears to be less growth in the international industry primarily
due to the advent of a number of regulatory measures being proposed and/or
implemented on the international and national levels. In its VITAMINS AND
SUPPLEMENTS MARKET ASSESSMENT 2006 released November 2006, Key Note Publications
Ltd. estimated that growth over the twelve-months ended August 2006 was only
0.9% in the U.K. The report attributed the slow growth partly to public
statements indicating that research showed people taking vitamin, mineral and
supplement (VMS) products were taking them unnecessarily. The report further
attributes slow growth to threats posed to the VMS market as a result of the
European Community's Food Supplements Directive issued in 2002, which charged
the European Commission with setting maximum levels for all ingredients used in
such products and with organizing manufacturers to gain safety approvals for all
VMS products put up for retail sale in the EU, as well as other forms of
regulation regarding labeling and health warnings.

      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. These groups continue the adoption of good
manufacturing practices ("GMPs") for nutritional supplements and additional laws
and regulations (see "Regulations" below) that could cripple the industry by
limiting consumer access to dietary supplement products and alternative medicine
and would increase the costs of manufacturing VMS products. The ongoing campaign
to label nutritional supplement products as "unsafe" despite their track record
has received some governmental response. In its 2007 Budget Justification
Summary, the Federal Trade Commission ("FTC") warned that it would continue to
scrutinize dietary supplement marketing practices during 2007, citing increased
consumer demand for such products as one reason. In addition, the FTC published
GUIDES CONCERNING THE USE OF ENDORSEMENTS AND TESTIMONIALS IN ADVERTISING, which
are out for comment by the public until March 19, 2007.

      Restrictions on the nutritional supplement manufacturer's ability to
advertise the efficacy of vitamin, mineral and dietary supplement products makes
it difficult to address the criticisms of the pharmaceutical industry, and
further limitations such as those proposed by the FTC would impose additional
limitations.

      Attempts to increase foreign government regulation of the industry have
met with some success as well in some jurisdictions in which we currently sell
products. See "Regulation" below. More pervasive are guidelines adopted by the
Codex Alimentarius Commission, or Codex, an agency created in 1963 by two UN.
organizations - the Food and Agriculture Organization and the World Health
Organization, in July 2005. By way of background, the Codex Committee on


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Nutrition and Foods for Special Dietary Uses ("CCNFSDU") began discussions on
guidelines for vitamin and mineral supplements in the 1990's. These Guidelines
apply to vitamin and mineral food supplements intended for use in supplementing
the daily diet with vitamins and/or minerals. However, food supplements
containing vitamins and/or minerals as well as other ingredients would also need
to be in conformity with the specific rules on vitamins and minerals laid down
in the Guidelines. See "Regulation" below.

      However, as evidenced by the FTC's budgetary summary and industry reports,
despite these impediments, public awareness and demand of the positive effects
of vitamins and nutritional supplements continues to grow, and there is evidence
of consumer loyalty to brand as well. According to a survey of 4,181 subscribers
to ConsumerLabs.com, 77% of consumers are happy with their brand of nutritional
supplement products. The ConsumerLabs.com report further indicated that online
sales of VMS products account for 40% of sales to participants in the survey,
indicating that Internet access to information and products plays a role in
rising consumer awareness and demand.

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

COMPETITION

      Strong interest in nutritional supplements has resulted in a large number
of competitors in the marketplace, although the industry has seen a
consolidation of vitamin and supplement companies in recent years. 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 from the functional food sector. Functional foods
include breakfast cereals, fortified breads, cholesterol-lowering margarines and
yogurt drinks, among others.

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

      The ConsumerLabs.com report discussed under "Industry Overview" indicated
that the most common places to purchase nutritional supplements are as follows:
online (40%), health food stores (34%), vitamin stores (27%), pharmacies (25%),
warehouse clubs (23%), catalogues (20%), supermarkets (18%), independent
distributors (18%), mass merchants (18%) and healthcare practitioners (9%). As
discussed elsewhere in this annual report, we market our products primarily
through our website, health food stores, independent distributors and healthcare
practitioners. However, we have identified professionals and distributors as our
primary market, believing that we can build up our reputation for quality and
efficacy through these sources rather than concentrating our efforts on mass
market sales in competition with larger companies that have better resources and
brand recognition even if many of their product lines are of lower quality than
ours.

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      We believe that the Company competes favorably with other VMS companies
because of its reputation for the quality and efficacy of its products as well
as for its comprehensive line of products. We offer approximately 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 superior managerial and 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.

MARKET STRATEGIES

      We have divided sales into multiple market channels:

      o  Healthfood stores and professional accounts - Physicians,
         nutritionists, chiropractors and health care professionals (38%).

      o  Distributor accounts - Sales to distributors (to be resold to the
         professional or retail markets) (50%).

      o  Retail accounts - Direct sales to consumers (12%).

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

      The Company markets its products through the use of trade shows, direct
marketing to physicians, nutritionists, chiropractors and health care
professionals, 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.

REGULATION

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

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      The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was
enacted in October 1994. DSHEA revised the provisions of the Federal Food, Drug
and Cosmetic Act (the "FFDC Act") concerning the composition and labeling of
dietary supplements. Under DSHEA, dietary supplements do not require approval
from the FDA before they are marketed. Manufacturers are responsible for
determining that the dietary supplements they manufactured are safe and that any
representations or claims made about them are substantiated by adequate
evidence. 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. Dietary supplements do not require FDA registration prior
to production or sale. Where a new dietary ingredient is being introduced, the
manufacturer must demonstrate why the ingredient is reasonably expected to be
safe for use in dietary supplements unless the ingredient has already been
recognized as a food substance and is present in the U.S. food supply. The
expansion of the new dietary ingredients list or notification requirements could
increase costs or delay product introduction.

      DSHEA has come under attack from time to time due to negative publicity
surrounding some herbal products, such as ephedra. 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.

      Another important tool of the FDA's regulatory and surveillance activities
to help ensure the safety of dietary supplement products is the Agency's
authority to promulgate regulations for dietary supplement current good
manufacturing practices (cGMPs). During March 2003, the FDA issued proposed cGMP
regulations for dietary ingredients and dietary supplements. The proposed cGMPs
also contain requirements for the design and construction of physical plants,
and establish quality control procedures and procedures for testing manufactured
dietary ingredients and dietary supplements. Recognizing that the new rules, if
adopted, would have a greater economic impact on small businesses, the FDA
included a three-year phase-in period for businesses with fewer than 500
employees.

      Products marketed by the Company are classified as dietary supplements
under the FFDC Act, and are therefore subject to DSHEA and, if adopted, various
proposed regulations. In addition to these laws and regulations, state and
federal authorities under a number of disparate regulatory schemes have
regulated advertising and label claims for dietary supplements. There can be no
assurance that a state will not interpret claims presumptively valid under
federal law as illegal under that state's regulations, or that future FDA or FTC
regulations or decisions will not restrict the permissible scope of such claims
even beyond the current proposals.

      On December 22, 2006, the Dietary Supplement and Non-Prescription Drug
Consumer Protection Act (the "AER Bill") was signed into law. The AER Bill,
which takes 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 will
require manufacturers, packers and distributors to report serious adverse events
associated with their products within 15 days after they receive notice of the
event.

      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,


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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 new security guidance documents to
ensure the safety and security of the U.S. food supply. The new guidance
documents are designed to reduce the risk of tampering or other malicious,
criminal or terrorist acts. The FDA also announced increased surveillance of
domestic and imported foods. The guidance documents were issued in response to
the increased risk of bioterrorism. The new guidance documents and heightened
surveillance are part of Operation Liberty Shield, a comprehensive national plan
designed to increase protections for U.S. citizens and infrastructure while
maintaining the free flow of goods with minimal disruption to the economy or
American way of life. The FDA guidance documents are not regulations and are not
mandatory, but they do provide FDA recommendations, which are generally followed
throughout the industry. It is unclear what, if any, impact compliance with the
guidance documents by firms that produce, process, distribute, pack or transport
food ingredients has had on the dietary supplement industry.

      Governmental regulations in foreign countries where the Company plans to
commence or continue/expand sales may prevent or delay entry into the market or
prevent or delay the introduction, or require the reformulation, of certain of
our products. Compliance with such foreign governmental regulations is generally
the responsibility of our distributors for those countries. These distributors
are independent contractors over whom we have limited control. Currently,
approximately 90% of our sales are to the U.S. market.

      The European Community is still in the process of implementing the EC's
Food Supplements Directive 2002, which affects 25 nations. Among other
restrictions, the law (a) will allow only certain vitamins and minerals to be
sold and will limit potency levels to one to three times the Recommended Daily
Allowance ("RDA"), (b) will outlaw many popular nutrients such as chromium
picolinate, and (c) will outlaw entire product categories such as amino acids.
At this point, we are unable to estimate the full impact of the Directive on the
market for our products in the Community. Compliance with those regulations will
primarily be the responsibility of our contract manufacturers and distributors
for those markets.

      In July 2005, the Codex Alimentarius Commission adopted GUIDELINES FOR
VITAMIN AND MINERAL FOOD SUPPLEMENTS (the "Guidelines"). The Guidelines only
apply to supplements that contain vitamins and minerals that are regulated as
foods. The Guidelines provide criteria for establishing maximum amounts of
vitamins and minerals per daily portion of the supplement as recommended by the
manufacturer. They also address the packaging and labeling of supplements. The
restrictions are expected to lower the dosage of U.S.-manufactured products to
standards set by foreign jurisdictions. The FDA has stated that the Codex
Guidelines will not affect the availability of supplement products to U.S.
consumers.

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

                                       8
<PAGE>

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

EMPLOYEES

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

AVAILABLE INFORMATION

      Copies of the Company's Form 10-KSB and proxy statement may be obtained by
notifying the Company in writing at its physical address. The public may also
read and copy any materials filed with the SEC at the SEC's Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549, or through the SEC website
at www.sec.gov. The Public Reference Room may be contact at (800) SEC-0330. We
post a link to all Section 16 reports filed with the SEC on our website at
www.allergyresearchgroup.com. You may also access our other reports via that
link to the SEC website.

ITEM 2. DESCRIPTION OF PROPERTY

      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 Chief Executive Officer and Chief Financial
Officer, Dr. Stephen Levine, and its Secretary, Susan Levine. These facilities
consist of approximately 29,821 square feet of office and warehouse space. The
lease, which has a term of ten years with options to renew for two subsequent
periods of ten and five years, respectively, has a base monthly rent of $24,000
for the initial period, $30,000 for the first option period and $35,000 for the
second option period. Rent will be adjusted annually during the second five
years of each 10-year lease period based on the consumer price index, with a
minimum increase of three percent. No security deposit was required under the
lease.

                                       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.

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

         On December 21, 2006, we held our annual meeting of shareholders at
which the shareholders voted to (1) re-elect each of the Company's directors,
(2) set the compensation for independent directors, and (3) ratify the selection
of the Company's independent auditor for the fiscal year ending December 31,
2006. The voting totals were as follows:

                                           For                      Withheld
------------------------------------- -------------- ------------ ------------
(1) Director - Stephen Levine           13,744,449                  762,923
------------------------------------- -------------- ------------ ------------
(1) Director - Susan Levine             13,754,449                  752,923
------------------------------------- -------------- ------------ ------------
(1) Director - Edward Kane              13,754,349                  753,023
------------------------------------- -------------- ------------ ------------

                                           For          Against    Abstained
------------------------------------- -------------- ------------ ------------
(2)Independent Director Compensation    13,617,829      878,717     10,825
------------------------------------- -------------- ------------ ------------
(2) Independent Auditors                14,471,027       5,575      30,769
------------------------------------- -------------- ------------ ------------


                                       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 Over-the-Counter ("OTC")
Bulletin Board under the symbol "ALRG." The following table sets forth the
trading history of the Common Stock on the OTC Bulletin Board for each quarter
of fiscal years ended December 31, 2005 and 2006, and the partial period ended
March 6, 2007, 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
                3/31/2005              $1.14           $0.93
                6/30/2005              $1.05           $0.84
                9/30/2005              $0.98           $0.84
                12/31/2005             $0.97           $0.77
                3/31/2006              $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
                3/6/2007*              $0.90           $0.79

*Reflects partial period.

HOLDERS

      As of March 21, 2007, there were approximately 95 holders of record of the
Company's Common Stock. The Board of Directors believes that the number of
beneficial owners is substantially greater than the number of record holders
because a significant portion of our outstanding Common Stock is held in broker
"street names" for the benefit of individual investors.

DIVIDENDS

      We have never paid a cash dividend on our common stock. Payment of
dividends is at the discretion of the Board of Directors. To date, the Board of
Directors has elected to retain earnings for operations and has no current plans
to pay dividends in 2007.

RECENT SALES OF UNREGISTERED STOCK

      None.

                                       11
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

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


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

INTRODUCTION

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

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

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

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

                                       12
<PAGE>

      o  RESULTS OF OPERATIONS. This section provides an analysis of our results
         of operations for the fiscal year ended December 31, 2006 compared to
         2005. 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, 2006.

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

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

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS

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

FACTORS THAT COULD AFFECT FUTURE RESULTS

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

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

                                       13
<PAGE>

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

      o  Overall customer demand for our various products.
      o  Volume of products ordered.
      o  Mix of products purchased by our
         customers.
      o  Prices at which we sell our products.
      o  Our ability to manage our cost structure for capital expenditures and
         operating expenses such as salaries and benefits, freight and
         royalties.
      o  Our ability to match operating costs to shifting volume levels.
      o  Increases in the cost of raw materials and other supplies.
      o  The impact of competitive products.
      o  Adequacy and availability of insurance coverage.
      o  Our inability to gain and/or hold market share.
      o  Exposure to and expense of resolving and defending product liability
         claims and other litigation.
      o  Consumer acceptance of our products.
      o  Managing and maintaining growth.
      o  Customer demands.
      o  Market and industry conditions including pricing, demand for products,
         levels of trade inventories, 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 implementation of SFAS 123R in relation to accounting for
         stock-based compensation.
      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. We develop, contract
manufacture, market and sell our own brands, including vitamins and nutritional
supplements, throughout the world under the NutriCology(R) and Allergy Research
Group(R) labels. Our products are distributed through distributors, to medical
and professional accounts, retail stores and consumers directly. We offer a line
of approximately 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 products account for approximately 20% of all products offered by
the Company. Our principal executive offices are located at 2300 North Loop
Road, Alameda, California 94502 and our telephone number is (800) 545-9960.

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

                                       14
<PAGE>

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

RESULTS OF OPERATIONS

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

      FISCAL YEAR ENDED DECEMBER 31, 2006 COMPARED TO DECEMBER 31, 2005

      REVENUES. During the fiscal year ended December 31, 2006, we had net sales
of $16,273,465, representing an increase of $362,244 from net sales of
$15,911,221 during fiscal year ended December 31, 2005. The overall increase of
2% was driven by increased sales to our distributors with a slight increase in
sales to retail customers, who account for approximately 12% (2005: 13%) of our
total sales; these increases were offset by decreased sales to our professional
accounts. The overall increase in sales is primarily the result of the
introduction of new products. We are planning additional promotional activities
with selected major accounts in 2007, featuring selected new products.

      COST OF SALES. Cost of sales increased $548,444 to $10,193,737 for the
year ended December 31, 2006, compared to $9,645,293 for the year ended December
31, 2005. The increase in sales plus increased cost of materials and increased
shipping costs caused the increase in cost of sales. In addition, we incurred
approximately $62,000 in product testing costs during the twelve months ending
December 31, 2006 compared to approximately $50,000 for the same period last
year. We are making a concerted effort to determine that our manufacturers are
maintaining the high standards we and our customers expect. Gross profit margins
for 2006 were approximately 37%, a decrease of 2% from approximately 39% in
2005. The decrease of 2% for the period over period comparison is a result of
increased cost of materials that have not been passed on to our customers in
order to preserve our customer base and to respond to pricing pressures from
competitors. Lower margin sales to distributors have increased in relation to
higher retail and wholesale sale margins. Additionally, our product mix is
shifting to include increased sales of lower margin items. Despite these market
pressures and after careful consideration of gross margins by product line, we
felt compelled to raise the prices on approximately 50 items to roll out between
February and April 2007.

      OPERATING EXPENSES. Total operating expenses decreased by approximately
$12,945 or .3% to $4,451,578 for the year ended December 31, 2006. Our general
and administrative expenses have generally remained stable with modest increases
in legal fees and audit fees. Payroll expenses have decreased due to a reduction
in staff and reduced bonuses to officers, offset by increases in insurance and
wages. We hired a National Accounts Manager during the second quarter of 2006.
Occupancy expenses remained relatively stable. Selling expenses decreased
because we did not print a new catalog during 2006 and because of the timing on
newsletters and advertising. Decreased selling expenses were offset by increased
travel and convention costs. The total fluctuations from year to year are
affected by approximately $100,000 that was expensed during the first quarter of
2005 as a result of the relocation of our corporate office, which was offset in
the same year by the reversal of a loss provision associated with a lawsuit that
was settled during 2003. We were awarded a $250,000 settlement and a Florida
lawyer asserted a lien claim for 35% of the proceeds, plus costs of $64,000 The
Florida lawyer did not prevail in his assertion regarding the lien and the
accrual for the settlement of $151,500 was reversed during the second quarter
ending June 30, 2005.

                                       15
<PAGE>

      INTEREST. There was no interest expense incurred during 2005 or 2006
because the line of credit was not used. Interest income was $134,024 for the
year ended December 31, 2006, an increase of 108%, compared to $64,317 in 2005.
The increase is due to rising interest rates and an increase in cash.

      INCOME TAXES. For the years ended December 31, 2006 and 2005, we recorded
a provision for income taxes of $666,198 and $656,853, respectively,
representing taxes based on taxable earnings at the applicable federal and state
income tax rates.

      NET INCOME. During the period ended December 31, 2006, we recorded net
income of $1,095,976, as compared to net income of $1,208,869 for the period
ended December 31, 2005. The overall decrease is due to the decrease in gross
profit.

      EARNINGS PER SHARE. Basic earnings per share have remained stable at $0.08
for both December 31, 2005 and 2006. Diluted earnings per share have decreased
to $0.07 per share for the year ended December 31, 2006, versus $0.08 per share
for the same period in 2005.

LIQUIDITY AND CAPITAL RESOURCES

      For the past five years combined we have generated aggregate net income of
$6,229,213. 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, 2006 COMPARED TO DECEMBER 31, 2005

      Cash Flows

      OPERATING ACTIVITIES. Net cash flow provided by operating activities was
$685,010 and $842,489 for the years ended December 31, 2006 and 2005,
respectively. Net cash provided by operating activities for both periods
primarily reflects net income and net changes in operating assets and
liabilities such as accounts receivable, inventory and accounts payable. Cash
generated by operating activities for 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
liabilities of $96,753. Cash generated by operating activities for 2005 is
explained by an increase in accounts receivable due to increased sales and an
increase in inventory levels due to rising prices and a modest increase in new
products available for sale offset by an effort to decrease the carrying cost of
inventory and the reduction in liability accounts such as accounts payable and
accrued liabilities as the Company took advantage of vendor discounts offered
and primarily paid its liabilities before they were due.

      INVESTING ACTIVITIES. Net cash flows used in investing activities for the
twelve months ended December 31, 2006 was $13,431 for equipment upgrades. Net
cash flows used in investing activities during 2005 was $502,303 primarily
resulting from purchases of leasehold improvements and upgrades to our
manufacturing and office equipment offset by repayments from officers for an
outstanding loan.

                                       16
<PAGE>

      FINANCING ACTIVITIES. There were no cash flows from financing activities
during 2006. Net cash flows provided by financing activities were $2,000 in
2005, representing cash proceeds from the exercise of employee stock options.

      Current Financial Condition/Risk Analysis

      At December 31, 2006, the Company had positive working capital of
$6,912,473, compared to working capital at December 31, 2005 of $5,757,619.
Working capital increased as a result of our cash flows generated from operating
activities, which has increased our cash position and allowed us to minimize
outstanding liabilities. Approximately 91% 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 income from operations.
We have a line of credit available if income from operations should fail to
provide the financing needed. If customer demand should drop off due to such
factors as pricing pressures imposed by competitors, customer bankruptcies or
some other unforeseen circumstances, our access to funds may be restricted.

      During 2006, we experienced a concentration of approximately 42% of our
manufacturing with three separate vendors (concentration ranging from 10% to 21%
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 2006 (2005: 12%) 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 to what extent these customers
would begin to purchase products directly from the Company.

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

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


                                       17
<PAGE>

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

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

      Our line of credit with Merrill Lynch Working Capital Management Account
will expire on November 30, 2007. In the event we were unable to renew or obtain
a new line of credit with this or another banking facility, we may not be able
to allow for unexpected or emergency expenses which may arise during the course
of our operations. In that event, we may be required to raise additional capital
through the sale of equity or debt instruments, and we can offer no guarantee
that such financing would be on terms favorable to the Company or that such
financing would be available to the Company as needed.

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                                  Payments Due by Period
                              --------------------------------------------------------------
                                              Less
      Contractual                            Than 1        1-3         4 - 5       After 5
      Obligations                Total        Year        Years        Years        Years
---------------------------   ----------   ----------   ----------   ----------   ----------
<S>                           <C>          <C>          <C>          <C>          <C>
Line of Credit(1)                     --           --           --           --           --
---------------------------   ----------   ----------   ----------   ----------   ----------
Capital Lease Obligations             --           --           --           --           --
---------------------------   ----------   ----------   ----------   ----------   ----------
Operating Leases(2)           $2,340,000   $  288,000   $  864,000   $  576,000   $  612,000
---------------------------   ----------   ----------   ----------   ----------   ----------
Purchase Obligations(3)       $2,260,194   $1,846,194      414,000           --           --
---------------------------   ----------   ----------   ----------   ----------   ----------
Total Cash Contractual
Obligations                   $4,600,194   $2,134,194   $1,278,000   $  576,000   $  612,000
---------------------------   ----------   ----------   ----------   ----------   ----------
</TABLE>

                                       18
<PAGE>

      (1)  This represents our borrowings under the line of credit with Merrill
           Lynch, which had a zero balance as December 31, 2006 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, 2006, the interest rate on the line of
           credit was 8.07% 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

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

      ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

                                       19
<PAGE>

      INVENTORY

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

      In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return FIN
48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosures, and transition. FIN 48 is
effective for years beginning after December 15, 2006 and is not expected to
have any significant impact on our financial position and results of operations.

      In September 2006, the FASB issued SFAS No. 157, "Accounting for Fair
Value Measurements." SFAS No. 157 defines fair value, and establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosure about fair value measurements. SFAS No. 157 is
effective for the Company for financial statements issued subsequent to November
15, 2007. The Company does not expect the new standard to have any material
impact on its financial statements.

      In September 2006, the FASB issued FASB Statement No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans." This
Statement requires an employer to recognize the over funded or under funded
status of a defined benefit post retirement plan (other than a multiemployer
plan) as an asset or liability in its statement of financial position, and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income. The Company does not expect that the
implementation of SFAS No. 158 will have any impact on its financial statements.

ITEM 7. FINANCIAL STATEMENTS

      Please see our audited consolidated financial statements for the year
ended December 31, 2006, attached hereto.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

      None.

                                       20
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES

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

ITEM 8B. OTHER INFORMATION

      None.

                                       21
<PAGE>

                                    PART III

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

OFFICERS AND DIRECTORS

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

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

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

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

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

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

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

      STEPHEN LEVINE, PH.D. (57) has served as the Company's Chief Executive
Officer from December 1997 to January 1999 and recommenced service to the
Company in that capacity in January 2000, upon resignation of the interim CEO.
Dr. Levine has been Chairman of the Board and a Director of the Company since
December 1997. In January 2001, Levine was appointed Chief Financial Officer of
the Company. In addition to these various roles, Dr. Levine is solely
responsible for all scientific research and development of new products. He has
been involved in the nutraceutical industry for over 25 years and is in a unique
position to receive invaluable scientific information from the nutraceutical
community. His network of associates includes renowned medical doctors,
researchers and industry leaders. Dr. Levine graduated cum laude from the State
University College in Buffalo, New York and received his Ph.D. from the
University of California, Berkeley. In 1979, Dr. Levine founded NutriCology and
was employed as its owner and operator from that time until 1998, when
NutriCology was acquired by the Company. 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.

                                       22
<PAGE>

      FRED SALOMON (68) 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 (53) 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 works on marketing concerns. Prior to working
for the Company, Ms. Levine was the Director of Senior Housing ECHO, a
non-profit organization located in Hayward, California, where her duties
included grant writing and coordination of workers for social programs.

      ED KANE (79) 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 titles of Purchasing, Operation
and Distribution Manager. Mr. Abbott holds a B.S. degree in Business
Administration from California State University, Sacramento, where he graduated
in 1980.

                                       23
<PAGE>

      HORTENSE AMARANTE serves as Customer Service Manager for the Company. One
of the most senior employees at the Company, Ms. Amarante has been with the
Company since 1990 filling many roles, primarily in the accounting department.
Prior to joining the Company, Ms. Amarante worked in the Accounting Department
for First Select Visa for five years. Ms. Amarante was educated in Portugal and
holds a Bachelors of Arts degree in Education. Ms. Amarante will be retiring
effective April 6, 2007. She is currently training her replacement, a customer
service sales representative who was promoted to fill the position.

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

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

      REESA SOKOLOFF was hired as our National Accounts Manager during June
2006. Ms. Sokoloff has over 11 years as a clinical dietitian and nutritional
consultant. She has run her own private practice, co-authored a book on an all
natural sweeteners and lectured to physicians, health care professionals and
corporations on topics related to wellness and nutrition. She was also the East
Coast Sales Rep for Allergy Research Group from 1998-1999. Additionally, Ms.
Sokoloff has extensive sales and marketing experience and has been the lead
consultant for the successful launch of several neutraceutical products for
prestigious companies in our industry. Most recently, as Co-Founder and Director
of Sales for The Sweet Life, Reesa was responsible for introducing Xylitol, an
all natural sweetener, to retailers in the US, UK, Canada and Australia. Reesa
received her Master of Science in Clinical Nutrition from New York University
and her Bachelor of Science in Food and Business from the State University of
New York Oneonta.

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

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

                                       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.

                                       25
<PAGE>

      Our success is substantially dependent upon the efforts of Dr. Stephen
Levine. The loss of Dr. Levine, whom we regard as the Company's visionary and
whose reputation in the industry is known internationally, would have a material
adverse effect on the Company's business if a suitable replacement could not be
found. Due to his reputation and talent, we believe it would be difficult to
replace Dr. Levine. Our future success is likely to depend substantially on our
continued ability to attract and retain highly qualified personnel, and the
competition for such personnel is intense.

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

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 2006 under Section 16(a) of
the Securities Exchange Act of 1934, were timely filed.

ITEM 10. EXECUTIVE COMPENSATION

REMUNERATION PAID TO EXECUTIVES

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

<TABLE>
<CAPTION>
                                                       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  ($)(6)    ($)     ($)      ($)         (#)       ($)      ($)
-------------------- ----- ------- ------- ------- ---------- ----------- ------- ---------
<S>                  <C>   <C>     <C>                                            <C>
Stephen              2004  324,477 125,000                                        25,422(1)
Levine, CEO          2005  309,616 100,000                                        20,422(2)
                     2006  309,616  90,000                                        20,422(2)

Manfred (Fred)       2004  120,923 120,000                                        12,231(3)
Salomon,             2005  115,385 100,000                                        10,500(3)
President            2006  115,385  90,000                                        10,500(3)

Susan Levine,        2004  195,517  50,000                                        18,580(4)
Secretary            2005  186,562  40,000                                        18,006(5)
                     2006  186,562  36,000                                        18,006(5)
</TABLE>

      (1)  Represents 401(k) matching funds of $16,000, long-term disability
           policy of $2,427 and a life insurance policy of $6,995.
      (2)  Represents 401(k) matching funds of $11,000, long-term disability
           policy of $2,427 and a life insurance policy of $6,995.
      (3)  Represents 401(k) matching funds.
      (4)  Represents 401(k) matching funds of $11,574, long-term disability of
           $2,251 and a life insurance policy of $4,755.


                                       26
<PAGE>

      (5)  Represents 401(k) matching funds of $11,000, 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
           2004 wages are higher than 2005 and 2006 due to our bi-weekly
           processing of payroll and the timing of payments.


      During the fiscal years ended December 31, 2006 and 2005, we did not grant
any stock options to executive officers. Options granted in 2003 are included in
the table below:

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

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


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

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

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

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

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

REMUNERATION PAID TO DIRECTORS

      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 will compensate our independent director $1,500 per
meeting attended.

EMPLOYMENT AGREEMENTS

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

EMPLOYEE BENEFITS

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

                                       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 of the
optionee's death or disability. Options granted under the 1998 Incentive Stock
Option Plan are not generally transferable by the optionee except by will or the
laws of descent and distribution and generally are exercisable during the
lifetime of the optionee only by such optionee. The Board of Directors has
authority to grant options under the 1998 Incentive Stock Option Plan to
non-officer employees (including outside directors) of the Company and
consultants to the Company at an exercise price not 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 $76,000 and $94,000, for the years ended December 31, 2006 and
2005, respectively. The decrease 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


                                       28
<PAGE>

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.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table provides information as of December 31, 2006
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.

------------------------------------------------------------------------------
                   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
common stock       2300 North Loop Road                99,750(5)        .7%
                   Alameda, CA  94502

$0.001 par value   Steven N. Bronson
common stock       100 Mill Plain Road                743,733(6)         5%
                   Danbury, CT  06811

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


      (1)  Where persons listed on this table have the right to obtain
           additional shares of Common Stock through the exercise of outstanding
           options or warrants or the conversion of convertible securities
           within 60 days from December 31, 2006, 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 14,521,605 shares outstanding on March 15,
           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.
      (6)  Based on information reported by Mr. Bronson on Schedule 13D on
           January 4, 2006. We have not been informed of any changes to Mr.
           Bronson's holdings since that date.

                                       29
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

      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

                                       30
<PAGE>

* Incorporated by reference to the corresponding Exhibit previously filed as an
Exhibit to Registrant's Form 10-SB (File #0-27227).
** Incorporated by reference to the corresponding Exhibit previously filed with
Registrant's Form 10-KSB on March 31, 2003.
***Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on
Form 8-K filed on January 4, 2005.
# Registrant requested confidential treatment pursuant to Rule 406 for a portion
of the referenced exhibit and separately filed such exhibit with the Commission
in conjunction with the filing of its registration statement of Form 10-SB.

(b) Form 8-K Reports

      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, 2006 and 2005. 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, 2006 and 2005
was $52,000 and $44,700, respectively.

Audit-Related Fees

      None.

Tax Fees

      The aggregate fees billed for tax compliance rendered by our independent
auditors for the both years ended December 31, 2006 and 2005 was $6,000.

All Other Fees

      None.
                                       31
<PAGE>

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, 2006 and 2005. Our independent auditors did not provide us with any
non-audit services during the periods indicated above.


                                       32
<PAGE>

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

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

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

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

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

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

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


                                       F1
<PAGE>

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

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

We have audited the accompanying consolidated balance sheet of Allergy Research
Group, Inc., a Florida Corporation, and Subsidiary (the "Company") as of
December 31, 2006 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the two preceding years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2006, and the consolidated results of their
operations and their cash flows for the periods indicated above, in conformity
with generally accepted accounting principles in the United States of America.



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

March 13, 2007

                                       F2
<PAGE>

<TABLE>
<CAPTION>
                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2006

<S>                                                                 <C>
ASSETS
------
Current assets
   Cash and cash equivalents                                        $ 3,159,403
   Accounts receivable, net of allowance for
       doubtful accounts of $45,000                                     818,738
   Inventories (Note 3)                                               3,077,124
   Prepaid income taxes (Note 10)                                        90,923
   Prepaid expenses and other current assets                            204,342
                                                                    -----------
Total current assets                                                  7,350,530
                                                                    -----------

Property and equipment, net of accumulated depreciation
     of $1,163,646 (Note 4)                                             504,050
                                                                    -----------

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

TOTAL ASSETS                                                        $ 7,867,760
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
   Accounts payable                                                 $   148,805
   Accrued expenses (Note 6)                                            236,907
   Income taxes payable (Note 10)                                        11,958
   Deferred tax liability (Note 10)                                      40,387
                                                                    -----------
Total current liabilities                                               438,057
                                                                    -----------

Commitments and Contingencies (Note 11)

Stockholders' equity
Preferred stock:  $0.25 par value, authorized: 1,000,000
     issued and outstanding:  None                                         None
Common stock: $0.001 par value, authorized shares: 100,000,000;
     issued: 15,105,355, outstanding: 14,521,605                         15,105
Additional paid-in capital                                            1,150,641
Retained earnings                                                     6,542,494
Less:  treasury stock, at cost (583,750 shares)                        (278,537)
                                                                    -----------
Total stockholders' equity                                            7,429,703
                                                                    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 7,867,760
                                                                    ===========


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

                                       F3
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                         CONSOLIDATED INCOME STATEMENTS
                 FOR THE YEARS ENDED DECMEBER 31, 2006 AND 2005

                                                         2006           2005
                                                      -----------    -----------

Net sales                                             $16,273,465    $15,911,221
Costs of sales                                         10,193,737      9,645,293
                                                      -----------    -----------
Gross margin                                            6,079,728      6,265,928
                                                      -----------    -----------

Operating expenses
   Selling, general and administrative                  4,193,887      4,160,007
   Research and development                               257,691        304,516
                                                      -----------    -----------
Total operating expenses                                4,451,578      4,464,523
                                                      -----------    -----------

Earnings from operations                                1,628,150      1,801,405
                                                      -----------    -----------

Other income (expense)
   Interest income                                        134,024         64,317
   Interest expense                                            --             --
                                                      -----------    -----------
Total other income (expense)                              134,024         64,317
                                                      -----------    -----------

Earnings before income taxes                            1,762,174      1,865,722

Provision for income taxes (Note 10)                      666,198        656,853
                                                      -----------    -----------

Net earnings available to common stockholders         $ 1,095,976    $ 1,208,869
                                                      ===========    ===========

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

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


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

                                       F4
<PAGE>

                                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005


                                             COMMON       COMMON     ADDITIONAL
                              PREFERRED       STOCK       STOCK       PAID-IN      RETAINED     TREASURY
                                STOCK        SHARES       AMOUNT      CAPITAL      EARNINGS       STOCK        TOTAL
                              -----------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004            --   15,105,355   $   15,105   $1,149,705   $4,237,649   $ (279,601)   $5,122,858
Exercise of employee stock
     options [5,000 shares]           --           --           --          936           --        1,064         2,000
Net earnings                          --           --           --           --    1,208,869           --     1,208,869
                              -----------------------------------------------------------------------------------------

BALANCE, DECEMBER 31, 2005            --   15,105,355       15,105    1,150,641    5,446,518     (278,537)    6,333,727
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
                              =========================================================================================


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

                                                       F5
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

                                                            2006            2005
                                                         -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net earnings                                             $ 1,095,976    $ 1,208,869
                                                         -----------    -----------
Adjustments to reconcile net earnings to net cash
     provided by operating activities:
     Depreciation                                             72,308         93,425
     Gain on Disposal of fixed assets                             --         (4,650)
     Change in deferred taxes                                 21,683         18,704
Changes in assets and liabilities
     (Increase) decrease in accounts receivable              136,205       (196,875)
     (Increase) decrease in inventories                     (503,512)       (23,297)
     (Increase) decrease in prepaid expenses and other
          current assets                                     (18,593)       (17,539)
     Increase (decrease) in accounts payable                (125,837)       (65,573)
     Increase (decrease) in accrued liabilities               29,084        (99,877)
     Increase (decrease) in income taxes payable             (22,762)       (70,698)
                                                         -----------    -----------
Net cash flows provided by operating activities              685,010        842,489
                                                         -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
     Acquisition of property and equipment                   (13,431)      (543,971)
     Proceeds from sale of property and equipment                 --         12,850
     Repayments from officers                                     --         28,818
                                                         -----------    -----------
Net cash flows used in investing activities                  (13,431)      (502,303)
                                                         -----------    -----------

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

Increase in cash and cash equivalents                        671,579        342,186
Cash and cash equivalents, beginning of year               2,487,824      2,145,638
                                                         -----------    -----------
Cash and cash equivalents, end of year                   $ 3,159,403    $ 2,487,824
                                                         ===========    ===========

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

     Income taxes                                        $   650,549    $   754,182
                                                         ===========    ===========

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

                                       F6
</TABLE>
<PAGE>

                   ALLERGY RESEARCH GROUP, INC. AND SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

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

DESCRIPTION OF BUSINESS

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

The Company sells its products directly to consumers and to medical,
professional and retailers, and through distributors who sell products to
professionals and retailers. The Company develops, contract manufactures,
markets and sells its own brand of products, including vitamins and nutritional
supplements, throughout the world under the NutriCology(R) and Allergy Research
Group(R) labels, and distributes third-party products under these brands
representing approximately 20% of its total products. The Company offers a line
of approximately 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

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

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

BUSINESS SEGMENT INFORMATION - The Company operates in one industry segment:
developing, marketing and distributing natural nutritional supplements. The
Company's sales are primarily to distributors (50%) and to health care
professionals and health food stores (38%) throughout the United States. The
Company has one customer that accounts for approximately 11% (2005: 12%) of its
sales, or $1,848,000 (2005: $1,831,000) in sales dollars.

USE OF ESTIMATES - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Management makes its best estimate of the ultimate
outcome for these items based on historical trends and other information
available when the financial statements are prepared. Changes in estimates are
recognized in accordance with the accounting rules for the estimate, which is
typically in the period when new information becomes available to management.
Actual results could differ from those estimates.

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

                                       F7
<PAGE>

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

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

(b) Sales and Accounts Receivable - The Company has one customer that accounted
for approximately 11% of sales in 2006 (2005: 12%) and two customers (2005:
three customers) that individually accounted for more than 10% of total accounts
receivable at December 31, 2006.

(c) Purchases - The Company purchases raw materials and uses outside vendors for
the manufacture of products. The Company has two vendors (2005 three vendors)
that individually accounted for more than 10% of total vendor purchases,
representing approximately 42% (2005: 32%) of the Company's manufacturers and
suppliers of raw materials.

(d) Product - The Company has one product in 2005 and none in 2006 that
individually accounts for more than 10% of its sales dollars.

(e) Geographic Information - During the years ended December 31, 2006 and 2005,
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.

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

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

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

REVENUE RECOGNITION - Revenue is recognized when the product is shipped and the
risks and rewards of ownership have transferred to the customer. The Company
recognizes shipping and handling fees as revenue, and the related expenses as a
component of cost of sales. All internal handling charges are charged to
selling, general and administrative expenses. Revenues are presented net of
returns and allowances. Sales returns, discounts and allowances for 2006 and
2005 were $1,514,533 and $1,441,122, respectively.

                                       F8
<PAGE>

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

COST RECOGNITION - Cost of sales includes all direct material and labor costs
and those indirect costs of bringing raw materials to sale condition, including
shipping and handling costs. Selling, general and administrative costs are
charged to operating expenses as incurred. Research and development costs are
charged to operations when incurred and are included in operating expenses.
Research and development costs totaled $257,691 for 2006 (2005: $304,516).

ADVERTISING COSTS - Advertising costs are expensed as incurred and totaled
$62,745 in 2006 (2005: $79,586).

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

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

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

                                                          2006          2005
                                                       -----------   -----------
Numerator: net earnings                                $ 1,095,976   $ 1,208,869

Denominator:
  Weighted-average shares used to compute basic EPS     14,521,605    14,516,824
  Dilutive potential common shares                         178,795       188,638
                                                       -----------   -----------
  Weighted-average shares used to compute diluted EPS   14,700,400    14,705,462

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

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

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, including employee stock options and shares
issued through its employee stock purchase plan, 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, compensation expense is recorded on the date of


                                       F9
<PAGE>

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

RECENT ACCOUNTING PRONOUNCEMENTS - During 2006, the Financial Accounting
Standards Board ("FASB") issued the following recent accounting pronouncements:

In July 2006, the FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for
Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition. FIN 48 is effective
for years beginning after December 15, 2006 and is not expected to have any
significant impact on our financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, "Accounting for Fair Value
Measurements." SFAS No. 157 defines fair value, and establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosure about fair value measurements. SFAS No. 157 is effective for
the Company for financial statements issued subsequent to November 15, 2007 The
Company does not expect the new standard to have any material impact on its
financial statements.

In September 2006, the FASB issued FASB Statement No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans." This
Statement requires an employer to recognize the over funded or under funded
status of a defined benefit post retirement plan (other than a multiemployer
plan) as an asset or liability in its statement of financial position, and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income. The Company does not expect that the
implementation of SFAS No. 158 will have any impact on its 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 "Landlord"). The leased premises consist of
approximately 29,821 square feet of office and industrial space. The lease,
which has a term of ten years with options to renew for two subsequent periods


                                      F10
<PAGE>

of ten and five years, respectively, has a base monthly rent of $24,000 for the
initial period, $30,000 for the first option period and $35,000 for the second
option period. Rent will be adjusted annually during the second five years of
each 10-year lease period based on the consumer price index, with a minimum
increase of three percent. No security deposit was required under the lease.
(See Note 11)


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

Inventories consist of the following:

Raw materials                                                       $ 1,993,200
Finished goods                                                        1,002,162
Supplies                                                                131,762
Reserve for obsolescence                                                (50,000)
                                                                    -----------
Total                                                               $ 3,077,124
                                                                    ===========


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

Property and equipment consist of the following:

Machinery and equipment                                               $  736,244
Office equipment                                                         211,501
Furniture and fixtures                                                   152,662
Computer equipment                                                        87,323
Computer software                                                         77,064
Leasehold improvements                                                   402,902
                                                                      ----------
Total                                                                  1,667,696
Less accumulated depreciation                                          1,163,646
                                                                      ----------
Net book value                                                        $  504,050
                                                                      ==========

Depreciation expense charged to operations for 2006 was $72,308 (2005: $93,425).


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

Intangible assets consist of the following:

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

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

                                      F11
<PAGE>


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

Accrued expenses consist of the following:

Accrued expenses                                                         157,928
Accrued vacation                                                          46,000
Accrued payroll                                                           26,849
Accrued sales tax                                                          6,130
                                                                        --------
                                                                        $236,907
                                                                        ========


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 2006 approximated
$76,000 (2005: $94,000). 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
stock option and stock purchase plans. From inception of the plan through
December 31, 2002, the Company repurchased 383,250 shares of common stock for
$81,573. On May 12, 2003, all of the repurchased shares of common stock were
granted to employees under the 1998 Stock Option Plan. During December 2003, the
Company repurchased 250,000 shares of common stock from its Chief Executive
Officer for $207,500. Total shares held in treasury are 583,750 of which 333,750
shares remain unexercised under stock option grant agreements.

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

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

                                      F12
<PAGE>

The following is a summary of stock option transactions:

                                                                   WEIGHTED-
                                                 SHARES UNDER       AVERAGE
                                                    OPTION       EXERCISE PRICE
                                                 ------------    --------------
OUTSTANDING AT 12/31/04                               338,750              0.40
Exercised                                              (5,000)            (0.40)
Forfeited                                                  --                --
Granted                                                    --                --
                                                 ------------    --------------
OUTSTANDING AT 12/31/05                               333,750    $         0.40
Exercised                                                  --                --
Forfeited                                                  --                --
Granted                                                    --                --
                                                 ------------    --------------
OUTSTANDING AT 12/31/06                               333,750    $         0.40
                                                 ============    ==============

Options outstanding and exercisable at December 31, 2006 were 333,750
exercisable at $0.40 per share. The weighted-average exercise price of options
outstanding and exercisable at December 31, 2006 was $0.40 per share and the
weighted-average remaining contractual life was 1.4 years.

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

THE COMPONENTS OF PROVISION FOR INCOME TAXES ARE AS FOLLOWS:

                                                          2006           2005
                                                        ---------     ---------

U.S. federal income tax - based on income                 486,650       559,222
State taxes - based on income                             157,865        78,927
Change in deferred taxes - federal                         17,641        25,263
Change in deferred taxes - state                            4,042        (6,559)
                                                        ---------     ---------
                                                        $ 666,198     $ 656,853
                                                        =========     =========

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

                                                               2006       2005
                                                             ---------   ------

Statutory U.S. federal income tax rate                           34.0%    34.0%
State income taxes, net of related federal income tax benefit     9.0%     4.2%
Other                                                            (5.2)%   (3.0)%
Changes in the valuation allowance                               --       --
                                                             ---------   ------
Income tax expense - effective rate                              37.8%    35.2%
                                                             =========   ======
PREPAID INCOME TAXES CONSIST OF THE FOLLOWING:

U.S. federal income taxes                                    $  72,590
California state taxes                                          18,333
                                                             ---------
                                                             $  90,923
                                                             =========


                                      F13
<PAGE>

INCOME TAXES CURRENTLY PAYABLE CONSIST OF THE FOLLOWING:

U.S. federal income taxes - based on income                              $    --
NY state taxes - based on income                                          11,958
                                                                         -------
                                                                         $11,958
                                                                         =======


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

                                                         2006            2005
                                                       --------        --------
DEFERRED TAX ASSETS:
--------------------
Net operating loss carryforwards                       $     --        $ 22,500
Valuation allowance                                          --         (22,500)
                                                       --------        --------
Net deferred tax asset                                       --              --


DEFERRED TAX LIABILITIES:
-------------------------
Depreciation                                             40,387          18,704
                                                       --------        --------

Net deferred tax liability                             $ 40,387        $ 18,704
                                                       ========        ========

The deferred tax consequences of temporary differences in reporting items for
financial statement and income tax purposes are recognized, as appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income within the net operating loss carryforward period. Management has
considered these factors in reaching its conclusion as to the valuation
allowance for financial reporting purposes. The valuation allowance for 2005 was
$22,500, representing the effect of state net operating loss carryforwards at
the parent company level that does not generate income. Accordingly, the Company
fully reserved against its deferred tax asset, since it did not believe
realization was likely. The Company has fully utilized all of its federal and
state net operating loss carryforwards as of December 31, 2006.


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

OPERATING LEASES, FACILITY MOVE AND RELATED OBLIGATIONS

During February 2005, the Company moved to a new main administrative office and
warehouse located in Alameda, California, and entered into a non-cancelable
operating lease with AriBen Corporation, a related party, (the "Landlord"). (See
Note 2) In connection with the move, the Company was responsible for reimbursing
the Landlord for tenant improvements on the property, which was built out to the
Company's specifications. The improvements were completed in February 2005 and
$350,000 was paid to the Landlord. Rent expense charged to operations during the
2006 was $288,000 (2005: $294,000).

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 8.07% on December 31, 2006.
The line of credit is secured by substantially all of the assets of the Company
and is personally guaranteed by the CEO of the Company (the personal guarantee
was dropped on February 1, 2007). The line of credit expires on November 30,
2007.

                                      F14
<PAGE>

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, 2006, the Company had inventory purchase obligations
approximating $1,846,000, 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. No adjustments were made to our consolidated
financial statements for the outcome of this uncertainty.

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.


                                      F15
<PAGE>

                                   SIGNATURES

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


                                           ALLERGY RESEARCH GROUP, INC.



Date: March 29, 2007                       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 29, 2007                       By: /s/ Stephen A. Levine
                                               ---------------------------------
                                           Stephen A. Levine, Ph.D., CEO, CFO
                                           and Director



Date: March 29, 2007                       By: /s/ Susan D. Levine
                                               ---------------------------------
                                           Susan D. Levine, Director


Date: March 29, 2007                       By: /s/ Ed Kane
                                               ---------------------------------
                                           Ed Kane, Director



                                       33