SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


                  Annual report pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                  For the fiscal year ended December 31, 1998.
                         Commission file number 0-19409

                               SYNERGY BRANDS INC.

             (Exact name of registrant as specified in its charter)

                               DELAWARE 22-2993066
                    (State of incorporation) (I.R.S. Employer
                               Identification No.)

                            40 Underhill Blvd.
                                Syosset, NY 11791
                    (Address of corporate offices)

        Registrant's telephone number, including area code: 516-682-1980

             Securities registered pursuant to Section 12(b) of the
                                      Act:

                      Title of Each Class Name of Exchange

              Common Stock, $.001 par value NASDAQ/Small-Cap System
                            and Boston Stock Exchange


     Indicate  by check mark  whether the  registrant  (1) has 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__

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]

     On March 26,  1999,  the  aggregate  market  value of the  voting  stock of
Synergy Brands Inc.,  held by  non-affiliates  of the  Registrant  (based on the
closing  price as  reported  on the  NASDAQ  for  March  26,1999)  approximately
$30,253,413.  This  determination  of  affiliate  status  is not  necessarily  a
conclusive determination for other purposes. The number of outstanding shares of
the Registrant's Common Stock as of March 26, 1999 was 8,598,757.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy  Statement for  Registrant's  1998 Annual  Meeting of
Stockholders to be held June 1999 are incorporated by reference in Part III (for
other documents incorporated by reference -refer to Exhibit Index at page )

                                      -1-

<PAGE>

                                     PART I

     Other  than  historical  and  factual  statements,  the  matters  and items
discussed  in this report on Form 10-KSB are  forward-looking  information  that
involves  risks and  uncertainties.  The  Company's  actual  results  may differ
materially from the results discussed in the forward-looking statements. Factors
that could contribute to such  differences are discussed in the  forward-looking
statements  and are  summarized  in  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations - Forward-Looking  Information and
Cautionary Statements."

ITEM 1.  BUSINESS

A.       OVERVIEW

     Synergy Brands Inc.  ("Synergy")through its subsidiaries  (collectively the
"Company")  markets  national  brand  name  consumer  products  to  numerous  US
retailers and  wholesalers as well as developing and selling  proprietary  brand
consumer products to and through the same marketing channels.

     In 1998 the Company expanded its product marketing efforts and potential by
establishing an array of internet sites linked to and available through multiple
search  engines to afford  access to  purchase of its  products  directly by the
consumer.  With the addition of internet  access many of the Company's  products
are now  available  for retail  purchase  as well as the  traditional  wholesale
distribution  historically  offered by the  Company.  Internet  sales  presently
include  health  and  beauty  aid  (HBA),  salon  products  and  cigar  products
previously  and  traditionally   offered  by  the  Company  through  alternative
marketing  channels as well as an array of more recently added consumer products
including  fragrances  and cosmetics and skin care  products.  These  additional
products are offered for sale by the Company  through its internet sales network
as well as the Company's historical wholesale distribution channels.

     Such  businesses of Synergy are  segmented,  managed and conducted  through
corporate  subsidiaries whose stock is wholly or majority owned by Synergy , and
the results of whose businesses are consolidated for reporting purposes with the
financial  statements of Synergy . The Company operates its core grocery and HBA
product sale and distribution  business though three  subsidiaries New Era Foods
Inc., Synergy Brands  Distribution Inc., and Island Wholesale Groceries Inc. The
Company's  other  current   subsidiaries   include   NetCigar.Com  Inc.,  (cigar
products), PHS Group Inc. (salon quality hair and skin care products),  SYBR.Com
Inc. (internet sales), and Premium Cigar Wrappers Inc.  (procurement and sale of
raw tobacco for cigar production).  Of these,  Synergy Brands Distribution Inc.,
SYBR.Com Inc., and NetCigar.Com Inc. were formed in 1999.

                                      -2-

<PAGE>


     Historically  the  Company has  developed  business  relationships  through
contacts made with  manufacturers  and the  establishment of sources thereby for
sale of its  grocery and HBA  products  on a wholesale  basis with sales made in
bulk from inventory  stored in various  warehouses.  The business  conducted was
expanded  through  adding more  wholesale  and retail  outlets for resale of the
Company  goods as the Company  became more  recognized  in its area of business.
Products  were  purchased  from  the  manufacturer  by the  Company  in bulk and
warehoused in the New York  metropolitan  area for the Company until anticipated
sale of such goods  could  transpire.  Cigar  sales have been  manufactured  for
retail  outlets for further sale to the consumer from product  warehoused by the
Company in the US and Dominican Republic.

     With the onset of the internet,  the potential for low cost mass  marketing
has become  available  and the Company has extended  itself into such  marketing
direction by  establishing  its presence on the  internet.  The Company  through
subsidiaries  has  established  web sites on the internet for retail sale of its
health and beauty care,  cosmetics  and  fragrance  products,  and for its cigar
products  directly to the consumer (see  "Information  Systems",  infra for more
detailed discussion in this area).

THE COMPANY'S  CORPORATE OFFICE IS LOCATED AT 40 UNDERHILL BLVD.,  SYOSSET,
NEW YORK 11791, AND ITS TELEPHONE NUMBER IS (516) 682-1980.

B.       INTERNET SALES

         1.   BEAUTYBUYS.COM.

     In 1999 the  Company  established  under  the  tradename  BeautyBuys.Com  a
website to offer direct to the consumer  via internet  sales on a  non-exclusive
basis a popular selection of nationally branded health and beauty care products,
including  professional salon hair and skin care items,  designer fragrances and
cosmetics,  and consumer health and beauty care products manufactured by Proctor
& Gamble,  previously  and  continuing  to be sold by the Company as part of its
traditional grocery and HBA product wholesale distribution business. The Company
has also established web site presence with other internet portals including the
globe.com,  Lycos.com  and  women.com  and is striving to further  expand onto a
broader array of internet sites. This aspect of the Company's business currently
accounts for only a minor percentage of its product sales income but is expected
to expand in the coming  year and to become a material  aspect of the  Company's
business in the future.

                                      -3-

<PAGE>


          2.  NETCIGAR.COM

     In the latter part of 1998,  the Company  announced  its plan to  establish
NetCigar.com as a web site for sale of cigar products,  which is administered by
the Compnay's  subsidiary of similar name.  Via its  NetCigar.com  web site, the
Company  will  offer  information  and  sales on a variety  of cigars  and cigar
related products and content, including cigar news and events, editorials, cigar
reviews,  cigar chat rooms and a array of cigars and cigar  products of both the
Company's propietary labels and other popular brands.

          3.  FUTURE INTERNET SITES.

     In the near  future,  the  Company  intends to expand the  product  base it
offers in retail sales over the Internet.  These porducts would include  certain
grocery and seafood items  currently  sold by the Company  through its wholesale
distribution   network  and  new  products  whose  feasibility  the  Company  is
exploring, such as vitamins and liquor.

C.       WHOLESALE PRODUCT DISTRIBUTION AND SALE

          1.  PROMOTIONAL GROCERY AND HBA PRODUCT SALES.

     The Company  continues to expand its traditional core business of wholesale
trade in promotional grocery and HBA products. Since 1989 the Company has been a
distributor  of  promotional  grocery  and  HBA  products.  Such  aspect  of the
Company's  business  involves  the  purchase  and resale by and on behalf of the
Company of grocery and HBA products  promoted by the  manufacturers  and thereby
available for resale at discounted prices which the Company resells at wholesale
prices to  retailers  who  qualify  for  promotional  allowances  offered by the
manufacturers  of such goods,  and the Company  then  collects  the  promotional
rebates and other cash incentives offered by the manufacturers. This core aspect
of the  Company's  business  presently  accounts  for  approximately  50% of the
Company's gross sales.

          2.  HEALTH AND BEAUTY AIDS WHOLESALE DISTRIBUTION.

     The Company presently buys health and beauty aid products at wholesale from
the manufacturer  and resells same to retail and other wholesale  establishments
mainly in the Northeastern US. The product source most often utilized is Proctor
& Gamble with whom the Company has a long standing relationship.  This aspect of
the Company's business presently accounts for approximately 25% of the Company's
gross sales.

                                      -4-

<PAGE>


          3.  SALON HAIR AND SKIN CARE PRODUCTS.

     The  Company  services  on a direct  store  basis  several  drug  store and
supermarket  chains in the  Northeast  United  States and numerous  other retail
outlets for the sale of Salon quality hair and skin care  products  available to
the Company through  contacts made in the industry at what the Company  believes
are very advantageous prices for bulk purchases.  Similar products are also made
available to be sold by the Company  direct to the  consumer via internet  sales
(see "B.  Internet  Sales"  supra).  In this product area the Company stocks the
designated store shelves on the design of the Company's  planogram which service
the Company offers at no additional charge which aspect of their sales helps the
Company maintain the client as long as the Company remains aware of and remedies
deficiencies  in product  shelf storage as it occurs.  The Company  entered this
business in the last quarter of 1998.

          4.  DISTRIBUTION OF PREMIUM CIGARS.

     The Company sells premium hand made cigars manufactured in and from tobacco
grown in the  Dominican  Republic  directly  to the  consumer,  drug  stores and
supermarkets and to a variety of smaller individual and chain retail stores. The
Company's sales to retail outlets currently places their cigars in approximately
1000  locations for further sale,  as well as internet  sales (see "B.  Internet
Sales" supra).

     The  Company  has  exclusive  rights  to the  manufacture  of  and  private
proprietary labeling for its cigars through an exclusive  distribution agreement
with a Dominican Republic tobacco grower and manufacturer. The said manufacturer
owns and/or  exclusively  leases  sufficient land and factory  facilities in the
Dominican Republic capable of producing cigars at a capacity of at least 500,000
cigars per month. The distribution  agreement is for 25 years with an option for
another  25 years  for  worldwide  distribution  to  locations  directed  by the
Company.  There is a need in the cigar  production and sale business to purchase
raw tobacco material in advance due to lengthy curing  requirements that premium
cigars require. There is present tobacco inventory on hand for the production of
cigars for sale by the Company to produce  approximately  2,500,000 cigars.  The
Company is  developing  a unique  premium  wrapper for many of its cigars  being
grown in the  Dominican  Republic  known as Corojo  which is expected to enhance
cigars sales because of its similarities to wrappers produced from tobacco grown
in Cuba but not  allowed  to be sold in the  United  States.  The  Company  also
markets  proprietary  owned and  developed  humidors and other cigar storage and
smoking  apparatus and related products.  This aspect of the Company's  business
currently  accounts  for  approximately  5% of product  sales but is expected to
increase  significantly  with the  advent of and  further  progress  made in the
internet cigar sales.

          5.  FROZEN SQUID AND OTHER SEAFOOD.

     The Company maintains facilities for the processing of and access to frozen
squid in the Peoples  Republic of China (PRC) which is  available to the Company
through its  developed  relationship  with a Chinese  trading  partner,  and The
Company sells the squid in the  northeastern  United States through  established
wholesale  distribution channels accounts for approximately 15% of the Company's
current income from product sales.

                                      -5-

<PAGE>


D.       COMPETITION

     The Promotional  Products business and grocery/HBA  product sales generally
is a highly competitive,  fragmented business.  On a national level, the Company
does not  believe  that any single  wholesaler  or  retailer  has a  significant
percentage  of  market  share.  The  Company  competes  with a large  number  of
wholesalers  and  retailers  in the  industry,  many of whom have  substantially
greater financial resources than the Company. These competitors are able to make
larger volume  purchases and can finance  larger  inventories  than the Company.
Moreover,  some of these competitors will sometimes receive  preferential notice
of product promotions prior to the Company.  The Company seeks to compete in the
Promotional  and other  wholesale  Grocery/HBA  Products  distribution  industry
primarily  on the basis of price and service.  The Company  seeks to market fast
moving  items  and  purchase  them at the best  possible  prices  at  which  the
manufacturers sell such products;  the Company tries to take advantage of buying
opportunities and volume bracket discounts to streamline its available goods for
sale.  However,  the Company's  present resources do not allow it to buy in on a
significant  basis that some of its  competitors are able to do, which adversely
affects the Company's competitive position in those circumstances.

     The  Company  is  small  in  both  physical  and  financial  attributes  in
comparison to many of its competitors in the grocery industry and other business
areas in which it  participates,  and the Company also  competes with other more
substantial companies in the sale and distribution of frozen seafood,  including
squid,  although in this latter area of business the Company  believes it may be
among the largest  distributors of squid from China. The Company's knowledge and
experience in and devotion to its business,  receptiveness to general customers,
service,  and its  exclusivity  arrangement  with a major Chinese trading entity
should  continue to benefit its  operations  and continue to allow it to compete
with its more financially endowed competitors

     The cigar  distribution  industry in general is dominated by a small number
of large companies which are well known to the public. Management believes that,
as a distributor of premium handmade cigars, the Company competes with a smaller
number of primarily regional distributors,  including Southern Wine and Spirits,
Specialty Cigars, Inc., Cohabico and Old Scottsdale Cigar Company, Inc. and many
other small and large  tobacco  distributors  and  jobbers.  A number of larger,
well-known  cigar  manufacturing  and  wholesale  companies,  along  with  major
cigarette manufacturers,  have not yet entered the retail distribution market to
any  appreciable  degree,  but may do so in the future.  Competitors  include JR
Cigar Company, Inc., Consolidated Cigar Corporation, Culbro Corporation, General
Cigar  Company,  Swisher  International  Inc.,  Caribbean  Cigar  Company and US
Tobacco.  The Company has  targeted  what it feels is a unique  market with less
competition  by  selling  premium  cigars  through  supermarkets  and chain drug
stores,  locations to whom other  products of the Company also are sold,  and to
other small retail chain stores.  Many existing and potential  competitors  have
larger  resources than the Company and would, if they enter the premium handmade
cigars distribution market,  constitute formidable competition for the Company's
business.  There can be no assurance that the Company will compete  successfully
in any market.

                                      -6-

<PAGE>


     In the Salon Hair and Skin care product  market and that for fragrances and
cosmetics the primary thrust of the business, as the Company perceives it, is to
secure market share which once  established  can be maintained with good service
and  maintenance  of  competitive  pricing.  The Company in most instances is in
charge of a section  within each store where the  products are to be shelved for
sale and the Company is expected to keep such shelves full.  Once the particular
stores are acquired as clients and the service and price levels are  maintained,
it is difficult to lose the account.  However,  special circumstances beyond the
Company's control such as acquisitions, other financial events, among others may
cause the Company to lose customers.

     In  internet  sales  the  Company  competes  to  obtain  its  product  from
manufacturers also supplying competing distributors, but there is no security of
product placement as with sale to retail outlets; the leveling factor appears to
be service and  exposure on the  internet.  The Company is striving for expanded
internet  exposure and prides  itself in offering  good prices and service.  The
expanding  presence  of the  Company  on the  Internet  should  act as a further
balancing  factor  because of the  enhancement  of selling  efforts  such allows
without  the need for any  corresponding  expansion  of the  Company's  physical
business facilities and personnel.

E.       INFORMATION SYSTEMS

          1. INTERNET

     The various web sites established for sale of the Company's products are of
multi-tier  construction to allow for ease of administration and record keeping,
and  recorded  reaction  to the sites are used by the  Company to further  their
marketing  efforts.  Presently  the Company's  product sale  internet  sites are
accessible by link to various  servers by being included as specific  advertised
sites on such  servers  websites and also by being  included in general  product
categories  which  might be sought by the  consumer  in  search of  sources  for
products in such categories whereby the potential customer will find the Company
listed as a source  having such  products  available  for sale when one accesses
such product area  information  from the internet  server being utilized to surf
the net.  Behind the screen  visible to the consumer when visiting the Company's
various  product  category  websites are internet based marketing and accounting
information  programs  to allow  the  Company  to review  interest  shown in its
websites  and account for sales made  therefrom.  The Company has access to such
information and these behind the scene programs and services are provided to the
Company  through  various  agreements  the  Company has with  internet  servers,
providers and  administrators  and much of the programs utilized to perform such
administrative functions have been designed specifically for the Company and are
proprietary  to them.  The  Company  also  anticipates  in the future to procure
advertising  on  its  own  websites  as an  additional  source  of  income,  and
eventually to establish its own server for direct access to its internet  sites.
The Company also maintains its own websites regarding information on the Company
as a public entity and its various business interests.  Internet sites presently
available for review regarding Company business and product sales are:

                                 BeautyBuys.com
                                  NetCigar.com
                                 GranReserve.com
                                SynergyBrands.Com

                                      -7-

<PAGE>


     The  Company  has  utilized  several  internet  design  firms to assist the
Company in developing internet web sites in the differing areas of the Company's
product sales.  Much of the design work is  proprietary  to the Company,  having
been  developed  especially  to  accommodate  the specific  marketing and record
keeping  needs  voiced by the  Company.  The  Company  is  utilizing  up to date
technologies in site design,  tracking systems and affiliated programs including
EXCITE, ColdFusion, Domino, BFAST, Exodus Communication and web crossing.

     Regarding   BeautyBuys.Com  internet  salon  quality  hair  and  skin  care
products,  fragrances and cosmetics  product  sales,  the Company has contracted
with Visualink Technologies Inc. (www.visualink.com) to assist in developing the
website.

     Regarding  the  NetCigar.Com  internet  cigar product sales the Company has
contracted with The Sphere Information Services,  Inc.  (www.thesphere.com)  for
the development of its on-line site.

     The Company utilizes a proprietary computerized data base management system
which  collects,  integrates and allows for analysis of data  concerning  sales,
order processing,  shipping, purchasers,  receiving,  inventories, and financial
reporting.  At any given time the Company is able to  determine  the quantity of
product stored by item, Company costs, age and other  characteristics  necessary
for expeditious  distribution.  The system has been upgraded to be Y2K compliant
and  provides  for  system  networking  of the  Company's  various  offices  and
warehousing and allows for on-line transnational reporting capabilities.

F.   SEASONALITY

     Seasonality  affects the demand for certain of the grocery products sold by
the Company such as juice drinks in the summer months or hot cereals in the fall
and winter  months;  however,  all these  products are  available to the Company
throughout the year.  Manufacturers also tend to promote more heavily toward the
close of their fiscal  quarters  and during the spring and early summer  months.
Accordingly,  the  Company  is  able  to  purchase  more  product  due to  these
promotions.  The Company generally  experiences lower sales volume in the fourth
quarter  due to the  reduced  number of  selling  days  resulting  from the high
concentration of holidays in that quarter.

     Seasonality  also  affects  the squid  market  (and  seafood in general) of
products  originating in China.  Because of time and locality  differences,  the
optimum  timing for catching the seafood and the most popular  times for re-sale
in the United States differ  significantly and such requires that the seafood be
delivered and stored frozen, in many cases for a significant time. Purchases and
sales are likely to be affected thereby.

                                      -8-

<PAGE>


     Sales of beauty care products and  fragrances  increases  over  traditional
gift giving holidays such as Christmas,  Easter, Mother's Day, Father's Day, and
Valentine's Day.

     Cigar  products  sales also  increase  during  holiday  periods  and summer
months, but also sales spurts occur during periods of special sporting events.

G.        SHIPPING AND HANDLING

     Products are shipped in bulk from  inventory  maintained  by the Company at
its warehouse facilities by common carriers, unless alternative arrangements are
made to have the product  shipped  using another  service (eg postal  carrier or
UPS) the cost of which is added to the  acquisition  cost of the  product to the
purchaser.  Regarding internet sales the Company maintains certain inventory and
has  arrangements  to  purchase  other  products  for resale on a "just in time"
basis.  All orders are  consolidated  in a single  facility  and  shipped to the
customer  within 7 days  mainly by UPS.  Approximately  60% of  inventory  is in
warehouse  stock and 40% is  purchased  by the Company on an as needed  "just in
time"  basis.  The Company  does not own its trucks and is  dependent  on common
carriers in the  trucking  industry.  Although  the Company can call upon any of
several  hundred common  carriers to distribute its products,  from time to time
the trucking industry is subject to strikes or work stoppages,  which could have
a material  adverse effect on the Company's  operations if alternative  modes of
shipping are not then available.  Additionally, the trucking industry is subject
to various natural disasters which can close  transportation  lanes in any given
region of the  country.  To the extent  common  carriers are  prevented  from or
delayed in utilizing local  transportation  lanes, the Company will likely incur
higher freight costs due to the limited  availability  of trucks during any such
period that transportation lanes are restricted.

     The  Company  generally  purchases  Promotional  Grocery  Products  and HBA
products for its promotional business in truck-load quantities to take advantage
of better  pricing from the  supplier and lower  freight  costs.  The  Company's
traffic  department  then arranges for  transportation  of the product through a
computerized network of several hundred independent truckers coordinated through
its warehouse  operation.  The Company does not foresee  difficulty in arranging
additional  trucking  if it  increases  its  business  volume.  The  Company has
arranged for warehousing when and where  necessary,  on a contract basis and has
thereby eliminated the existence of and need for centralized warehousing.

H.       TRADEMARKS, LICENSES AND PATENTS

     The Company is not reliant  upon any  copyrights,  trademarks,  licenses or
patents in its  business.  The Company has  obtained a wholesale  pharmaceutical
license through the New York State Department of Education,  but to date has not
utilized it. Through its distribution  agreements,  the Company has US rights to
the "Tenda"  "Picolo" name in the marketing of seafood products and "Suarez Gran
Reserva", "Breton Legend",  "Anduleros",  "Don Otilio","Alminante"  "Nativo" and
various other trade names in marketing of premium handmade  cigars.  The seafood
trademarks are owned by ALT. The cigar tradenames are owed by Gran Reserve Corp.
The  Company  also  is  studying  the  advantages  and  marketing  potential  of
establishing  private  label sales in the health and beauty  aids and  cosmetics
business  areas to take  advantage  of certain  inroads  to these type  consumer
products the Company has  historically  located and developed.  The Company also
has  entered  multiple  licensing  and  production   agreements   regarding  the
establishment of internet sites for sale of the Company's products (see "Product
Marketing" infra). The Company has trademarked its websites on the internet.

                                      -9-

<PAGE>


I.       EMPLOYEES

     The Company as of the date of this report  employs  and  contracts  30 full
time/part  time  persons  all of of  which  work in  executive,  administrative,
marketing,  data processing,  accounting or clerical activities and certain work
as Company  employees that integrate with the various  warehouses  where Company
products  are  stored.  The  Company  does not  employ  any full time  warehouse
personnel  but rather  contracts  with the various  warehouses  for shipping and
logistical support. In the cigar distribution area there are nearly 25 employees
that work in the Dominican  Republic and in Miami,  Fla.  where cigars and cigar
products are grown, manufactured and warehoused, they either being in the employ
of Fabrica De Tobacco Valle Dorado, SA and /or of the Distributor  contracted by
the Company to carry out its distribution  obligations  contracted with Fabrica.
The Company also  utilizes  numerous  independent  commission  based brokers and
sales persons.

J.       YEAR 2000 ISSUE

     The Company's management  recognizes the need to ensure that its operations
and  relationships  with vendors,  and other third parties will not be adversely
impacted by software  processing errors arising from calculations using the Year
2000 and beyond.  Many  existing  computer  programs and  databases use only two
digits to identify a year in the date filed (i.e. 98 would  represent  1998). If
not corrected,  many computer systems could fail or create erroneous  results in
the year 2000.  The Company  believes  all of its internal  information  systems
currently  in use are Year 2000 ready.  The majority of the  Company's  critical
business applications have been developed internally, in the past year with Year
2000 ready tools. With respect to non-information technology systems issues, the
Company expects to identify,  assess and remedy, if necessary,  its building and
utility  systems for any Year 2000 issues relating to the  functionality  of its
facilities  during the first  half of 1999.  All  testing  and  remediation,  if
necessary, of non-information  technology systems is expected to be completed by
the summer of 1999.

     The  Company  has begun  communications  with its  vendors  and other third
parties to determine the extent that these related  systems may not be Year 2000
ready.   Because  the   Company  is  still  in  the  initial   stages  of  these
communications  the Company can not determine if such failures are possible and,
if so, the extent that such  failures  would impact the  Company.  If one of the
Company's primary suppliers were to have Year 2000 problems, it is possible that
these problems could have a material effect on the Company's operations.

     Management expects the total cost associated with Year 2000 identification,
remediation  and testing to be between $50,000 and $100,000 of which $50,000 was
spent in 1998.  The  expected  cost  represents  approximately  10% of the total
information  technology budget and includes all costs to be incurred through the
utilization of internal employees and consultants.

                                      -10-

<PAGE>


     Should any or all of the  applications  fail to perform properly on January
1, 2000, the Company will resort to temporary  manual  processing,  which is not
expected to have a material adverse impact on its short-term operations. Failure
to achieve Year 2000 readiness by any of the Company's  vendors,  while expected
to cause some  disruption to operations  in the  short-term,  is not expected to
have a material impact on the Company's operations.

K.  GOVERNMENT REGULATION

         1.  TOBACCO INDUSTRY REGULATION AND TOBACCO INDUSTRY LITIGATION

     Regulation. The tobacco industry is subject to regulation at federal, state
and local levels.  Federal law has recently required states, in order to receive
full funding for federal  substance  abuse block grants,  to establish a minimum
age of 18 years for the sale of tobacco  products,  together with an appropriate
enforcement  program.  The recent trend is toward  increasing  regulation of the
tobacco  industry,  and the  increase in  popularity  of cigars could lead to an
increase in regulation of cigars.

     In August 1996,  the Food and Drug  Administration  (the "FDA")  determined
that  nicotine  is a drug  and  that it had  jurisdiction  over  cigarettes  and
smokeless  tobacco  products,  as   nicotine-delivering   medical  devices,  and
therefore,   promulgated   regulations   restricting   and  limiting  the  sale,
distribution and advertising of cigarette and smokeless tobacco products. Cigars
were not included in the FDA's  regulations.  The  prohibition on retailers from
selling cigarettes,  cigarette tobacco or smokeless tobacco to persons under the
age of 18 and requiring  retailers to check the photographic  identification  of
every person under the age of 27 became effective on February 28, 1997.

     Additional  efforts by the FDA to  increase  regulation  over  tobacco  and
tobacco-related  products  have been  forestalled  by a recent  decision  in the
Fourth  Circuit of the U.S. Court of Appeals.  In August 1998,  that court ruled
that the FDA lacks jurisdiction to regulate tobacco products and struck down all
the  provisions  of the FDA's 1996  regulations.  Brown & Williamson v. FDA, 153
f.3d 155 (4th Cir. 1998). The Fourth Circuit denied a U.S. Department of Justice
petition for rehearing by the Panel or en banc.

     On January 19, 1999,  the Solicitor  General filed a petition for a writ of
cetiorari  requesting the U.S.  Supreme Court review the August 1998 decision of
The Fourth Circuit. A ruling on the petition is expected in the near future. The
FDA's age and  identification  regulations  will  remain in effect  pending  the
outcome of this litigation.

     The U. S.  Department of Health and Human  Services ( the "HHS")  Inspector
General issued a report in February 1999, urging the Federal Trade Commission to
require cigars to carry warning  labels similar to those  contained on cigarette
packages.  This report marks the first time that cigars have  specifically  been
identified for increased regulatory oversight by a federal health agency.

                                      -11-

<PAGE>


     While the cigar industry has not been subject to federal regulatory efforts
to date, there can be no assurance that there will not be an increase in federal
regulation in the future against cigar  manufacturers or  distributors.  The HHS
report   indicates  that  federal   regulatory   effort  directed  toward  cigar
manufacturers  and  distributors  may be increasingly  likely.  The costs to the
Company of increased government regulations could have a material adverse effect
on the Company's business and results of operation.

     In addition, the majority of states restrict or prohibit smoking in certain
public  places and  restrict  the sale of  tobacco  products  to  minors.  Local
legislative  and  regulatory  bodies  have also  increasingly  moved to  curtail
smoking by  prohibiting  smoking in certain  buildings  or areas or by requiring
designated  "smoking" areas. Further restrictions of a similar nature could have
an adverse effect on the sales or operations of the Company.  Numerous proposals
also have been  considered at the state and local level  restricting  smoking in
certain  public  areas,  regulating  point of sale  placement  and promotion and
requiring warning labels.

     Federal law has required  health  warnings on cigarettes  since 1965 and on
smokeless  tobacco  since  1986.  Although  there is no  federal  law  currently
requiring  that  cigars or pipe  tobacco  carry such  warnings,  California  has
enacted legislation  requiring that "clear and reasonable"  warnings be given to
consumers  who are exposed to  chemicals  known to the State to cause  cancer or
reproductive  toxicity,  including  tobacco smoke and several of its constituent
chemicals.  Violations  of this law,  known as  Proposition  65, can result in a
civil penalty not to exceed $2,500 per day for each violation.  Although similar
legislation has been introduced in other states, no action has been taken. There
can be no assurance that such legislation introduced in other states will not be
passed in the future or that other  states will not enact  similar  legislation.
Consideration  at both the  federal  and  state  level  also  has been  given to
consequences  of tobacco on others  that are not  presently  smoking  (so-called
"second-hand"  smoke).  There can be no assurance that  regulations  relating to
second-hand  smoke  will not be  adopted  or that such  regulations  or  related
litigation would not have a material adverse effect on the Company's  results of
operations or financial condition.

     The U.S. Environmental  Protection Agency (the "EPA") published a report in
January  1993 with  respect to the  respiratory  health  effects of  second-hand
smoke, which concluded that widespread  exposure to environmental  tobacco smoke
presents a serious  and  substantial  public  health  concern.  Issuance  of the
report,  which is based primarily on studies of passive cigarette  smokers,  may
lead to further  legislation  designed  to protect  non-smokers.  Also,  a study
recently  published in the journal  Science  reported  that a chemical  found in
cigarette  smoke has been  found to cause  genetic  damage in lung cells that is
identical to damage observed in many malignant tumors of the lung and,  thereby,
directly links lung cancer to smoking.  The study and these reports could affect
pending and future tobacco regulation and litigation.

                                      -12-

<PAGE>


     Increased  cigar  consumption  and the  publicity  that such  increase  has
received  may  increase  the  risk of  additional  regulation.  There  can be no
assurance  as to the  ultimate  content,  timing,  or effect  of any  additional
regulation of tobacco products by any federal,  state, local or regulatory body,
and there can be no assurance that any such  legislation or regulation would not
have a material adverse effect on the Company's business.

     Litigation.   Historically,   the  cigar  industry  has  experienced   less
health-related  litigation than the cigarette and smokeless  tobacco  industries
have experienced.

     Litigation  against the cigarette industry has historically been brought by
individual  cigarette  smokers.  In 1992,  the  United  States  Supreme  Curt in
Cippollone v. Liggett  Group,  Inc. ruled that federal  legislation  relating to
cigarette  labeling  requirements  preempts  claims  based  on  failure  to warn
consumer  about the health  hazards of cigarette  smoking,  but does not preempt
claims based on express warranty,  misrepresentation,  fraud, or conspiracy.  To
date,  individual  cigarette smokers' claims against the cigarette industry have
been generally unsuccessful. A jury n Florida, however, recently determined that
a  cigarette  manufacturer  was  negligent  in the  production  and  sale of its
cigarettes  and sold a product that was  unreasonably  dangerous and  defective,
awarding the plaintiffs a total of $750,000 in compensatory damages.

     Current tobacco litigation  generally falls within one of three categories:
class actions,  individual actions (which have been filed mainly in the State of
Florida) or actions brought by individual  states  generally to recover Medicaid
costs allegedly attributable to tobacco-related  illnesses.  The pending actions
allege a broad range of injuries  resulting from the use of tobacco  products or
exposure to tobacco smoke and seek various remedies, including compensatory and,
in some cases,  punitive damages together with certain types of equitable relief
such as the establishment of medical monitoring funds and restitution. The major
tobacco companies are vigorously defending these actions.

     In May 1996,  the Fifth  Circuit  Court of Appeals  in Castano v.  American
Tobacco,  et al.  reversed  a  Louisiana  District  Court's  certification  of a
nationwide class consisting essentially of nicotine dependent cigarette smokers.
Notwithstanding  the dismissal,  new class actions  asserting  claims similar to
those in  Castano  have  recently  been filed in certain  states.  To date,  two
pending class actions against major cigarette manufacturers have been certified.
The first  case is  limited  to  Florida  citizens  allegedly  injured  by their
addiction to  cigarettes;  the other is limited to flight  attendants  allegedly
injured through exposure to second-hand smoke.

     The tobacco industry  recently  negotiated  settlements  totaling more than
$240  billion  with  the  states  seeking   reimbursement  for  expenditures  by
state-funded medical programs for treatment of tobacco related illnesses.

                                      -13-

<PAGE>


     Recent  reports  indicate  that the federal  government  intends to sue the
tobacco  industry  seeking  reimbursement  for  billions  of  dollars  spent  by
government  held  programs  to  treat  smoking-related   illnesses.   A  federal
government  task  force  has been  formed to make a  recommendation  to the U.S.
Justice  Department  on when and  where to file the  lawsuit.  Furthermore,  the
inability  of the federal  government  to obtain a portion of the funds from the
state  settlements  with the tobacco  industry may increase  the  likelihood  of
federal government litigation against the industry.  The litigation could have a
material  adverse  affect on the  profitability  of tobacco and tobacco  related
products.
 
     While the cigar  industry  has not been  subject to similar  health-related
litigation to date, there can be no assurance that there will not be an increase
in  health-related  litigation  in the future  against  cigar  manufacturers  of
distributors.  The costs to the Company of defending prolonged litigation and an
settlement or successful prosecution of any health-related litigation could have
a material adverse effect on the Company's business and results of operation.

          2.  MISCELLANEOUS GOVERNMENT REGULATION.

     The United  States Food and Drug  Administration  through the United States
Food,  Drug and Cosmetic Act and the Fair  Packaging  and Labeling Act and other
various  rules and  regulations  regulate,  among other  things,  the purity and
packaging  of HBA  products and  fragrances  and  cosmetic  products and various
aspects of the  manufacturer  and  packaging of other  grocery items sold by the
Company.  Similar  statutes are in effect in various states.  Manufacturers  and
distributors  of such  products  are also  subject  to the  jurisdiction  of the
Federal Trade Commission with respect to such matters as advertising content and
other  trade  practices.   To  the  Company's  knowledge,  it  only  deals  with
manufacturers  and  manufactured  products in a manner which  complies with such
regulations   and  who   periodically   submit  their  products  to  independent
laboratories for testing. However, the failure by the Company's manufacturers or
suppliers  to comply with  applicable  government  regulations  could  result in
product recalls that could adversely affect the Company's relationships with its
customers. In addition, the extent of potentially adverse government regulations
which might arise from future  legislation  or  administrative  action cannot be
predicted.

                                      -14-

<PAGE>


ITEM 2:  PROPERTIES

     The Company's corporate offices and administrative headquarters are located
in Syosset, New York.

     The  Company  maintains  satellite  offices in  Pennsylvania,  New  Jersey,
Florida and the Dominican Republic.

     Product warehousing when necessary,  is done on a contract basis per pallet
of  product  stored  and is stored in  expandable  public  warehouses  primarily
located in New Jersey. The Company stores at its expense grocery, and health and
beauty aids products which the Company sells in bulk to further  wholesalers and
retail outlets independent of the Company.  The Company has standing orders with
independent  product sources for the  availability of and delivery of product to
the Company  which is not to be resold in bulk and to  accommodate  the sales of
product  direct to the consumer via internet  sales where shipping of product to
fulfill  orders for  consumers  requires  diversity of products  shipped in each
package as ordered.  Certain of the more  popular  products,  as viewed from the
concentration of internet orders for such products, are warehouse stored for the
Company  in the  warehousing  facilities  more  adapted  to the  "pick and pack"
retrieval and shipping  character of consumer  internet  sales  practices of the
Company . Otherwise the Company  arranges to have the products  shipped directly
to the consumer from the manufacturer  using standard  delivery  services and/or
the US postal service which cost is built into the price charged for the product
and  that  paid  by the  Company  to the  manufacturer.  Currently  the  Company
maintains  warehousing  space  under the above  referenced  arrangements  in New
Jersey for warehousing of products to be sold wholesale in bulk and for internet
and other specialized  sales.  Squid and other seafood acquired from China to be
redistributed  by the  Company in the United  States is stored  freezers  of the
warehouse  facilities  in Perth  Amboy,  New  Jersey.  There  are  also  several
humidified  warehouses  in Florida and the  Dominican  Republic to store  cigars
supervised by Company officials and several warehouses in the Dominican Republic
to store raw tobacco for cigar production which are independently operated.

ITEM 3:  LEGAL PROCEEDINGS

     The Company is a party to a number of legal proceedings as either plaintiff
or defendant  in  connection  with claims made for goods sold and various  other
aspects  of its  business,  all  of  which  are  considered  routine  litigation
incidental to the business of the Company. The Company is not aware of any other
litigation  pending which might be  considered  material and not in the ordinary
course of business.

     No other legal  proceedings were terminated during the fiscal quarter ended
December 31, 1998 (other than routine  litigation  incidental to the business of
the Company).

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

     During the fourth quarter of 1998 no matters were submitted for shareholder
approval during the fourth quarter.

                                      -15-

<PAGE>


                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
         STOCKHOLDER MATTERS

     The  Company's  Common Stock were traded on NASDAQ  Small-Cap  through June
1998 under the symbol "KRAN",  and on the Boston Stock Exchange under the symbol
"KRN" and  thereafter  on NASDAQ Small Cap under the Symbol  "SYBR",  and on the
Boston  Stock  Exchange  under  the  Symbol  "SYN",  recognizing  the  change in
corporate name of the Registrant to Synergy Brands Inc. effective June 24, 1998.
The NASDAQ Stock  Market,  which began  operation in 1971, is the world' . first
electronic  securities  market and the fastest  growing stock market in the U.S.
NASDAQ    utilizes    today's    information    technologies    -computer    and
telecommunications-  to unite  its  participants  in a  screen-based,  floorless
market.  It enables market  participants to compete with each other for investor
orders in each NASDAQ security and surveillance of thousands of securities. This
competitive marketplace,  along with the many products and services available to
issuers and their  shareholders,  attracts  today's  largest and fastest growing
companies   to  NASDAQ.   These   include   industry   leaders   in   computers,
pharmaceutical, telecommunications,  biotechnology, and financial services. More
domestic  and  foreign  companies  list on NASDAQ  than on all other U.S.  stock
markets  combined.  The high and low sales prices in the NASDAQ Small Cap Market
for the  Company's  Common  Stock,  as  reported  by the  NASDAQ for each of the
quarters of the Company's two most recent fiscal years are as follows:

COMMON STOCK

Quarter Ended               High              Low
-------------             -------           -------
March 31, 1997               4.63            1.50
June 30, 1997                3.37             .75
September 30, 1997           1.44             .97
December 31, 1997            3.19            1.03
March 31, 1998               2.50            1.59
June 30, 1998                3.00            1.38
September 30, 1998           1.75             .38
December 31, 1998            3.13             .28
March 31, 1999               6.47            2.50

     On March 26,  1999,  the Company had  approximately  5000  shareholders  of
record,  with much of the  stock  being  held in street  name.  The  Company  is
currently  listed on NASDAQ Small Cap. In May 1997 the Company reverse split its
common stock 1 for 25. The figures shown are split adjusted.

     The Company has never paid any  dividends  on its Common Stock and does not
presently  intend to pay any  dividends on the Common  Stock in the  foreseeable
future.


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

OVERVIEW

     Synergy Brands Inc.  ("Synergy")through its subsidiaries  (collectively the
"Company")  markets  national  brand  name  consumer  products  to  numerous  US
retailers and  wholesalers as well as developing and selling  proprietary  brand
consumer products to and through on line channels.

     In late  1998 the  Company  expanded  its  product  marketing  efforts  and
potential by  establishing  an array of internet  sites linked to and  available
through  multiple  search  engines to afford  access to purchase of its products
directly by the  consumer.  With the  addition  of  internet  access many of the
Company's  offered products are now available for retail purchase as well as the
traditional wholesale distribution historically offered by the Company. Internet
sales presently  include health and beauty aid salon products and cigar products
previously  and  traditionally   offered  by  the  Company  through  alternative
marketing  channels as well as an array of more recently added consumer products
including  fragrances  and cosmetics and skin care  products.  These  additional
products are offered or sale by the Company  through its internet  sales network
as well as the Company's historical wholesale distribution channels.

                                      -16-

<PAGE>



     Such  businesses of Synergy are  segmented,  managed and conducted  through
corporate  subsidiaries whose stock is wholly or majority owned by Synergy , and
the results of whose businesses are consolidated for reporting purposes with the
financial  statements of Synergy . The Company operates its core grocery and HBA
product sale and distribution  business though three  subsidiaries New Era Foods
Inc., Synergy Brands  Distribution Inc., and Island Wholesale Groceries Inc. The
Company's  other  current   subsidiaries  include  Net  Cigar.Com  Inc.,  (cigar
products), PHS Group Inc. (salon quality hair and skin care products),  SYBR.Com
Inc. (internet sales), and Premium Cigar Wrappers Inc.  (procurement and sale of
raw tobacco for cigar production).

RESULTS OF OPERATIONS

     The following  table sets forth selected  operational  data of the Company,
expressed as a percentage of revenues for the periods indicated below:


                            Years Ended December 31,

                         1994        1995       1996      1997       1998
                         ----        ----       ----      ----       ----

Revenues                100.0%      100.0%      100.0%   100.0%    100.0%

Cost of Sales           (89.3)      (87.9)     (106.2)   (77.8)    (88.6)

Operating Expenses      (10.6)       (8.1)      (12.6)   (17.2)    (10.0)


Other Income (expense)   (3.7)       (1.6)       (2.7)     0.5        1.4
                         ----         ----       ----     ----       ----
Income(loss)from
Operations Before
Income Tax               (3.6)        2.4       (21.5)     5.5        2.8

Income Tax
(Expense)Benefit          1.2        (0.8)       (0.3)     --        (.1)

Discontinued Operations   --         (0.3)     (129.9)    (2.4)         0
Extraordinary Item        0.6         --          --        --         --
                         ----        ----        ----      ----     -----

Net Income(Loss)         (1.8)%       1.3%     (151.7)%    3.1%      2.7%

                           Year Ended December 31, 1998
                    Compared to Year Ended December 31, 1997

     Revenues  increased  by 120.7% to $11.01  million as  compared to the prior
year.  The Company  attributes  the  increase to a  significant  increase in the
grocery  and health and beauty aid (HBA)  businesses;  as a result of  increased
business with Proctor & Gamble in particular.

     Net  income   applicable  to  common  stock   increased   from  a  loss  of
$(50,090)(-.03  per  share)  to a profit  of  $297,508  ($.06  per  share).  The
Company's profit is attributable to the following factors:
 
         (a)      a significant reduction in financing costs.

         (b)      a significant increase in revenues

         (c)      elimination   of  losses  in  connection   with   discontinued
                  operations.

     The Company's  income was reduced by a one time charge in  connection  with
rebate  adjustments  in the  amount  of  $220,000  and  other  charges  totaling
$199,000.

     In 1999 the  Company  is  developing  E-commece  sites for the  purpose  of
expanding its distribution to the consumer market through on-line channels.  The
Company will devote a significant amount of resources and may require additional
capital to achieve its goals.

                                      -17-

<PAGE>



                          Year Ended December 31, 1997
                    Compared to Year Ended December 31, 1996

     Revenues from  continued  operations  decreased for the year ended December
31, 1997 to $5.4 million,  a (27%) decrease as compared to the prior period. The
decrease in revenues is related to  discontinuing  IFD's business and operations
and the  recognition  of  commission  income as  opposed  to direct  sales.  The
Company's sales increased materially in the second half of 1997. The Company was
able to re-establish direct vendor contacts, especially with its largest vendor,
Proctor & Gamble thereby  reducing  overall  product cost. The Company  believes
that in 1998 sales growth should substantially exceed 1996 and 1997 levels.

     Net income from  continuing  operations  increased  to  $299,682  ($.05 per
share)  compared  to a loss  of $1.6  million  ($5.5  per  share).  The  Company
attributes its profitability to:

         a)       Closing its kosher business (IFD).

         b)       signing a  Distributorship  Agreement with its Chinese trading
                  partner to re-enter the  promotional  grocery  business.  This
                  Agreement  allowed the Company to reestablish  vendor contacts
                  and obtain financing for product  purchases for re-sale to its
                  customers in the  promotional  grocery and health & beauty aid
                  (HBA) business.

         c)       increasing  commission  sales of squid  manufactured by ALT at
                  higher margins.

         d)       streamlining  its corporate  overhead by  establishing  profit
                  centers  in each  business  segment  with  separate  operating
                  budgets.

         e)       outsourcing  all primary  services  relating  sales,  freight,
                  warehousing and management information systems.

         f)       significant  utilization of the internet for sales,  marketing
                  and corporate exposure.

     One time charges from  discontinued  operations  totaled $130,632 ($.08 per
share)  as  compared  to $9.6  million  ($29 per  share).  As a result  net loss
applicable  to common  stock  totaled $ 50,950 ($.03 per share) as compared to a
loss of $11.4 million ($34.5 per share).  The Company does not expect its future
expenses from discontinued operations to be material to its future business.

                         Liquidity and Capital Resources

     The Company's working capital increased to $2 million at December 31, 1998.
Reaching  this  level of  working  capital is a  significant  milestone  for the
Company.  The  Company  raised  enough  capital  and  turned its  operations  to
profitability  which  significantly  enhanced the liquidity of the Company. As a
result the Company has secured vendor credits and secured  financing to grow its
operating business.  The Company believes that it has sufficient working capital
to fund its continuing operations but requires additional financing to expand.

     The Company plans on expanding its core grocery,  HBA and squid  businesses
through its distribution  agreement and on-line channels.  However,  the Company
believes it will need additional  financing in the form of subordinated  debt or
equity to finance its expansion  plans.  See  "Forward-Looking  Information  and
Cautionary Statements."

     The Company has  streamlined  its  financing  requirements  by repaying its
revolving  secured  debt and  established  secured term  financing.  The Company
currently  borrows $1.6 million at a 12% fixed rate.  The current  maturities of
the term loans  extend from August 1999 to October  2000.  The Company  plans to
increase its  maturities to 2001 and reduce the interest rate on its term loans.
However, there can be no assurances that either can be achieved.

                                      -18-

<PAGE>


     The Company's internet budget is significant for 1999. The Company plans to
incur a significant  amount of expense in developing  marketing and  advertising
its websites both on the internet and traditional media outlets. As a result the
Company  plans  on  raising   additional  capital  to  support  its  anticipated
expenditures.  Failure  to raise  additional  capital to  support  the  internet
business may adversely effect the Company's overall business.

     Management  is not  aware  of  negative  trends  in the  Company's  area of
business or other economic  factors which may cause a significant  change in the
Company's  viability or financial  stability,  except as specified herein and in
"Forward-Looking Information and Cautionary Statements." Management has no plans
to alter the nature of its business.

     Subject to available  financing,  the Company intends to further expand its
continuing  business  through its distribution  agreement by merchandising  well
accepted readily  marketable  promotional  brand-name  grocery products,  frozen
squid and handmade premium cigars.  However,  there can be no assurance that the
Company's proposed expansion plans will be successful.

SEASONALITY

     Seasonality  affects the demand for certain  products  sold by the Company,
such as juice  drinks in the  summer  months or hot  cereals  in fall and winter
months.  However, all these products are available to the Company throughout the
year.  Manufacturers  also tend to promote more heavily towards the close of the
fiscal quarters and during the spring and early summer months. Accordingly,  the
Company is able to purchase more  products,  increase sales during these periods
and reduce its  product  cost due to these  promotions.  The  Company  generally
experiences  lower sales volume in the fourth  quarter due to the reduced number
of selling days  resulting  from the  concentration  of holidays in the quarter.
Sale of frozen squid is more significant in the third and fourth quarters due to
the seasonal catch which occurs in the second quarter.

                                      -19-

<PAGE>


INFLATION

     The Company believes that inflation, under certain circumstances,  could be
beneficial to the Company's business.  When inflationary pressures drive product
costs up, the  Company's  customers  sometimes  purchase  greater  quantities of
product  to  expand  their   inventories  to  protect  against  further  pricing
increases.  This enables the Company to sell greater quantities of products that
are sensitive to inflationary pressures.

     However,  inflationary  pressures frequently increase interest rates. Since
the Company is  dependent  on  financing,  any  increase in interest  rates will
increase the Company's credit costs, thereby reducing its profits.

FORWARD LOOKING INFORMATION AND CAUTIONARY STATEMENTS

     Other than the factual matters set forth herein,  the matters and items set
forth in this  report are  forward-looking  statements  that  involve  risks and
uncertainties.  The  Company's  actual  results may differ  materially  from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, the following:

         1.       INTERNET

     The  internet  environment  is new to  business  and is subject to inherent
risks as in any new developing business including rapidly developing  technology
with which to attempt to keep pace and level of acceptance and level of consumer
knowledge regarding its use.

         2.       CASH FLOW.

     The Company has  experienced  cash  shortages  which  continue to adversely
affect its business. See "Liquidity and Capital Resources". The Company requires
additional working capital in order to maintain and expand its business.

         3.       DEPENDENCE ON PUBLIC TRENDS.

     The  Company's  business  is subject to the  effects of  changing  customer
preferences  and the  economy,  both of which are  difficult to predict and over
which the Company has no control.  A change in either consumer  preferences or a
down-turn in the economy may affect the Company's business prospects.

         4.       POTENTIAL PRODUCT LIABILITY.

     As a participant in the  distribution  chain between the  manufacturer  and
consumer,  the  Company  would  likely be named as a  defendant  in any  product
liability  action  brought by a consumer.  To date, no claims have been asserted
against the Company for products liability; there can be no assurance,  however,
that such claims will not arise in the future.  Currently,  the Company does not
carry  product  liability  insurance.  In the event that any products  liability
claim is not fully funded by insurance,  and if the Company is unable to recover
damages  from the  manufacturer  or  supplier  of the  product  that caused such
injury,  the  Company  may be required to pay some or all of such claim from its
own funds. Any such payment could have a material adverse impact on the Company.

        5.       RELIANCE ON COMMON CARRIERS.

     The  Company  does  not  utilize  its own  trucks  in its  business  and is
dependent, for shipping of product purchases, on common carriers in the trucking
industry.  Although  the Company  uses  several  hundred  common  carriers,  the
trucking  industry  is subject to strikes  from time to time,  which  could have
material  adverse  effect on the Company's  operations if  alternative  modes of
shipping  are  not  then  available.   Additionally  the  trucking  industry  is
susceptible to various natural disasters which can close transportation lanes in
any given region of the country.  To the extent  common  carriers are  prevented
from or delayed in utilizing local transportation lanes, the Company will likely
incur higher freight costs due to the limited  availability of trucks during any
such period that transportation lanes are restricted.

                                      -20-

<PAGE>


         6.       COMPETITION.

     The Company is subject to competition in its  promotional  grocery,  squid,
and premium  handmade cigars  businesses.  While these  industries may be highly
fragmented,  with no one  distributor  dominating  the industry,  the Company is
subject to  competitive  pressures  from other  distributors  based on price and
service and product quality and origin.

         7.       TRADE RELATIONS WITH CHINA.

     The  Company is  dependent  on trade with the  People's  Republic  of China
(PRC). The Company's financing  arrangements and distribution contracts with ALT
involve a Chinese trading company and squid,  which is directly supplied through
the  PRC.  Any  government  sanctions  that  cause an  interruption  of trade or
prohibit  trade with PRC through  higher  duties or quotas could have a material
adverse  effect on the  Company's  business.  China  currently  maintains a Most
Favored  Nation  status  with  the  United  States,   which  it  has  maintained
continuously  since 1980,  renewal of which is done on an annual basis each May,
Loss of such status could have a material adverse affect on Company business.

         8.       LITIGATION

     The Company is subject to legal  proceedings  and claims which arise in the
ordinary  course of its business.  In the opinion of  management,  the amount of
ultimate  liability with respect to these actions will not materially affect the
financial  position,  results of  operations  or cash flows of the Company,  but
there can be no assurance as to this.

                                      -21-

<PAGE>


         9.       POSSIBLE LOSS OF NASDAQ SMALL CAP LISTING.

     Synergy  currently  qualifies  for trading on the Nasdaq  Small Cap system.
Nasdaq has adopted,  and the  Commission  has approved,  certain  changes to its
maintenance  requirements  which  became  effective  as of  February  28,  1998,
including  the  requirement  that a stock listed in such market have a bid price
greater than or equal to $1.00.  The bid price per share for the Common Stock of
Synergy  has been below $1.00 in the past and the Common  Stock has  remained on
the Nasdaq Small Cap System  because  Synergy has complied with the  alternative
criteria  which  are now  eliminated  under  the  new  rules.  If the bid  price
continues  below $1.00 per share,  the Common  Stock could be delisted  from the
Nasdaq Small Cap System and  thereafter  trading would be reported in the NASD's
OTC Bulletin  Board or in the "pink  sheets." In the event of delisting from the
Nasdaq Small Cap System,  the Common Stock would become subject to rules adopted
by  the  Commission  regulating   broker-dealer  practices  in  connection  with
transactions in "penny stocks." The disclosure  rules applicable to penny stocks
require a  broker-dealer,  prior to a transaction in a penny stock not otherwise
exempt  from the  rules,  to deliver a  standardized  list  disclosure  document
prepared by the Commission that provides  information about penny stocks and the
nature  and  level  of  risks  in the  penny  stock  market.  In  addition,  the
broker-dealer  must  identify  its  role,  if  any,  as a  market  maker  in the
particular  stock,  provide  information  with  respect to market  prices of the
Common Stock and the amount of compensation that the broker-dealer  will earn in
the proposed transaction.  The broker-dealer must also provide the customer with
certain other information and must make a special written determination that the
penny  stock  is a  suitable  investment  for  the  purchaser  and  receive  the
purchaser's  written  agreement to the transaction.  Further,  the rules require
that following the proposed  transaction the broker-dealer  provide the customer
with monthly account  statements  containing market information about the prices
of the securities. These disclosure requirements may have the effect of reducing
the level of trading  activity in the secondary  market for a stock that becomes
subject to the penny stock  rules.  If the Common  Stock  became  subject to the
penny  stock  rules,  many   broker-dealers   may  be  unwilling  to  engage  in
transactions  in  the  Company's  securities  because  of the  added  disclosure
requirements,  thereby  making it more  difficult  for  purchasers of the Common
Stock in this offering to dispose of their shares of the Common Stock.

                                      -22-

<PAGE>


         10.       RISKS OF BUSINESS DEVELOPMENT.

     The Company has ventured into new lines of product and product distribution
(see  "Item I C 4  (Cigars)  (1997)  and C5  (Squid)  (1996)"  and B1 (salon HBA
products  (1999) and  internet  sales-see  B  (Internet  Sales)  (1998) and such
product and product  distribution  lines are  expected to  constitute a material
part of the Company's revenue stream.  The Company has not restored its level of
product  sales to that of  previous  years  but with the  addition  of these new
product and product  distribution  lines the Company is hopeful of reaching  and
hopefully exceeding those prior levels. Because of the newness of these lines of
products to the  Company,  the  Company's  operations  in these areas  should be
considered  subject to all of the risks  inherent in a new business  enterprise,
including the absence of a profitable  operating  history and the expense of new
product development. Various problems, expenses, complications and delays may be
encountered  in connection  with the  development of the Company's new products.
These  expenses  must either be paid out of the proceeds of future  offerings or
out of generated  revenues and Company profits.  There can be no assurance as to
the availability of funds from either of these sources.

         11.      RAPIDLY CHANGING MARKET MAY IMPACT OPERATIONS.

     The market for the  Company's  products is rapidly  changing  with evolving
industry standards and frequent new product introductions.  The Company's future
success will depend in part upon its  continued  ability to enhance its existing
products and to introduce  new products and features to meet  changing  customer
requirements and emerging industry  standards.  The Company will have to develop
and implement an appropriate marketing strategy for each of its products.  There
can be no assurance that the Company will successfully  complete the development
of future products or that the Company's current or future products will achieve
market  acceptance  levels conducive to the Company's fiscal needs. Any delay or
failure of these products to achieve market  acceptance  would adversely  affect
the Company's business. In addition, there can be no assurance that the products
or  technologies  developed by others will not render the Company's  products or
technologies non-competitive or obsolete.

     The Company's  revenue base has been slowly  recovering from losses of 1996
generating from the  discontinuation  of its Kosher Food business.  In order for
the Company to increase grocery sales, it must  reestablish  it's  relationships
with the major grocery  manufactures.  The Company is  vigorously  attempting to
reestablish  these ties to prior customers as well as develop new ones.  Failure
to  re-establish  these  ties  would  have an  adverse  effect  on the  Company.
Furthermore,  the Company has entered new markets which include  squid,  premium
handmade  cigars  and  salon  quality  HBA  products  for  sale to its  existing
customers and newly found  sources.  These product lines have lower sales volume
than  the  Company's  traditional  business,  but  higher  margins  and  greater
advertising  and  promotional  expenses.  The Company  believes that  developing
proprietary  products is in the best  interest of the Company's  expansion.  The
existence of and relationship with the Company's Chinese Trading Partner and use
of new internet sales and marketing avenues has and will significantly  decrease
the Company's  cost of goods sold.  Failure to secure market  penetration in the
new  product  lines  would  however  have an  adverse  effect  on the  Company's
profitability.  Management  believes actions presently being taken to revise the
Company's  operating and financial  requirements  should provide the opportunity
for the Company to  continue  as a going  concern.  However,  Management  cannot
predict the outcome of future  operations and no  adjustments  have been made to
offset the outcome of this uncertainty.

                                      -23-

<PAGE>


         12.      DEPENDENCE UPON ATTRACTING AND HOLDING.

     The Company's future success depends in large part on the continued service
of its key  technical,  marketing,  sales and  management  personnel  and on its
ability to continue to attract,  motivate and retain highly qualified employees.
Although the Company's key employees have stock  options,  its key employees may
voluntarily terminate their employment with the Company at any time. Competition
for such  employees  is  intense  and the  process  of  locating  technical  and
management  personnel with the combination of skills and attributes  required to
execute the Company's  strategy is often lengthy.  Accordingly,  the loss of the
services  of key  personnel  could  have a  material  adverse  effect  upon  the
Company's  operating  efforts and on its research and development  efforts.  The
Company  does  not  have key  person  life  insurance  covering  its  management
personnel or other key employees.

         13.      EXTENSIVE AND INCREASING REGULATION OF TOBACCO PRODUCTS
                    AND LITIGATION MAY IMPACT CIGAR INDUSTRY.

     The tobacco industry in general has been subject to extensive regulation at
the federal,  state and local levels. Recent trends have increased regulation of
the  tobacco  industry.  Although  regulation  initially  focused  on  cigarette
manufacturers,  it has begun to have a broader impact on the industry as a whole
and may focus more  directly  on cigars in the  future.  The recent  increase in
popularity  of cigars  could lead to an  increase  in  regulation  of cigars.  A
variety of bills  relating to tobacco  issues have been  introduced  in the U.S.
Congress,  including bills that would (i) prohibit the advertising and promotion
of all  tobacco  products or restrict or  eliminate  the  deductibility  of such
advertising expense,  (ii) increase labeling requirements on tobacco products to
include,  among others  things,  addiction  warnings and lists of additives  and
toxins,  (iii) shift  control of tobacco  products and  advertisements  from the
Federal Trade  Commission (the "FTC") to the Food and Drug  Administration  (the
"FDA"),  (iv) increase tobacco excise taxes and (v) require tobacco companies to
pay for health care costs incurred by the federal  government in connection with
tobacco related  diseases.  Future  enactment of such proposals or similar bills
may have an adverse  effect on the results of operations or financial  condition
of the Company.

     In addition,  a majority of states restrict or prohibit  smoking in certain
public  places and  restrict  the sale of  tobacco  products  to  minors.  Local
legislative  and  regulatory  bodies  also have  increasingly  moved to  curtail
smoking by prohibiting  smoking in certain  buildings or areas or by designating
"smoking" areas.  Further restrictions of a similar nature could have an adverse
effect on the Company's  sales or operations,  such as banning counter access to
or display of premium  handmade  cigars,  or decisions  by retailers  because of
public pressure to stop selling all tobacco  products.  Numerous  proposals also
have been considered at the state and local level restricting smoking in certain
public areas,  regulating  point of sale  placement and promotions and requiring
warning labels.

                                      -24-

<PAGE>


     Increased  cigar  consumption  and the publicity such increase has received
may increase the risk of additional  regulation.  The Company cannot predict the
ultimate  content,  timing or effect of any  additional  regulation  of  tobacco
products by any federal,  state,  local or regulatory  body, and there can be no
assurance  that any such  legislation  or  regulation  would not have a material
adverse effect on the Company's business.

     In addition  numerous tobacco  litigation has been commenced and may in the
future be instituted,  all of which may adversely  affect the cigar  consumption
and sale and may pressure  applicable  government  entities to institute further
and  stricter  legislation  to restrict  and  possibly  prohibit  cigar sale and
consumption, any and all of which may have an adverse affect on Company business
(see "Government  Regulation - Tobacco Industry  Regulation and Tobacco Industry
Litigation" supra).

         14.      RISKS RELATING TO MARKETING OF CIGARS.

     The Company  primarily will  distribute  premium  handmade cigars which are
hand-rolled and use tobacco aged over one year. The Company  believes that there
is an abundant supply of tobacco available through its supplier in the Dominican
Republic for the types of premium  handmade  cigars the Company  primarily  will
sell.  However,  there can be no  assurance  that  increases in demand would not
adversely affect the Company's ability to acquire higher priced premium handmade
cigars.

     While the cigar  industry  has  experienced  increasing  demand  for cigars
during the last several  years,  there can be no  assurance  that the trend will
continue. If the industry does not continue as the Company anticipates or if the
Company  experiences  a reduction in demand for whatever  reason,  the Company's
supplier may temporarily accumulate excess inventory which could have an adverse
effect on the Company's business or results of operations.

         15.      SOCIAL, POLITICAL, AND ECONOMIC RISKS ASSOCIATED WITH
                  FOREIGN TRADE MAY ADVERSELY IMPACT BUSINESS.

     The Company purchases all of its premium handmade cigars from manufacturers
located in  countries  outside  the United  States.  In  addition,  the  Company
acquires  squid  through  the  People's  Republic of China  ("PRC").  Social and
economic  conditions  inherent in foreign operations and international trade may
change,  including  changes  in  the  laws  and  policies  that  govern  foreign
investment and  international  trade.  To a lesser extent social,  political and
economic  conditions  may cause  changes in United  States laws and  regulations
relating to foreign investment and trade. Social,  political or economic changes
could, among other things, interrupt cigar supply or cause significant increases
in cigar  prices.  In  particular,  political or labor  unrest in the  Dominican
Republic could interrupt the production of premium handmade cigars,  which would
inhibit the Company from buying inventory.  Any government  sanctions that cause
an interruption of trade or prohibit trade with the PRC through higher duties or
quotas  could  have  a  material  adverse  effect  on  the  Company's  business.
Accordingly,  there can be no  assurance  that  changes in social,  political or
economic  conditions  will not have a material  adverse  affect on the Company's
business.

                                      -25-

<PAGE>


         16.      SEASONALITY.

     Seasonality  affects the demand for certain  products  sold by the Company,
such as juice  drinks in the  summer  months or hot  cereals  in fall and winter
months,  cosmetics and fragrances  during certain  holidays,  and cigar products
sale in  coordination  with sporting  events.  However,  all these  products are
available to the Company throughout the year. Manufacturers also tend to promote
more heavily  towards the close of the fiscal quarters and during the spring and
early summer  months.  Accordingly,  the Company is able during these periods to
purchase  more  products,  increase  sales during  these  periods and reduce its
product cost due to these promotions.  The Company  generally  experiences lower
sales  volume in the fourth  quarter due to the reduced  number of selling  days
resulting  from the  concentration  of holidays in the  quarter.  Sale of frozen
squid is more  significant in the third and fourth  quarters due to the seasonal
catch which occurs in the second quarter.

         17.      NO DIVIDENDS LIKELY.

     No dividends  have been paid on the Common Stock since  inception,  nor, by
reason  of  its  current   financial  status  and  its  contemplated   financial
requirements,  does Synergy  contemplate or anticipate paying any dividends upon
its Common Stock in the foreseeable future.

                                    PART III

     The  information  required by items  10-13 are omitted  pursuant to general
instruction  G(3) to form 10K. The Company has included this  information in its
proxy  statement to be mailed and filed with the  Commission  on or before April
30,  1999.  The annual  meeting  is  scheduled  to be in June  1999.  Such Proxy
Statement  expected  to be  filed  with the  Commission  by  April  30,  1999 is
incorporated herein by reference.

                                     PART IV

ITEM 8.   FINANCING STATEMENTS AND SUPPLEMENTARY DATA

1.       FINANCIAL STATEMENTS

     The following  financial  statements of the Company are contained in Item 8
of this Report on the pages indicated:

                                                            Page
                                                            ----

Independent Auditors Reports                                  F1

Balance Sheet -
December 31, 1998                                             F2

Statements of Operations -
Years ended December 31, 1998 and 1997                   F3 - F4

Statements of Changes in Stockholders'
Equity - Years ended December 31, 1998 and 1997          F5 - F6

Statements of Cash Flows - Years
ended December 31, 1998 and 1997                         F7 - F8

Notes to Financial Statements as of
December 31, 1998                                        F9- F18

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

                                 Not Applicable

ITEM 14. EXHIBITS, FINANCING STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

1.       (a) Exhibits:

         See Index to Exhibits

2.       Reports on Form 8-K
         There were no reports  on Form 8-K filed  during the fourth  quarter of
         1998.

3.       Financial Statement Schedules
             none

                                      -26-

<PAGE>


                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                              Synergy Brands Inc.



                               by /s/ Mair Faibish
                               --------------------------------
                                      Mair Faibish
                                      Executive Vice President

Dated:            , 1999

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

                               by /s/ Mair Faibish
                               ----------------------------------
                                      Mair Faibish
                                      Executive Vice President
                                      Principal Financial Officer
                                      and Director
Signed:            , 1999


                               by /s/ Mitchell Gerstein
                               ----------------------------------
                                      Mitchell Gerstein, Director

Signed:            , 1999

                                      -27-

<PAGE>


                          INDEPENDENT AUDITOR'S REPORT



The Board of Directors
Synergy Brands, Inc.


     We have  audited the  accompanying  consolidated  balance  sheet of Synergy
Brands, Inc. (formerly Krantor Corporation) and Subsidiaries (the Company) as of
December  31,  1998,  and the related  consolidated  statements  of  operations,
changes in stockholders'  equity and cash flows for the years ended December 31,
1998  and  1997.  These  financial  statements  are  the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  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 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 financial  position of Synergy
Brands,  Inc. and  Subsidiaries  as of December 31, 1998, and the results of its
operations and its cash flows for the years ended December 31, 1998 and 1997, in
conformity with generally accepted accounting principles.

                                BELEW AVERITT LLP

Dallas, Texas
March 20, 1999

                                      F-1
<PAGE>


                      SYNERGY BRANDS, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheet
                                December 31, 1998


                                     ASSETS
<TABLE>
<CAPTION>
<S>                                                                      <C>

CURRENT ASSETS
   Cashand cash equivalents                                              $    325,699
   Accounts receivable (Note 5)                                             3,020,010
   Inventory (Notes 4 and 5)                                                1,374,808
   Other current assets                                                        53,650
                                                                        -------------
       Total current assets                                                 4,774,167

COLLATERAL SECURITY DEPOSIT (Note 10)                                       1,802,995

PROPERTY AND EQUIPMENT, net (Note 3)                                          120,059

OTHER ASSETS                                                                   56,891
                                                                        -------------
                                                                         $  6,754,112
                                                                        =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
 Current portion of long-term debt (Note 5)                              $  1,475,000
 Accounts payable and accrued expenses (Note 6)                             1,240,079
 Income taxes payable (Note 9)                                                 12,794
                                                                        -------------
     Total current liabilities                                              2,727,873

VENDOR DEBT DUE AFTER ONE YEAR (Note 6)                                       128,384

LONG-TERM DEBT (Note 5)                                                       400,000

COMMITMENTS AND CONTINGENCIES (Note 10)                                           -

PREFERRED STOCK OF SUBSIDIARY (Note 7)                                        135,625

STOCKHOLDERS' EQUITY (Note 8)
 Class A preferred stock - $.001 par value; 100,000 shares authorized             100
 Common stock - $.001 par value; 29,900,000 shares authorized                   6,327
 Additional paid-in capital                                                15,724,196
 Deficit                                                                  (12,200,893)
                                                                        -------------
                                                                            3,529,730

   Less treasury stock, at cost, 1,400 shares                                (167,500)
                                                                        -------------
       Total stockholders' equity                                           3,362,230
                                                                        -------------
                                                                         $  6,754,112
                                                                        =============
</TABLE>

          See accompanying notes to consolidated financial statements 
                                      F-2
<PAGE>

                      SYNERGY BRANDS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                     Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
<S>                                                     <C>               <C>

                                                                 1998            1997
                                                        -------------    ------------
REVENUE
   Net sales (Note 11)                                   $ 11,055,549    $  5,007,336
   Commission income (Note 10)                                    -           382,025
                                                        -------------    ------------

                                                           11,055,549       5,389,361

COST OF SALES                                               9,793,590       4,195,519
                                                        -------------    ------------

GROSS PROFIT                                                1,261,959       1,193,842

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                1,073,550         907,386

DEPRECIATION AND AMORTIZATION                                  29,867          16,915
                                                        -------------    ------------

OPERATING INCOME                                              158,542         269,541

OTHER INCOME (EXPENSE)
   Interest income                                             95,775         134,875
   Debt forgiveness income (Note 5)                           150,409             -
   Net loss on marketable securities                              -           (37,625)
   Miscellaneous expense                                       (1,062)        (48,505)
   Interest expense                                           (68,371)        (12,479)
   Dividends on preferred stock of subsidiary (Note 7)        (24,500)         (6,125)
                                                        -------------    ------------

                                                              152,251          30,141
                                                        -------------    ------------

INCOME FROM CONTINUING OPERATIONS
 BEFORE INCOME TAXES                                          310,793         299,682

INCOME TAX EXPENSE (Note 9)                                   (13,285)            -
                                                        -------------    ------------

INCOME FROM CONTINUING OPERATIONS                             297,508         299,682

DISCONTINUED OPERATIONS (Note 12)
   Loss on disposal of IFD, net of applicable
    income tax benefit of $0                                      -          (130,632)
                                                        -------------    ------------

NET INCOME                                                    297,508         169,050
</TABLE>

                                      F-3
<PAGE>


                      SYNERGY BRANDS, INC. AND SUBSIDIARIES
                  Consolidated Statements of Operations (Cont.)
                     Years ended December 31, 1998 and 1997


                                                   1998             1997
                                          -------------     ------------

LESS PREFERRED DIVIDENDS                    $         -     $    220,000
                                          -------------     ------------
INCOME (LOSS) APPLICABLE TO COMMON STOCK    $   297,508     $   (50,950)
                                          =============     ============
BASIC EARNINGS (LOSS) PER COMMON
 SHARE (Note 14)
   Income from continuing operations         $      .06     $        .05
   Discontinued operations                            -            (.08)
                                          -------------     ------------
NET INCOME (LOSS) PER COMMON SHARE           $      .06     $      (.03)
                                          =============     ============
DILUTED EARNINGS (LOSS) PER COMMON SHARE     $      .05     $       .03)
                                          =============     ============

          See accompanying notes to consolidated financial statements.
                                      F-4

<PAGE>



                      SYNERGY BRANDS, INC. AND SUBSIDIARIES
           Consolidated Statements of Changes in Stockholders' Equity
                     Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
<S>                            <C>                       <C>               <C>             <C>       <C>          <C>

                                  Class A
                              Preferred Stock           Common Stock      Additional                                     Total
                             ----------------          -------------         paid-in                  Treasury   stockholders'
                             Shares    Amount          Shares  Amount        capital         Deficit     stock          equity
                             ------    ------          ------  ------      ---------         -------   ---------  ------------- 
Balance at
 December 31, 1996          100,000    $  100         847,035  $  847   $ 12,426,869    $(12,667,451) $(167,500)  $  (407,135)

Common stock issued
 in connection with
 Regulation S offering,
 less related expenses          -         -         1,612,200   1,612      1,330,168             -          -        1,331,780

Redemption of
 preferred stock           (100,000)     (100)        400,000     400       (130,300)            -          -        (130,000)

Issuance of preferred
 stock                      100,000       100             -       -              -               -          -              100

Dividends on preferred
 stock                          -         -               -       -         (220,000)            -          -        (220,000)

Common stock
 options exercised              -         -           275,000     275        442,225             -          -         442,500
</TABLE>

                                      F-5
<PAGE>



                      SYNERGY BRANDS, INC. AND SUBSIDIARIES
       Consolidated Statements of Changes in Stockholders' Equity (Cont.)
                     Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
<S>                           <C>                     <C>                <C>            <C>           <C>             <C>


                               Class A
                            Preferred Stock          Common Stock      Additional                                     Total
                           ----------------          ------------         paid-in                     Treasury    stockholders'
                           Shares     Amount      Shares      Amount      capital       Deficit          stock        equity   
                           ------     ------      ------      ------      -------       --------      ---------    ------------
Common stock issued
 in connection with
 compensation plan            -      $ -       1,006,280     $1,006   $   762,179   $       -        $     -       $  763,185

Net income                    -        -             -          -             -         169,050            -          169,050
                         ---------  --------   ---------     -------  -----------   ------------    -----------    ----------
Balance at
 December 31, 1997        100,000      100     4,140,515      4,140    14,611,141   (12,498,401)      (167,500)     1,949,480

Issuance of common
 stock                        -        -       1,240,051      1,240       523,300           -              -          524,540

Common stock issued
 in connection with
 compensation plan            -        -         946,520        947       589,755           -              -          590,702

Net income                    -        -             -          -             -         297,508            -          297,508
                         ---------  --------   ---------     -------  -----------   ------------    -----------    ----------

Balance at
 December 31, 1998        100,000     $100     6,327,086     $6,327   $15,724,196   $(12,200,893)    $(167,500)    $3,362,230
                         =========  ========   =========     =======  ===========   ============    ===========    ==========
</TABLE>


          See accompanying notes to consolidated financial statements.
                                      F-6


<PAGE>


                      SYNERGY BRANDS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                     Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
<S>                                                                  <C>            <C>

                                                                       1998           1997
                                                                    -------        -------
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                       297,508        169,050
   Loss from discontinued operations                                      -        130,632
   Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
     Depreciation and amortization                                   29,867         16,915
     Loss on disposal of property and equipment                       4,000         14,496
     Net loss from marketable securities                                  -         37,625
     Dividends on preferred stock of subsidiary                      24,500          6,125
     Operating expenses paid with common stock                      456,065        798,074
     Debt forgiveness income                                       (150,409)             -
   Changes in operating assets and liabilities:
     Purchases of marketable securities                                   -        (73,687)
     Sales of marketable securities                                       -         36,062
     (Increase) decrease in:
       Accounts receivable                                       (1,892,010)      (933,160)
       Inventory                                                 (1,374,808)             -
       Promotional rebates                                          270,496        (47,524)
       Other current assets                                          82,539         22,789
       Other assets                                                 (56,891)        85,812
     Increase (decrease) in:
       Accounts payable and accrued expenses                        429,475        (34,180)
       Income taxes payable                                           2,265        (60,629)
                                                                    -------        -------
   Net cash flows provided by (used in) operating activities
    of continued operations                                      (1,877,403)       168,400

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of property and equipment                               (36,524)      (118,202)
   Payment of collateral security deposit                                 -        (75,000)
   Refund of collateral security deposit                            450,000              -
                                                                    -------        -------
   Net cash flows provided by (used in) investing activities
    of continued operations                                         413,476       (193,202)

</TABLE>



                                       F-7
<PAGE>

                      SYNERGY BRANDS, INC. AND SUBSIDIARIES
                  Consolidated Statements of Cash Flows (Cont.)
                     Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
<S>                                                           <C>                 <C>

                                                                        1998            1997
                                                             ---------------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from debt issuance                               $     1,600,000     $        -
   Cash dividends on preferred stock                                       -       (220,000)
   Payment for redemption of preferred stock                               -       (130,000)
   Proceeds from issuance of common stock and
    preferred stock                                                        -        829,880
   Proceeds from issuance of preferred stock of subsidiary                 -        105,000
                                                             ---------------     -----------

   Net cash flows provided by financing activities of
    continued operations                                           1,600,000        584,880

CASH USED IN DISCONTINUED OPERATIONS                                       -       (373,349)
                                                             ---------------     -----------

NET INCREASE IN CASH                                                 136,073        186,729

CASH, beginning of year                                              189,626          2,897
                                                             ---------------     -----------

CASH, end of year                                            $       325,699     $  189,626
                                                             ===============     ===========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION

   Interest paid                                             $        61,523     $   37,100
                                                             ===============     ===========

   Income taxes paid                                         $        11,021     $   60,629
                                                             ===============     ===========


SUPPLEMENTAL DISCLOSURE OF NON-CASH
 OPERATING, INVESTING AND FINANCING
 ACTIVITIES

   Conversion of subordinated debentures                     $             -     $  377,000
   Non-cash issuance of common stock                                 659,177        532,611
   Promotional rebates used to pay vendor debt                             -        260,557
                                                             ---------------     -----------

   Total non-cash operating, investing and
     financing activities                                    $       659,177     $1,170,168
                                                             ===============     ===========

</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>


                      SYNERGY BRANDS, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization

     Synergy  Brands,  Inc.  (formerly  Krantor  Corporation)   (Synergy)  is  a
distributor of groceries,  general  household  merchandise and health and beauty
aids  in  the  promotional  wholesale  industry.   In  addition,   Synergy  also
distributes squid and premium handmade cigars throughout the United States.

     In April 1994, Synergy formed a wholly-owned  subsidiary,  Island Wholesale
Grocers,  Inc.,  which is a full-service  wholesale  delivery company capable of
providing direct store inventory  deliveries within hours of receiving an order,
principally in the northeastern United States.

     In December  1995,  Synergy formed a  wholly-owned  subsidiary,  Affiliated
Island Grocers,  Inc., which did business under the name Island Frozen and Dairy
(IFD). IFD distributed specialty food, poultry and dairy products throughout the
northeastern United States. In June 1996, Synergy discontinued all operations of
IFD, and presented them as such in the  consolidated  financial  statements (see
Note 12).

     In September 1996, Synergy formed a wholly-owned subsidiary, New Era Foods,
Inc.  (NEF),  which  is a  company  representing  manufacturers,  retailers  and
wholesalers  in connection  with  distribution  of frozen  seafood,  grocery and
general merchandise products (see Note 10).

     In October 1997,  NEF formed a subsidiary,  Premium  Cigar  Wrappers,  Inc.
(PCW),  for the purpose of producing  premium  cigar  wrappers in the  Dominican
Republic.  NEF  owns  66% of  the  common  stock  and  approximately  22% of the
preferred stock of PCW (see Note 7).

     In October 1998,  NEF formed a  wholly-owned  subsidiary,  PHS Group,  Inc.
(PHS), which is a wholesale distributor of premium beauty salon products.

         Principles of consolidation

     The consolidated  financial statements include the accounts of Synergy, its
wholly-owned subsidiaries and its majority-owned  subsidiary (collectively,  the
Company).  All  significant  intercompany  accounts and  transactions  have been
eliminated in consolidation.

         Revenue recognition

     The Company  recognizes  revenue at the time  merchandise is shipped to the
customer. The Company returns merchandise to the supplier that is damaged or has
the wrong specifications. The cost is recovered from the trucking company or the
supplier, depending upon the nature of the return.


         Cash equivalents

     The Company  considers  time  deposits  with  original  maturities of three
months or less to be components of cash.

         Marketable securities

     Management determines the appropriate  classification of its investments in
debt  and  equity  securities  at the time of  purchase  and  re-evaluates  such
determination  at each balance  sheet date. No securities  were  outstanding  at
December 31, 1998.

         Inventory

     Inventory  is stated at the lower of cost or market.  The Company  uses the
first-in,  first-out  (FIFO) cost method of valuing its  inventory.  All tobacco
inventory is included in current  assets in conformity  with  standard  industry
practice, not withstanding the fact that significant quantities of inventory may
be carried for several years for purposes of the curing process.

<PAGE>


         Concentrations of credit risk

     Financial   instruments   which   potentially   subject   the   Company  to
concentrations of credit risk consist  principally of accounts  receivable.  The
concentration  of credit risk with  respect to  receivables  is mitigated by the
credit  worthiness of the Company's major  customers.  The Company  maintains an
allowance for losses based upon the expected  collectibility of all receivables.
Fair value approximates carrying value for all financial instruments.

     During  1998 and 1997,  the Company  distributed  its  products  through an
unrelated   intermediary   and  hence,  all  revenues  were  derived  from  this
organization.  As a  result,  the  Company  has an  inherent  business  risk  in
concentrating its sales through this entity.

         Property and equipment

     Property and  equipment  are stated at cost.  Depreciation  of property and
equipment is computed using the  straight-line  method over the estimated useful
lives of the assets, ranging from 3 to 5 years.

     Maintenance  and repairs of a routine  nature are charged to  operations as
incurred.  Betterments and major renewals which substantially  extend the useful
life of an  existing  asset are  capitalized  and  depreciated  over the asset's
estimated  useful life.  Upon  retirement  or sale of an asset,  the cost of the
asset and the related accumulated  depreciation or amortization are removed from
the accounts and any resulting gain or loss is credited or charged to income.

         Preferred stock of subsidiary

     Changes in preferred  stock of the  subsidiary  are accounted for as equity
transactions  and thus no gain or loss is recognized.  Upon each new issuance of
the  subsidiary's  preferred stock, the Company will evaluate whether or not its
investment has been impaired and adjust accordingly.

         Advertising

     The  Company  expenses  advertising  and  promotional  costs  as  incurred.
Advertising  expense was  approximately  $46,500 and $63,000 for the years ended
December 31, 1998 and 1997, respectively.


         Income taxes

     The  Company  uses the asset and  liability  method of  computing  deferred
income taxes. In the event differences between the financial reporting bases and
the tax bases of an enterprise's  assets and liabilities  result in deferred tax
assets,  an  evaluation of the  probability  of being able to realize the future
benefits indicated by such assets is required. A valuation allowance is provided
for a portion or all of the  deferred tax assets when it is more likely than not
that such portion, or all of such deferred tax assets, will not be realized.

         Earnings per share

     The  Company  calculates  earnings  per  share  pursuant  to  Statement  of
Financial  Accounting  Standards  No. 128,   "Earnings  per  Share"  (SFAS 128).
SFAS 128  requires  dual  presentation  of basic and diluted  earnings per share
(EPS) on the face of the  statement  of income  for all  entities  with  complex
capital  structures,   and  requires  a  reconciliation  of  the  numerator  and
denominator of the basic EPS computation to the numerator and denominator of the
diluted   EPS   computation.   Basic   EPS   calculations   are   based  on  the
weighted-average  number of common shares outstanding  during the period,  while
diluted EPS calculations are based on the  weighted-average of common shares and
dilutive common share equivalents outstanding during each period.

         Management estimates

     In preparing  financial  statements in conformity  with generally  accepted
accounting principles,  management is required to make estimates and assumptions
that affect the reported amounts of assets,  liabilities,  revenues and expenses
during the  reporting  period.  Actual  results  could differ from  management's
estimates.

         Stock-based compensation plans

     Statement  of  Financial  Accounting  Standards  No. 123,  'Accounting  for
Stock-Based  Compensation"  (SFAS  123),  encourages,   but  does  not  require,
companies to record  compensation  cost for  stock-based  employee  compensation
plans at fair  value.  The  Company  has  elected to  continue  to  account  for
stock-based   compensation  using  the  intrinsic  value  method  prescribed  in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees" (APB 25) and related interpretations.  Accordingly, compensation cost
for stock options is measured as the excess, if any, of the fair market value of
the  Company's  stock at the date of the grant over the amount the  employees or
non-employees must pay to acquire the stock.

<PAGE>

2.       MARKETABLE SECURITIES

     Realized  gains or losses on marketable  securities  are  determined on the
specific  identification  method.  Net  realized  losses on sales of  securities
included in the  determination  of consolidated  net loss amounted to $37,625 in
1997. No marketable securities were owned during 1998.

3.       PROPERTY AND EQUIPMENT

     Property and equipment as of December 31, 1998 consisted of the following:

<TABLE>
<CAPTION>
<S>                                                                               <C>

       Office equipment                                                           $   35,226
       Machinery and equipment                                                        48,825
       Leasehold improvements                                                         62,675
                                                                                  ----------
                                                                                     146,726

       Less accumulated depreciation and amortization                                 26,667
                                                                                  ----------
                                                                                  $  120,059
                                                                                  ==========

4.       INVENTORY

     Inventory as of December 31, 1998 consisted of the following:

       Salon finished goods                                                       $  830,410
       Tobacco raw materials                                                         544,398
                                                                                  ----------
                                                                                  $1,374,808
                                                                                  ==========

5.       LONG-TERM DEBT

     Long-term debt at December 31, 1998 consisted of the following:

       Settlement on revolving line-of-credit                                     $  200,000

       Note payable to financial company due August 1999,
         bearing interest at 12%; collateralized by inventory of NEF               1,000,000

       Secured debentures; bearing interest at 12% payable
         monthly; $200,000 principal due October 1999 and
         remainder maturing October 2000; collateralized by
         inventory and accounts receivable of PHS                                    600,000

       Note payable to bank due July 5, 1996; non-interest
         bearing; previously collateralized by inventory of IFD                       75,000
                                                                                  ----------
                                                                                   1,875,000

       Less current portion                                                        1,475,000
                                                                                  ----------
                                                                                  $  400,000
                                                                                  ==========
</TABLE>

                                      F-12

<PAGE>

     Scheduled future  maturities of long-term debt at December 31, 1998 were as
follows:

          Year ending
         December 31,
        -------------
               1999        $      1,475,000
               2000                 400,000
                           ----------------
                           $      1,875,000
                           ================

     The Company  financed its  receivables  in prior years  through a revolving
line-of-credit  facility with a commercial lender. In February 1999, the Company
entered into a settlement  agreement  with the lender for $200,000 to settle its
outstanding obligation.  The settlement has been reflected in the 1998 financial
statements in debt forgiveness income.
 
     In  accordance  with the terms of the  secured  debenture  agreements,  the
Company  issued  300,000  shares of  restricted  common  stock to the  debenture
holders.  The debentures  contain provisions whereby the Company may be required
to issue additional  shares of restricted  common stock to the debenture holders
if the  stock  price  is  below  a  stated  threshold  at  maturity  date of the
debentures.


6.       VENDOR DEBT

     In 1997,  the Company  entered into an agreement with a vendor to repay its
accounts payable balance of $1,465,976.  During 1998, the Company issued 350,000
shares of common  stock to the vendor,  and agreed to make  monthly  payments of
$22,222 from May 1998 through  April 2000.  No interest is being  charged by the
vendor.  In the event the vendor  sells the  Company's  common  stock at a price
different than the market price at the date of issuance,  the Company's  account
will be charged or credited with the differential.

     The following  are the scheduled  maturities of vendor debt at December 31,
1998:

          Year ending
         December 31,
         ------------
              1999         $        266,664
              2000                  128,384
                           ----------------
                           $        395,048
                           ================

7.       MINORITY INTEREST

     PCW was  incorporated in October 1997 with 7,750 shares of authorized $.001
par value common  stock.  At December  31, 1998,  PCW had 1,000 shares of common
stock  outstanding  which were issued at par value.  The Company owns 66% of the
common  stock  and an  unrelated  individual  owns the  minority  interest.  For
financial reporting purposes, the assets, liabilities, results of operations and
cash  flows  for  PCW  are  included  in the  Company's  consolidated  financial
statements  and the  outside  investor's  interest  in PCW is  reflected  in the
preferred stock of subsidiary.

                                      F-13

<PAGE>


     PCW had 2,250 shares of authorized  $.001 par value  preferred stock issued
and outstanding at December 31, 1998. PCW issued 1,750 shares of preferred stock
at inception to two unrelated  individuals  at $60 per share,  and 500 shares to
the Company for a 22% minority  interest in the preferred  stock. The holders of
PCW preferred stock are entitled to receive cumulative  dividends at the rate of
$14 per share before any  dividends  on the common  stock are paid.  Included in
preferred stock of subsidiary is $30,625 of preferred stock dividends payable at
December 31, 1998. The Company's  portion of the dividend has been eliminated in
consolidation.  In the event of dissolution of PCW, the holders of the preferred
shares are  entitled  to receive  $60 per share  together  with all  accumulated
dividends, before any amounts can be distributed to the common stockholders. The
shares are convertible only at the option of PCW at $120 per share.

8.       STOCKHOLDERS' EQUITY

     In May 1997,  the  majority  of common  stockholders  voted to  authorize a
1-for-25  reverse  split of the  Company's  $.001 par value  common  stock.  Any
stockholders  entitled to  fractional  shares were paid with cash based upon the
current  fair market  value of the stock.  All  references  in the  accompanying
financial  statements  to the  number of common  shares  have been  restated  to
reflect the stock split.

     In November 1997, the Company  redeemed 100% of the Class A preferred stock
in exchange for  $350,000  cash,  400,000  shares of common stock and options to
purchase 500,000 shares of restricted  common stock exercisable at $1 per share.
Part of the cash payment was used to settle accrued  dividends of $220,000.  The
options were to vest if the Company achieved  $1,000,000 in pretax income within
five years.  During  1998,  this  restriction  was removed and the options  were
granted at $.50 per share. The preferred stock was thereafter  reissued,  at par
value,  to an  officer of the  Company  in  recognition  of  services  rendered;
however,  all dividend privileges and stock redemption rights were stripped from
the stock. The stock retains the 13-to-1 voting privilege.

     At  December 31,  1998,  the Company had  outstanding  warrants to purchase
112,500 shares of the Company's  common stock, at $1.10 per share.  The warrants
become  exercisable  when the shares are  registered and expire at various dates
through 2002. At December 31, 1998, 112,500 shares of common stock were reserved
for that purpose.

     During 1997,  the Company  issued  1,612,200  shares in  connection  with a
Regulation  S offering  at an  average  price of $.82 per  share,  resulting  in
$1,331,780  proceeds  net of offering  expenses,  including  the  conversion  of
$377,000 of subordinated  debt, and $125,000 of non-cash  issuances as described
in the consolidated statement of cash flows.

     In 1994, the Company adopted the 1994 Services and Consulting  Compensation
Plan (the Plan).  Under this Plan,  4,500,000  shares of common  stock have been
reserved for issuance.  Since the inception of the Plan,  the Company has issued
2,289,970 shares for payment of services to employees and  professional  service
providers such as legal, marketing,  promotional and investment consultants. The
Company had  oversubscribed  the Plan by 1,775,470 shares at December 31,  1998.
Common stock issued in connection  with the Plan was valued at the fair value of
the  common  stock at the date of  issuance  at an amount  equal to the  service
provider's  invoice  amount.  Under the Plan,  the  Company  granted  options to
selected employees and professional service providers.

                                      F-14

<PAGE>

     The following is a summary of such stock option  transactions for the years
ended December 31, 1998 and 1997 in accordance with the Plan:

<TABLE>
<CAPTION>
<S>                                                          <C>          <C>

                                                                         Weighted
                                                                          average
                                                             Number of   exercise
                                                             shares         price
                                                           -----------   --------
Outstanding at December 31, 1996 (26,800 exercisable):         26,800    $   1.38
Granted                                                       275,000    $   1.61
Terminated                                                    (26,800)   $   1.38
Exercised                                                    (275,000)   $   1.61
                                                           -----------
Outstanding at December 31, 1997                                    -    $      -
Granted                                                     3,985,500    $    .60
                                                           -----------
Outstanding at December 31, 1998 (2,210,030 exercisable)    3,985,500    $    .60
                                                           ===========
Option price                                               $.40-$2.00
                                                           ===========
Available for grant:
 December 31, 1997                                          3,156,550
                                                           ===========
 December 31, 1998                                                  -

</TABLE>


     The  Company   applies  APB  25  in  accounting   for  its  stock  options.
Compensation cost charged to operations, related to options, was $6,250 in 1998.
Had  compensation  costs for the stock options been determined based on the fair
value at the grant date  consistent  with the method of SFAS 123,  the Company's
net  income and  earnings  per share  would  have been  reduced to the pro forma
amounts indicated below:

                                                   1998            1997
                                               --------         -------
      Net income:
        As reported                            $297,508        $169,050
                                               ========        ========
        Pro forma                              $160,810        $147,724
                                               ========        ========
      Net income (loss) per common share:
        As reported                            $    .06        $ (.03)
                                               ========        ========
        Pro forma                              $    .03        $ (.04)
                                               ========        ========

     The weighted-average fair value at date of grant for options granted during
1998 and 1997 was $.034 and $.08 per  option,  respectively.  The fair  value of
each option grant is estimated using the Black-Shoales option-pricing model with
the following weighted-average assumptions used:

                                                1998            1997
                                              --------        -------
         Dividend yield                          0%              0%
         Expected volatility                     0%              0%
         Risk-free rate of return             4.43-5.5%        6.5%
         Expected life                      1 to 5 years    1 to 4 years

                                      F-15

<PAGE>


     The  Company  has also  reserved  100,000  shares for a stock  option  plan
(Option  Plan) for  non-employee,  independent  directors,  which  entitles each
non-employee,  independent  director an option to purchase  10,000 shares of the
Company's  stock  immediately  upon  election  or  re-election  to the  Board of
Directors.  Options  granted  under the Option  Plan will be at the fair  market
value  on the  date of  grant,  immediately  exercisable  and have a term of ten
years.  The Company had 1,200 options  outstanding  and  exercisable  and 98,900
available for grant at December 31, 1998 at an option price of $.50 per share.


9.       INCOME TAXES

     At December 31, 1998, the Company had a net operating loss  carryforward of
approximately $9,818,000, which, if not utilized, will begin expiring in 2011.

     The  components  of the  deferred  tax  asset  at  December 31,  1998  were
approximately as follows:

       Net operating loss carryover    $      3,338,000
       Deferred compensation                    108,400
       Capital losses                            12,800
       Valuation allowance                  (3,459,200)
                                        ---------------
                                        $             -
                                        ===============

     The  provision for income taxes for the years ended  December 31,  1998 and
1997 consisted of the following:

                                          1998           1997
                               ---------------   ------------
         Federal:
           Current             $         6,085    $         -
           State and local               7,200              -
                               ---------------   ------------
                Total          $        13,285    $         -
                               ===============   ============

     A  reconciliation  of income  tax  expense  computed  at the U. S.  Federal
statutory  rate of 34% and the Company's  effective tax rate for the years ended
December 31, 1998 and 1997 is as follows:

                                                       1998             1997
                                                     ------           ------
  Federal income tax expense at statutory rate        34.0%            34.0%

  Increase (decrease) resulting from:
   Utilization of net operating loss carryforward   (34.0%)          (34.0%)
   State and local income taxes, net of
   Federal benefit                                     3.2%                -
                                                     ------           ------
                                                       3.2%                -
                                                     ======           ======

                                      F-16

<PAGE>


10.      COMMITMENTS AND CONTINGENCIES

         Lease commitments

     The Company leases office space in Wexford,  Pennsylvania and Syosset,  New
York,   under  operating   leases  expiring  in  August  2000  and  April  2001,
respectively.  The Company is also leasing a vehicle  under an  operating  lease
expiring in 2003. Future minimum lease payments under  non-cancelable  operating
leases as of December 31, 1998 were as follows:

     Year ending
     December 31,
     ------------

        1999                  $ 44,070
        2000                    42,255
        2001                    18,400
        2002                     9,600
        2003                     9,600
                              --------
                              $123,925
                              ========

     Lease  expense  for  the  years  ended  December  31,  1998  and  1997  was
approximately $54,800 and $30,000, respectively.

         Distribution agreements

     In 1996,  the  Company  entered  into a ten-year  agreement  with a Chinese
trading company (ALT) to distribute  frozen seafood in the United States under a
licensing  arrangement.  The Company acts as an agent for ALT.  During 1997, the
Company marketed ALT's frozen seafood products and earned  commissions  based on
sales generated by the distribution agreement.  Additionally,  the Company sells
promotional  grocery  products to an agent of ALT.  ALT provides the funding for
such purchases.

     In consideration for ALT providing  products and funding to the Company for
sale and distribution, and as security for doing so, the Company was required to
provide  $2,052,995  in 1996 and an  additional  $200,000 in 1997, as collateral
security for  performance by the Company under the terms of the  agreement.  The
Company had $450,000  refunded to it in 1998.  The collateral  security  deposit
bears interest at 5% and is received quarterly.

     In  December  1997,  NEF  entered  into  a  25-year   exclusive   worldwide
distribution  agreement with a Dominican Republic  corporation (DR) for the sale
and  distribution  of premium  handmade  cigars  manufactured  in the  Dominican
Republic. There is an option to extend the term of the distribution agreement up
to an additional 25 years.

         Litigation

     The  Company is a named  defendant  in various  lawsuits  arising  from the
liquidation  of IFD.  The Company has  evaluated  the  potential  exposure of an
unfavorable  outcome on various lawsuits and has accrued $60,635 at December 31,
1998 for obligations which are considered probable.

     The Company is subject to legal  proceedings  and claims which arise in the
ordinary  course of its business.  In the opinion of  management,  the amount of
ultimate  liability with respect to these actions will not materially affect the
financial position, results of operations or cash flows of the Company.

                                      F-17

<PAGE>


         Guarantee

     In March 1998,  the Company guaranteed a $1,000,000 line-of-credit facility
to a Dominican  cigar  manufacturer,  which is owned by a PCW  stockholder.  The
purpose of the  line-of-credit is to provide financing to the cigar manufacturer
to which PCW will supply cigar wrappers.


11.       MAJOR CUSTOMERS

     The Company has one customer,  the U.S. agent of ALT,  which  accounted for
100% of total sales for 1998 and 1997.  Accounts  receivable  from this customer
accounted for approximately  $2,903,500 (96%) of total trade accounts receivable
at December 31, 1998.


12.       DISCONTINUED OPERATIONS

     On June 30,  1996,  the Company  adopted a formal plan to  discontinue  the
operations of IFD that was completed during 1998. Accordingly,  IFD is accounted
for as a discontinued  operation in the accompanying 1997 consolidated financial
statements  and had no  revenues  in 1998 or  1997.  During  1997,  the  Company
incurred additional  expenses related to the discontinued  operations of IFD and
related  litigation.   The  assets  and  liabilities  of  IFD  included  in  the
accompanying  consolidated  balance  sheet as of December 31, 1998  consisted of
approximately the following:

     Current liabilities of discontinued operations -
     Accounts payable and accrued expenses                 $        60,635
     Long-term debt                                                275,000
                                                           ---------------
                                                           $       335,635
                                                           ===============

13.       FOURTH QUARTER ADJUSTMENTS

     The Company made a fourth quarter adjustment to correct an overstatement of
promotional rebates of approximately $223,000.


14.       EARNINGS PER SHARE

     The following  data shows the amounts used in computing  earnings per share
and the  effect on the  weighted-average  number of  shares of  dilutive  common
stock:

<TABLE>
<CAPTION>
<S>                                                             <C>         <C> 

                                                                    1998          1997 
                                                               ---------   ------------
Net income applicable to common stockholders                   $ 297,508   $   (50,950)
                                                               =========   ============
Weighted-average number of shares in basic EPS                 5,101,041     1,630,220

Effect of dilutive securities (stock options and warrants)       523,549        17,320
                                                               ---------    ----------
Weighted-average number of common shares and
dilutive potential common shares used in diluted EPS           5,624,590     1,647,540
                                                               =========    ==========
</TABLE>


                                      F-18

<PAGE>


                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
<S>                <C>                                                              <C>

Exhibit No.       Description                                                        Page
-----------       -----------                                                        ----
3.1               Certificate of Incorporation and amendments thereto (1)            EX-1

3.2               By-Laws (2)                                                        EX-4

4                 Warrants and debentures  defining  rights of security  holders       --
                  (3)

10.1              Distributorship  Agreement  dated  October  1996  between Asia     EX-6
                  Legend  Trading  Ltd.  And New Era Foods  Inc.,  as  partially
                  assigned to Tenda Foods Corp. (4)

10.2              Distributorship  Agreement dated December 1997 between Fabrica     X-14
                  De Tobacco  Valle  Dorado SA and Gran  Reserve  Corporation  as
                  partially assigned to New Era Foods Inc. (4)

10.3             Synergy Brands Inc. 1994 Services and Consulting  Compensation        --
                  Plan, as amended (5)

21                Listing of Company Subsidiaries                                   EX-22

</TABLE>


(1)     The amendments to Certificate of  Incorporation  filed 7/29/96 and filed
        6/24/98 and Certificate of Designation  regarding  Preferred Stock filed
        6/24/98, are incorporated by reference to the exhibits filed to the Form
        10K/A  of  the  Company  filed  9/3/98.  The  original   Certificate  of
        Incorporation and other amendments thereto are incorporated by reference
        to the exhibits  filed to the  registration  statement of the Company on
        Form S-1 (File No. 33-83226) filed by the Company with the Commission on
        August 24, 1994.

(2)     The  amendment  to the  By-Laws  approved  by  the  Company's  Board  of
        Directors on March 7, 1997 are incorporated by reference to the exhibits
        filed to the Form  10K/A  of the  Company  filed  9/3/98.  The  original
        By-Laws are  incorporated  by  reference  to the  exhibits  filed to the
        registration  statement  of the Company on Form S-1 (File No.  33-83226)
        filed by the Company with the Commission on August 24, 1994, and

(3)     Copies of  outstanding  warrants  and  debentures  are  incorporated  by
        reference to the exhibits  filed to the Form 8-K/A of the Company  filed
        with the Commission (File No. 0-19409) on 2/3/98.  Description of rights
        of Preferred Stock are included in Certificate of Designation  regarding
        Preferred  Stock, as amended,  and included as exhibit to the Form 10K/A
        of the Company filed 9/3/98.  Description of the Company's  Common Stock
        is  incorporated  by  reference  to  the  description  contained  in the
        Company's  Registration  Statement on Form 8-A (File No.  0-19409) filed
        with the  Commission  pursuant to Section  12(b) of the  Exchange Act on
        July 16, 1991,  including  any amendment or report filed for the purpose
        of updating such description.


(4)     Incorporated  by  reference  to the  exhibits  to the Form  10K/A of the
        Company filed 9/3/98.

(5)     Incorporated by reference to the  Registration  Statement of the Company
        on Form S-8 (File No. 333-21623) filed with the Commission on 2/12/97.