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, 2001.
                         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.)

                               1175 Walt Whitman Road
                                Melville, NY 11747
                         (Address of corporate offices)

        Registrant's telephone number, including area code: 631-424-5500

             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-KSB or any  amendment to
this Form 10-KSB. [X]

     On March 31,  2002,  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 31,  2002)  approximately
$3,300,000.  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 31, 2002 was 5,050,484.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy  Statement for  Registrant's  2001 Annual  Meeting of
Stockholders  currently  scheduled  to be held  June  2002 are  incorporated  by
reference in Part III (for other  documents  incorporated  by reference refer to
Exhibit Index at page 50)

                                      -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
involve  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.  DESCRIPTION OF BUSINESS

A.       OVERVIEW

     Synergy  Brands  Inc.  (NASDAQ:  SYBR) and its  consolidated  subsidiaries,
("SYBR"  or  "the  Company")  have  developed,  operate  and  continue  to  seek
opportunities  to  establish,  Internet  Businesses  directed  at the  sale of a
variety of products as well as partnering  and seeking to partner or invest with
advanced technologies to enhance the Company's properties and participate in new
ventures  synergistic  with  the  other  operations  of  the  Company  (Internet
Infrastructure),  including  establishment  of strategic  contacts and alliances
with other companies.

     SYBR's Internet strategy includes the internal development and operation of
subsidiaries  as well as the taking of  strategic  positions  in other  Internet
companies  that have  demonstrated  synergies with SYBR's core  businesses.  The
Company's  strategy also envisions and promotes  opportunities  for  synergistic
business  relationships among the Internet companies within its portfolio.  SYBR
and its  consolidated  subsidiaries  have  developed  Internet  properties  that
facilitate  internet  product  sales and  procurement  as well as  strategically
partnering with off line and on- line media companies to build revenues.  SYBR's
business  strategies are focused on developing  business  opportunities in three
related  sectors;  Business to  Consumer  (B2C)  Business to Business  (B2B) and
Enterprise  Integration  (EI).  At March 31, 2002 SYBR's  Internet  subsidiaries
included BeautyBuys.com (100% voting interest through the Company's wholly owned
subsidiary SYBR.com Inc.) Netcigar.com (wholly owned by SYBR.com Inc.), SYBR.com
Inc. as well as PHS Group (both being  subsidiaries  of New Era Foods Inc. which
in turn is a wholly owned subsidiary of the Company),  Supply Chain Technologies
Inc. (wholly owned by SYBR.com) and  Dealbynet.com  Inc. (wholly owned by Supply
Chain Technologies Inc.) BeautyBuys.com is a leading online Business to Consumer
beauty  department  store consisting of thousands of unique  nationally  branded
beauty  products.  In addition  the Company has  developed  Dealbynet.com  as an
internet  domain  further   developed   independently  as  SYBR's  supply  chain
integration  model for its Business to Business  platform being developed in the
Health and Beauty (HBC) as well as grocery businesses. Netcigar.com is a leading
online  retailer of premium  cigars and other related  luxury items.  PHS is the
Company's fulfillment platform for its Business to Business Internet operations.
The facility allows for automated  order  processing,  inventory  management and
customer  service.  Supply Chain  Technologies  was recently  formed to utilize,
further  develop and market a parallel  internet  platform to that  developed by
SYBR's subsidiary  Dealbynet designed to accommodate  distribution and inventory
management logistics for other industries.  The Company made a 20% investment in
Interline  Travel and Tours,  Inc.  (ITT) in the fourth  quarter of Fiscal  Year
2001.  The Company  believes  that its capital  investment in this unique travel
company may provide for future  capital  appreciation.  SYBR does not manage ITT
and relies on its  management  for day to day  operations.  ITT provides  travel
packages including cruises and hotel deals solely for airline employees.  ITT is
believed to be the largest company in this sector of the travel industry.

                                      -2-

<PAGE>

     SYBR has also  established  strategic  alliances  with media and technology
partners in a way that  minimizes  cash  outlay by  offering  equity in SYBR for
media and technology credits. With such transactions not only does SYBR conserve
its cash assets but also it gains the interest of important media partners.

     The  Company has  adopted a strategy  of seeking  opportunities  to realize
gains through  investments or having separate  subsidiaries or affiliates buy or
sell minority  interests to outside  investors.  The Company  believes that this
strategy  provides the ability to increase  shareholder value as well as provide
capital to support the growth in the Company's subsidiaries and investments. The
Company  expects to continue to develop and refine the  products and services of
its  businesses  focusing on the internet as the primary  mode of  distribution,
with the goal of increasing revenue as new products are commercially introduced,
and to continue to pursue the  acquisition of or the  investment in,  additional
Internet  related  companies.  The  Company  will seek to  continue  to  attract
traditional media  investments,  partner with advanced value added  technologies
that will be  synergistic  to its  internet  platforms  as well as partner  with
existing  internet  companies  to  achieve  its goals of  building  a  strategic
portfolio of internet assets.

     The  present  focus of the  Company is on product  sales  through  internet
channels on a B2C and B2B basis and on the utilization of proprietary technology
to accomplish this objective.

     THE  COMPANY'S  CORPORATE  OFFICE IS  LOCATED  AT 1175 WALT  WHITMAN  ROAD,
MELVILLE NEW YORK 11747, AND ITS TELEPHONE NUMBER IS (631) 424-5500. THE COMPANY
MAINTAINS A CORPORATE WEBSITE AT WWW.SYNERGYBRANDS.COM.

                                      -3-

<PAGE>

B.       INTERNET & LOGISTICS

         1. GROCERY PRODUCTS.

     Dealbynet.Com  Inc.  (DBN) is  considered a subsidiary of PHS Group (wholly
owned  subsidiary  of Synergy  Brands Inc.) and was formed and  functions as the
Company's  B2B platform  for sale of health and beauty care ("HBC")  products as
well as other grocery products marketed and sold through the Company's  efforts.
Dealbynet  has  developed a B2B  platform  designed to  streamline  supply chain
management  and reduce  procurement  and  distribution  expenses  in the grocery
general  merchandise  (GM) and HBC  industry.  The site  (www.dealbynet.com)  is
designed for the  procurement  professional  to access data and  manipulate  its
value across multiple logistical  platforms.  DBN also uses e-commerce resources
and  Visionet  (tm)(owned  by Fleming  NYSE:FLM)  and Procter & Gamble's  (NYSE:
PG)on-line  systems to integrate  the vendor  offerings in order to optimize its
product  offerings.  DBN believes that logistics  savings will result in product
cost reductions to its customers  through  seamless  electronic  offerings.  DBN
plans to develop  migration  paths to its unix based  internal  system through a
virtual  private  network (VPN) it is  developing  to allow for full  accounting
integration.

     There are current internet based product exchanges developed to accommodate
mainly the grocery  industry's needs to have prompt access to both  availability
of product and pricing.  The main participants in this area of wholesale product
distribution assistance, are Uniform Code Council (UCCnet), Transora, Global Net
Exchange and World Wide Retail  Exchange.  The internet  product  exchanges  and
information  therefrom  are  intended to be capable of  integrating  through the
Dealbynet  system which is compatible and conforms to such product  exchanges so
as to access the  information  supplied  therefrom  and is to be  utilized as an
adjunct thereto and is designed to customize acquisition to product availability
and pricing to the individual subscriber to the Dealbynet platform. Accordingly,
the  Dealbynet  system is  designed  to offer the  following  advantages  to its
business partners, regardless of size and market share:

         1. Provides capacity for manufacturer's,  wholesalers, distributors and
         retailers to gain access to real-time data.

         2. Facilitates and streamline sales, procurement, logistical, financial
         and merchandising activities.

         3. Automatically  presents  customized  offerings and pricing depending
         upon user profile.

         4. Enables users to process, track and manage orders.

     DBN  has  developed   customer   profiling   database   relationships   for
streamlining web order management in the grocery industry.  Beta testing for the
Proctor & Gamble pilot web order system, which was initiated in 1998, encouraged
the Company to develop  DBN. The Company has also taken the  necessary  steps to
build enterprise  integration (EI) connectivity  tools that allow key data files
to seamlessly flow through  DealByNet.  An alliance partner will be required and
candidates are being considered for EI and other connectivity applications.

     The  DealByNet  exchange  enables its business  partners to search and find
items online by replenishment  cost, and intends to provide solutions for supply
chain  efficiencies  that are expected to reduce  purchasing  errors, as well as
transportation  and storage costs,  while  increasing  flexibility and access to
real-time  data.  DealByNet  is one of the first  communities  that  uses  P&G's
streamline  logistics  model to drive  fast-moving,  nationally  branded grocery
products to its customer's docks via the internet.  DealByNet focuses on selling
the top moving national brands in the grocery  industry by creating direct store
delivery  programs,  thus avoiding costly  warehousing and  distribution  costs.
DealByNet  does not replace the  full-line  wholesaler,  but  supplements  their
efficiencies  by carefully  selecting and profiling the cost of delivery of each
selected product and creating a more effective supply chain for these items.

                                      -4-

<PAGE>

         2. HEALTH AND BEAUTY PRODUCTS

     In  the  first  quarter  of  1999,  the  Company  established  through  its
subsidiary   BeautyBuys.Com   Inc.  (wholly  owned  through  SYBR.com  Inc.)  an
e-commerce  website  (www.BeautyBuys.com)  to offer  direct to the  consumer via
internet  sales on a  non-exclusive  basis a  popular  selection  of  nationally
branded beauty care products, including salon hair and skin care items, designer
fragrances and  cosmetics,  and consumer  health and beauty care products,  most
being   previously  sold  by  the  Company  as  part  of  its  more  traditional
distribution  business.  BeautyBuys.com  Inc. has further  expanded its internet
operations  into B2B sales of most products  offered through its retail internet
sales as well as adapting much of the  Company's  historical  wholesale  product
trade  outside  the  health  and  beauty  care  industry  to the  B2B  platform.
Advertising on radio,  television  and on-line  channels was an integral part of
the overall  traffic-building  plan for BeautyBuys.com.  To further this area of
expanded awareness of the BeautyBuys.com presence in the marketplace the Company
has  established  for  BeautyBuys.com  a  strategic  alliance  with  a  material
advertising source in Sinclair Broadcasting Inc.(Sinclair).

                                      -5-

<PAGE>

     Sinclair  provides the Company with production,  creative  services,  media
planning  placement in their online  communities  through their  assistance  and
advertising  time by contract  devoted to  BeautyBuys.com.  The Company believes
that the partnership  with Sinclair  Broadcast  Group,  Inc. and the exchange of
media for equity was a milestone that  accelerated the growth and development of
BeautyBuys.com,  Inc. In addition to the  considerable  media resources that are
now available to BeautyBuys.com, Inc, there is a wealth of advertising and media
management  expertise  that Sinclair is providing to the  partnership.  Sinclair
owns and/or  programs  63  television  stations in the United  States that reach
almost 25% of the television  viewing population in 40 markets that focus on the
American  middle  market.  Sinclair  stations  are  affiliated  with the 4 major
networks (ABC,  NBC, CBS, FOX) as well as Warner Bros. and UPN.  Sinclair is the
largest FOX & WB affiliates  network in the US. SYBR, in December  2000,  did in
fact arrange for strategic sale of a portion of the media credits; from Sinclair
Broadcasting,  such being sold to ICON  International,  one of the largest media
barter  enterprises in the United States owned by Omnicom, a public entity (NYSE
OMC). The sale was made for a combination  of cash and trade credits,  the trade
credits further allowing for SYBR to acquire product from manufacturers  through
ICON. As part of the media credits sale,  Sinclair  reconveyed their interest in
BeautyBuys.com to SYBR making  BeautyBuys.com again a wholly owned subsidiary of
SYBR and Sinclair is one of the largest shareholders of Synergy Brands Inc.

     BeautyBuys.com's  website design work is  proprietary.  It was developed to
accommodate  the  specific  marketing  and record  keeping  requirements  of the
Company.  State-of-the-art  technology  is  utilized  in site  design,  tracking
systems,  hosting  and  affiliated  programs.   BeautyBuys.com  strives  through
internal development efforts to create and enhance the specialized,  proprietary
software that is unique to its Business.

     BeautyBuys.com  utilizes  a  proprietary  computerized  web based  database
management  system  that  collects,  integrates  and  allows  analysis  of  data
concerning   sales,   order   processing,   shipping,   purchasers,   receiving,
inventories,  and  financial  reporting.  At  any  given  time,  management  can
determine the quantity of product stored by item, cost by item,  aging and other
characteristics necessary for expeditious fulfillment and distribution.

                                      -6-

<PAGE>

     BeautyBuys.com  has  implemented  a broad array of services and systems for
site management,  searching,  customer interaction,  transaction  processing and
fulfillment.  BeautyBuys.com uses a set of software  applications for: accepting
and validating customer orders;  organizing,  placing,  and managing orders with
vendors and fulfillment partners; receiving product and assigning it to customer
orders; and managing shipment of products to customers based on various ordering
criteria.

     These services and systems use a combination of BeautyBuys' own proprietary
technologies and commercially available licensed technologies. Products acquired
for resale by  BeautyBuys.com  are  shipped in bulk to the  Company's  warehouse
facility.  BeautyBuys.com  maintains  inventory  on  approximately  50%  of  its
products  and has  arrangements  to  purchase  the  balance  of its  needs  on a
"just-in-time" basis. All orders are assembled in a single facility for shipment
to the customer via UPS or confirmed priority mail.

     BeautyBuys'  website can be shopped 24 hours a day,  seven days a week from
anywhere  that a  consumer  has  Internet  access.  BeautyBuys  offers  a  large
selection of products and in addition provides various levels of product content
that includes a wealth of  health-related  information,  buying guides and other
tools   designed  to  help  consumers   make  educated   purchasing   decisions.
Additionally,  shopping list and e-mail reminders are designed to make it easier
for customers to regularly purchase there preferred products.

     BeautyBuys  believes  that the breadth and depth of its product  selection,
together with the  flexibility  of its online store and its range of helpful and
useful product information and other shopping services,  enables  BeautyBuys.com
to provide a strong merchandising strategy.  BeautyBuys continues to develop its
web site through value added technologies,  strategic partnerships and marketing
programs.  To date it has developed  interest from in excess of 25,000  business
affiliates and over 100,000 on-line  customers.  The web site currently receives
in excess of 150,000 unique visitors per month with the average time visiting on
site in excess of 13  minutes.  BeautyBuys  uses  sophisticated  micro-marketing
techniques to increase its sales and enhance the customer's shopping experience.

                                      -7-

<PAGE>

     BeautyBuys'  marketing  efforts are aimed at flexibility of presentation to
attract new and repeat customers and give ease of access to product availability
and  information.  BeautyBuys'  online  store  provides  flexibility  to  change
featured products or promotions without having to alter the physical layout of a
store.  BeautyBuys.com  is also able to  dynamically  adjust its  product mix in
response  to changing  customer  demand,  new  seasons or  holidays  and special
promotions.

     BeautyBuys has the ability to offer products to individual  customers based
on their brand  preferences.  BeautyBuys  also  cross-sells  its  departments to
promote impulse buying by customers.

     BeautyBuys  has  programs  that  allow it to provide  samples  of  products
designed as personal  gifts.  BeautyBuys also plans to use sampling to work with
manufacturers to introduce new products.

     BeautyBuys competes with several online merchants including Perfumania.com,
Gloss.com, Fragrancenet.com, Drugstore.com, ibeauty.com and others. In addition,
BeautyBuys  competes with the traditional  $100 billion retail market  including
department stores, chain stores and mass merchandisers.  BeautyBuys' competitors
can be divided into several groups:  chain drugstores,  such as Walgreen's,  CVS
and  Eckerd;  mass  market  retailers  such  as  Wal-Mart,   Kmart  and  Target;
supermarkets, such as Safeway, Albertson's and Kroger; warehouse clubs; and mail
order and major department stores, such as Nordstrom,  Macy's and Bloomingdales.
Each of these competitors offers one or more of the health, beauty, wellness and
personal  care  product  categories  as offered  BeautyBuys  on and  through its
website.

     At this time there is no online vendor known to BeautyBuys  that  dominates
the beauty and health care  market.  BeautyBuys  believes  that with its quality
selection, competitive pricing, advertising,  customer profiling and technology,
it can become  dominant in this  industry.  The Company plans to focus on direct
consumer  marketing and horizontal  growth to expand its online beauty business.
To that end BeautyBuys has acquired an additional  site that  selectively  sells
beauty products labeled fragrancesalon.com.

     Management believes that the following are principal competitive factors in
the market place wherein it operates, all of which are acknowledged to exist and
are  focused  upon in  BeautyBuys'  operations:  brand  recognition,  selection,
convenience,  price,  website  performance and accessibility,  customer service,
quality of information services, reliability and speed of order shipment.

                                      -8-

<PAGE>

         3. CIGAR PRODUCTS

     In July 1999, the Company launched through its subsidiary NetCigar.com Inc.
a web  site  (www.netcigar.com)  for sale of  premium  cigar  products.  Through
NetCigar.com  Inc.  the  Company  offers  information  and sales on a variety of
cigars and cigar related products and content,  including cigar news and events,
editorials, and an array of cigars and cigar products of both proprietary labels
and other  popular  brands.  The Company also markets  humidors,  and sells golf
oriented  gifts  and  apparatus.   The  Company  has  a  long  term  warehousing
arrangement in Miami,  Florida for storage of its proprietary cigars.  There are
no retail stores to upkeep. NetCigar.com Inc. is not locked into any traditional
pricing  mode  for  sale  of its  products  so  marketing  quality  products  at
significant  discounts  is  possible  and  is a  large  part  of  its  business.
NetCigar's web site adds convenience to customer and potential customer shopping
by being open and  available  24 hours a day,  seven days a week for access from
anywhere  that  a  consumer  has  internet  access.  A  significant  portion  of
NetCigar's web site design is proprietary and NetCigar has had the site designed
and has developed the site to accommodate  specific marketing and record keeping
requirements to enhance customer service.  In October 2000,  NetCigar entered an
arrangement through SYBR for media coverage through Premiere Radio Networks Inc.
("Premiere"), a subsidiary of Clear Channel Communications (NYSE:CCU).  Premiere
syndicates more than 60 radio programs to more than 7800 radio  affiliations and
reaches over 180 million listeners weekly.  Specifically,  Premiere exchanged $1
million of radio media  credits for stock in SYBR and cash.  Netcigar  initiated
similar programs with Bloomberg Radio and ESPN Radio.

                                      -9-

<PAGE>

     Netcigar.com, Inc., utilizes a proprietary computerized database management
system that collects,  integrates and allows analysis of data concerning  sales,
order  processing,  procurement,  shipping,  receiving,  inventory and financial
reporting.  At any given time,  Company executives can determine the quantity of
product stored by item, cost by item, aging and other characteristics  necessary
for expeditious fulfillment and distribution.  A network system of the Company's
office and warehousing facilities allows for online assessment and transactional
reporting capabilities.  It is the Company's policy that all consumer orders are
shipped  from  the  Company's  warehouse  within  3  days  of  order  placement.
Netcigar.com maintains an inventory on approximately 50% of its product mix; the
other 50% is purchased on a just-in-time  basis.  The  distribution  facility is
modular and  sufficient  space is available to handle the Company's  anticipated
growth in this area of product sales.  After an order is shipped,  customers can
view order-tracking information on NetCigar's web site.

     As  customers  use  NetCigar's  web  site,   they  provide   NetCigar  with
information  about their buying  preferences  and habits.  NetCigar then can use
this  information  to develop  personalized  communications  and deliver  useful
information,  special offers and new product announcements to its customers.  In
addition,  NetCigar uses e-mail to alert customers to important developments and
merchandising initiatives.

     NetCigar  competes with many and varied  sources for cigar products in a $1
billion market both large and highly fragmented.  No single traditional retailer
competes  against the Company in all of its product lines and there are an array
of recently developed e-commerce cigar sites. The largest competitor,  JR Cigars
has only recently  developed an e-commerce  web site for its product sales as an
adjunct to their traditional brick and mortar retail stores and catalogue sales.

                                      -10-

<PAGE>

     Traditional pre-internet cigar sales has evolved through the following four
categories  of  retailing,  which  together  remain  the  main  source  of cigar
marketing:

     1. Mom and Pop brick and mortar tobacco shops that  typically  average 2500
     square feet and generate  average annual volume of  approximately  $250,000
     per store.

     2. Chain and franchise  brick and mortar  tobacco shops that average 12,000
     to 15,000  square  feet and  generate  approximately  $5,000,000  in annual
     volume per store.

     3. Catalog and mail order  vendors  that do monthly  mailings to as many as
     500,000 customers (in some instances as few as 25,000 customers),  which is
     the portion of the market that will be the easiest to convert to e-commerce
     purchases, and

     4. Drug stores and mass market retailers  representing less than 10% of the
     market.

         The Company  believes  that the  following  are  principal  competitive
factors present in its operations and product  presentation:  brand recognition,
selection, convenience, price, web site performance and accessibility,  customer
service,  quality of  information  provided and  reliability  and speed of order
shipment.

         Many of the Company's  store-based and online  competitors  have longer
operating  histories,  larger  customer  bases,  greater brand  recognition  and
significantly   greater   financial,   marketing   and  other   resources   than
Netcigar.com. Traditional store-based retailers also enable customers to see and
feel products in a manner that is not possible  over the  Internet.  Traditional
store-based  retailers can also sell products to address immediate needs,  which
the Company and other online sites cannot do.

                                       -11-

<PAGE>

4.   EQUITY INVESTMENT.

     In the fourth  quarter of 2001 SYBR  acquired a 20%  interest in  Interline
Travel and Tours,  Inc (ITT). ITT specializes in the travel packaging of cruises
and resort  hotels for airline  employees.  ITT  services a data base of 120,000
members  which  represent  approximately  10% of all airline  employees.  Resort
hotels and  cruise  ships  present  ITT with  unique  premium  travel  plans for
interliners (airline employees) and ITT through www.perx.com and ITT reservation
agents makes these plans  available  to its  customers.  The Company  utilizes a
customized system similar to high level airline  reservation  systems,  to track
bookings  and  reservations.  SYBR is a 20%  shareholder  and has the  right  to
nominate  one Board  seat with ITT and relies on ITT  management  for day to day
operations. The Company hopes to see growth in this business and plans on a long
term growth strategy in this business.

C.   SALON HAIR CARE DISTRIBUTION.

     The Company  services on a direct  store basis  (non-internet)  through its
subsidiary  BeautyBuys.com  Inc and  affiliated  parties  several drug store and
supermarket  chains in the  Northeast  United  States and numerous  other retail
outlets  for the sale of hair and skin care  products  available  to the Company
through contacts made in the industry.  Similar products are also made available
to be sold direct to the consumer via internet  sales (see "B.  Internet  Sales"
supra). In this product area,  Company  affiliated  sources stock the designated
store  shelves on the design of the  planogram  developed by Company  affiliates
which  service is offered at no  additional  charge  which aspect of sales helps
maintain  the client as long as  awareness  is  maintained  of and  remedies for
deficiencies are made in product shelf storage as it occurs.  This aspect of the
Company's  business  presently  accounts for 8.8% of sales and is operated  also
through the Company's subsidiary  BeautyBuys.com Inc. through its subsidiary PHS
Group Inc.

                                      -12-

<PAGE>

D.   COMPETITION

         The  Company is small in both  physical  and  financial  attributes  in
comparison to many of its  competitors  in the marketing of grocery,  health and
beauty  care  products  and  cigars,  and  other  business  areas  in  which  it
participates.  Such  differences  however do not act as a material  hindrance to
operations in e-commerce because where the traditional over the counter retailer
model of business was location  oriented,  internet  sales are not burdened with
such fixed  overhead.  Access to product  remains  important  but the Company is
confident of the continued  availability of product from it fulfillment  sources
with whom the Company has successfully  acquainted itself or developed in house.
For further discussion of particular competitive concerns in the e-commerce area
of the Company's  business  refer to the  particular  discussion of the internet
sales areas of business  operations of the Company  through its  subsidiaries as
heretofore-described  (see Internet  Sales,  supra) The Company's  knowledge and
experience in and devotion to its business,  receptiveness to general customers,
and  service,  should also  continue to benefit its  operations  and continue to
allow it to compete with its more financially endowed competitors.

                                      -13-

<PAGE>

     In the Salon 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.  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. 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.   MAJOR CUSTOMERS.

     There was one customer  whose sales  exceeded 10% of total revenues in 2001
and 2000.

F.   INFORMATION SYSTEMS

     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.
Behind the screen  not  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 also  maintains its
own websites  regarding  information  on the Company as a public  entity and its
various business interests. Internet sites presently available regarding Company
business and product sales are:

                                 BeautyBuys.com
                                  NetCigar.com
                                SynergyBrands.Com
                                  DealbyNet.com
                              Frangrancesalon.com
                         SupplyChainTechnologies.com
                                    PERX.com
                              Jewelry-website.com
                                 GR Cigars.com
                                    SYBR.com
                                 CIGARGOLD.com

                                      -14-

<PAGE>

G.   SEASONALITY

     The Company  generally  experiences lower sales volume in the first quarter
and a stronger fourth quarter in its B2B operation.

     Sales of beauty care products and fragrances increase over traditional gift
giving holidays such as Christmas,  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.

                                      -15-

<PAGE>

H.   SHIPPING AND HANDLING

     Products  sold on a B2B  basis by the  Company  are  shipped  in bulk  from
inventory  maintained  by the  Company  at its  warehouse  facilities  by common
carriers.  All  B2C  orders  are  consolidated  in  Company  leased  fulfillment
facilities then packed and shipped to the customer  usually within 7 days mainly
by UPS.  Approximately 50% of product inventory is in warehouse stock and 50% 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  and  truck  leases.
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  purchases name brand grocery products and HBA products for its
dealbynet.com  business to be sold B2B in truckload quantities to take advantage
of better  pricing from the supplier and lower freight  costs.  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.

I.   TRADEMARKS, LICENSES AND PATENTS

     The  Company  has  obtained  rights  to  various  copyrights,   trademarks,
tradenames,  and domain names in its internet business. The Company has obtained
a wholesale pharmaceutical license through the DEA, but to date has not utilized
it. The  Company  has  domestic  rights to the "Suarez  Gran  Reserva",  "Breton
Legend",  "Anduleros", "Don Otilio","Alminante" "Nativo" and various other trade
names in marketing of premium handmade cigars. The cigar tradenames are owned by
Gran Reserve Corp. as licensee ( a wholly owned subsidiary of New Era Foods Inc.
itself a wholly  owned  subsidiary  of SYBR).  Others are owned  directly by the
Company or where applicable and appropriate by BeautyBuys.com Inc. Since most of
the  Company's  business  relies  on  the  distribution  of  nationally  branded
products,  proprietary  trademarks  are not material to the  Company's  business
operations.

                                      -16-

<PAGE>

J.   EMPLOYEES

     The Company and its  subsidiaries  in the  aggregate as of the date of this
report employ and contract  approximately  26 full time/part time persons all of
whom 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 lease
and staff its warehouses in New Jersey, (Beautybuys.com and Proset) and Florida,
(Netcigar) from where it facilitates storage,  sorting,  packing and shipping of
products  sold in its website.  Otherwise  warehousing  is  contracted  on an as
needed  arrangement  staffed and through the warehousing  entity contracted with
except for supervisory  personnel hired by the Company.  The Company relies on a
stable working  environment  with its contract  warehousing and trucking.  It is
estimated  that  the  Company  outsources  approximately  100  workers  for  its
logistical networks.

K.  GOVERNMENT REGULATION

         1. TOBACCO INDUSTRY REGULATION AND TOBACCO INDUSTRY LITIGATION

     The tobacco  industry is subject to regulation at federal,  state and local
levels.  Federal law has 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.

     The Food and Drug  Administration  (the "FDA") has determined that nicotine
is a drug and that it has  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 specifically 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 and it is possible
that in the future similar regulations will be applied to cigar sales as well.

     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 marked the first time that cigars had  specifically  been
identified for increased  regulatory  oversight by a federal  health agency.  In
2002 new  federally  mandated  health  warnings  go into  effect on cigars.  The
enforcement follows a report by the National Cancer Institute which detailed the
health risks of cigar smoking. Cigar companies are now required to display these
warnings  clearly and permanently on packages,  in print ads, on audio and video
ads, on point of purchase displays and on the Internet.

                                      -17-

<PAGE>

     While the cigar  industry  historically  has not been  subject  to  federal
regulatory efforts,  focus has increased on possible need to increase regulation
in this area and 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 operations.

     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.

     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.

     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.

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

                                      -18-

<PAGE>

     Litigation  against the cigarette industry has historically been brought by
individual  cigarette  smokers.  The United States  Supreme Court has ruled that
federal legislation relating to cigarette labeling  requirements preempts claims
based on  failure  to warn  consumers  about the  health  hazards  of  cigarette
smoking,   but  does   not   preempt   claims   based   on   express   warranty,
misrepresentation, fraud, or conspiracy.

     Current tobacco litigation  generally falls within one of three categories:
class  actions,  individual  actions or actions  brought  by  individual  States
generally to recover  Medicaid costs allegedly  attributable to  tobacco-related
illnesses.  Related  litigation  complaints  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 and
have been vigorously  pursuing defense to and otherwise the termination of these
actions.

     The tobacco  industry has  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.

                                      -19-

<PAGE>

     The federal government has sued the tobacco industry seeking  reimbursement
for  billions  of  dollars   spent  by   government   held   programs  to  treat
smoking-related  illnesses.  This type 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  or
distributors.  The costs to the Company of defending  prolonged  litigation  and
settlement or successful prosecution of any health-related litigation could have
a material adverse effect on the Company's business and results of operations.

     Cigars long have been subject to federal, state and local excise taxes, and
such taxes  frequently have been increased or proposed to be increased,  in some
cases significantly, to fund various legislative initiatives. The federal excise
tax rate on large cigars  (weighing more than three pounds per thousand  cigars)
is a material component of the manufacturer's selling price.

     Based on scheduled increases to the federal excise tax on cigarettes, which
result in  proportionate  tax  increases to the federal  excise tax on all other
tobacco products,  the tax on large cigars is scheduled to be raised to at least
20.71% of the sale  price with a cap  presently  at $48.75  per  thousand  large
cigars.

     The Company believes that the enactment of  significantly  increased excise
taxes could have a material  adverse effect on the business of the Company.  The
Company is unable to predict the  likelihood  of the passage or the enactment of
future increases in tobacco excise taxes as they relate to cigars.

     Tobacco  products  also are subject to certain  state and local  taxes.  An
example is the passage of the  Proposition 10 referendum in  California,  an act
used to  fund  early  childhood  development  programs,  children's  health  and
development concerns at the state level.  Proposition 10, which became effective
on January 1, 1999,  raised the tax on cigars in  California  from 26.17% of the
manufacturer's selling price to 61.53%.

     The majority of states now impose excise taxes on cigars. In certain of the
states  without  tobacco taxes  proposals  are pending to add such taxes.  State
cigar  excise taxes are not  necessarily  subject to caps similar to the federal
excise tax. From time to time,  the  imposition of state and local taxes has had
some impact on sales regionally. The enactment of new state excise taxes and the
increase in existing  state excise taxes are likely to have an adverse effect on
regional sales as cigar consumption generally declines.

                                      -20-

<PAGE>

         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  manufacture  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.

     The  Company  is not aware of  government  regulation  directly  related to
internet  sales  different  from that  applicable to  traditional  marketing but
immense interest has been indicated on policing the internet focusing on contact
and access but the  nature of the  products  marketed  by the  Company  over the
internet does not appear to involve any of such concerns beyond product labeling
and advertising  content which would apply regardless of the medium in which the
products  are sold.  For  further  discussion  of other  present  and  potential
government  regulation  of the  Internet see "Forward  Looking  Information  and
Cautionary Statements No.32 Government Regulation of the Internet may impede the
Company's growth or add to its operating costs" infra.

                                      -21-

<PAGE>

ITEM 2:  DESCRIPTION OF PROPERTY

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

     The Company  maintains  satellite  offices in New York,  Pennslyvania,  New
Jersey and Florida.

     Warehousing   facilities   for   BeautyBuys  are  located  in  New  Jersey.
Warehousing  facilities  for  Netcigar  are  located  in  Florida.  The  Company
maintains  regular  warehousing  arrangements on a contract  basis for Dealbynet
throughout the northern quadrant of the United States.

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.

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

     During the fourth quarter of 2001 no matters were submitted for shareholder
approval.

                                      -22-

<PAGE>

                                     PART II

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

     The  Company's  common  stock  trades on NASDAQ  Small Cap under the Symbol
"SYBR",  and on the Boston Stock  Exchange  under the Symbol  "SYN".  The NASDAQ
Stock Market,  which began  operation in 1971,  is the world's 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, 2000              20.65            12.05
June 30, 2000               15.65             4.05
September 30, 2000           7.05             3.75
December 31, 2000            5.15             2.80
March 31, 2001               5.47             2.35
June 30, 2001                2.58             1.75
September 30, 2001           1.95             1.14
December 31, 2001            1.45             1.05
March 31, 2002               1.40              .95

     On March 31,  2002,  the Company had  approximately  6500  shareholders  of
record,  with much of the  stock  being  held in street  name.  The  Company  is
currently  listed on NASDAQ Small Cap. The stock prices listed through March 31,
2001 are shown as adjusted to reflect the 1 for 5 reverse split of the Company's
stock effectuated in April 2001.

     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.

     There was an order by NASDAQ to delist the Company's  common stock from the
NASDAQ  exchange  issued  October  2000 for  failure of the  Company's  stock to
maintain  the required $1 bid price as quoted on NASDAQ,  The Company  satisfied
the concerns of NASDAQ by  effecting an increase in the quoted  market price for
its stock by  instituting  a 1 for 5 share  reverse  split of  Company's  common
stock,  effective  April 19,  2001.  The bid price for the  Company's  stock has
remained above the required $1 price consistent  since such time period,  except
for a 4 day period in January 2002 where the price was quoted  slightly less but
not for a period  sufficient  to  cause  any  NASDAQ  formal  notice..  Also see
"Forward  Looking  Information and Cautionary  Statements No. 8 Possible Loss of
NASDAQ Small Cap Listing" infra for further details.

     Refer to the Company's  Consolidated  Statement of Changes in  Stockholders
Equity in the Company's audited financial statements included in this report for
information  on issuances of equity  securities  during fiscal year 2001.  These
issuances  were made either under  exemption  from  registration  allowed  under
Section 4 (2) or Regulation D of the Securities Act of 1933 as amended.

                                      -23-

<PAGE>


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

OVERVIEW

     Synergy  Brands  Inc.  (NASDAQ:  SYBR) and its  consolidated  subsidiaries,
("SYBR"  or  "the  Company")  have  developed,  operate  and  continue  to  seek
opportunities to establish,  Internet  Businesses directed at sale of variety of
products as well as  partnering  and seeking to partner or invest with  advanced
technologies to enhance the Company's properties and participate in new ventures
synergistic with the other operations of the Company (Internet  Infrastructure),
including   establishment  of  strategic   contacts  and  alliances  with  other
companies.

     SYBR's Internet strategy includes the internal development and operation of
subsidiaries  as well as the taking of  strategic  positions  in other  Internet
companies  that have  demonstrated  synergies with SYBR's core  businesses.  The
Company's  strategy also envisions and promotes  opportunities  for  synergistic
business  relationships among the Internet companies within its portfolio.  SYBR
and its  consolidated  subsidiaries  have  developed  Internet  properties  that
facilitate  internet  product  sales and  procurement  as well as  strategically
partnering with off line and on- line media companies to build revenues.  SYBR's
business  strategies are focused on developing  business  opportunities in three
related  sectors  Business to  Consumer  (B2C)  Business  to Business  (B2B) and
Enterprise  Integration  (EI).  At March 31, 2002 SYBR's  Internet  subsidiaries
included BeautyBuys.com (100% voting interest through the Company's wholly owned
subsidiary SYBR.com Inc.) Netcigar.com (wholly owned by SYBR.com Inc.), SYBR.com
Inc. as well as PHS Group (both being  subsidiaries  of New Era Foods Inc. which
in turn is a wholly owned subsidiary of the Company),  Supply Chain Technologies
Inc. (wholly owned by SYBR.com) and  Dealbynet.com  Inc. (wholly owned by Supply
Chain Technologies Inc.) BeautyBuys.com is a leading online Business to Consumer
beauty  department  store consisting of thousands of unique  nationally  branded
beauty  products.  In addition  the Company has  developed  Dealbynet.com  as an
internet  domain  further   developed   independently  as  SYBR's  supply  chain
integration  model for its Business to Business  platform being developed in the
Health and Beauty (HBC) as well as grocery businesses. Netcigar.com is a leading
online  retailer of premium  cigars and other related  luxury items.  PHS is the
Company's fulfillment platform for its Business to Business Internet operations.
The facility allows for automated  order  processing,  inventory  management and
customer  service.  Supply Chain  Technologies  was recently  formed to utilize,
further  develop and market a parallel  internet  platform to that  developed by
SYBR's subsidiary  Dealbynet designed to accommodate  distribution and inventory
management logistics for other industries.  The Company made a 20% investment in
Interline  Travel and Tours,  Inc.  (ITT) in the fourth  quarter of Fiscal  Year
2001.  The Company  believes  that its capital  investment in this unique travel
company may provide for future  capital  appreciation.  SYBR does not manage ITT
and relies on its  management  for day to day  operations.  ITT provides  travel
packages including cruises and hotel deals solely for airline employees.  ITT is
believed to be the largest company in this sector of the travel industry.

                                      -24-

<PAGE>

     SYBR has also  established  strategic  alliances  with media and technology
partners in a way that  minimizes  cash  outlay by  offering  equity in SYBR for
media and technology credits. With such transactions not only does SYBR conserve
its cash assets but also it gains the interest of important media partners.


     The  Company has  adopted a strategy  of seeking  opportunities  to realize
gains through  investments or having separate  subsidiaries or affiliates buy or
sell minority  interests to outside  investors.  The Company  believes that this
strategy  provides the ability to increase  shareholder value as well as provide
capital to support the growth in the Company's subsidiaries and investments. The
Company  expects to continue to develop and refine the  products and services of
its  businesses  focusing on the internet as the primary  mode of  distribution,
with the goal of increasing revenue as new products are commercially introduced,
and to continue to pursue the  acquisition of or the  investment in,  additional
Internet  related  companies.  The  Company  will seek to  continue  to  attract
traditional media  investments,  partner with advanced value added  technologies
that will be  synergistic  to its  internet  platforms  as well as partner  with
existing  internet  companies  to  achieve  its goals of  building  a  strategic
portfolio of internet assets.

     The  present  focus of the  Company is on product  sales  through  internet
channels on a B2C and B2B basis and on the utilization of proprietary technology
to accomplish this objective.

                                      -25-

<PAGE>

RESULTS OF OPERATIONS

            Results Of Operations For The Year Ended December 31,2001
                as Compared to the Year Ended December 31, 2000

     The Company realized  revenues of $24.3 million for the year ended December
31, 2001, a 17% increase from the prior year. PHS Group (Dealbynet)  represented
$20  million of the total  sales;  a 21%  increase  from the prior  period.  B2C
revenues increased 49% to $2.2 million for the year ended December 31, 2001. The
only  operation  that  showed  a  reduction  was  the   traditional   hair  care
distribution  business  operated by the  Company's  Proset  Division;  its sales
decreased by 21% to $2.1 million.  The Company  attributes  its strong growth in
its B2B and B2C operations to strong customer acquisition, a streamlined product
acquisition  system and additional  sales staff. The Company's B2C operation has
benefited  from e-mail  promotions,  an  expanding  market place and less online
competition.  The  reduction in the  hair-care  business is  attributable  to an
increase in BeautyBuys  online business  growth,  which shares the same products
that the  traditional  hair care  business  relies  upon which is  available  in
allocated  supplies.  Gross profit has  increased to  $1,342,000  as compared to
$940,000 in fiscal  2000,  an increase  of 43% for the year ended  December  31,
2001.  This  improvement  is  attributable  to significant  margin  improvement,
especially in the Company's B2C operations.  Operating expenses decreased 33% to
$5.6  million for the year ended  December  31, 2001 as compared to December 31,
2000. The Company believes that the completion of its web site  developments and
a significant  reduction in advertising  and marketing  expense have resulted in
the  decrease  in  operating  expenses.  The  Company  plans on  increasing  its
operating expenses commensurate with increased revenues and operating profits. A
major portion of operating  expenses,  totaling  $3.4  million,  during the year
ended December 31, 2001 were non-cash  charges and one time charges  relating to
media, equity, depreciation and amortization entries.

     Net loss before  non-cash  charges and one time  charges for the year ended
December  31, 2001  improved to $908,588  ($0.22 per share) as compared to a net
loss before  non-cash  charges of $960,909  ($0.30 per share) for the same prior
period.  Net  loss for the year  ended  December  31,  2001  improved  by 45% to
$4,300,139  (-$1.03 per share) as compared to a net loss of  $7,766,823  (-$2.44
per share) for the year ended  December 31,  2000.  Most of the non cash charges
incurred during the years ended December 31, 2001 and 2000 involve  depreciation
and amortization  charges in connection with the Company's website  development,
media and equity related transactions.

                                      -26-


<PAGE>

The table below outlines the Company's operating performance:

                                             12/31/01     12/31/00      change
                                            ----------    ---------     --------
Statement of operations data

Revenues

PHS group (dealbynet)                       20,036,232  16,495,662      21.46%
Proset                                       2,144,905   2,719,525     (21.13)%
B2C sites (beautybuys and netcigar)          2,166,791   1,449,831      49.45%
Total                                       24,347,928  20,665,018      17.82%

Net loss before non-cash charges*            (908,588)  (960,909)        5.44%

Per share before non-cash charges*          $ (.2184)   $(.3013)        27.51%

Non-cash and one time charges *             3,391,551    6,805,914     (50.17)%

Net  loss                                  (4,300,139)  (7,766,823)      44.63%

Net loss per common share                       (1.03)       (2.44)      57.79%

weighted shares outstanding                  4,159,443   3,188,771      30.44%

* Non-cash charges include one time charges, media transactions,  equity related
charges,  depreciation and amortization entries for both fiscal years. In fiscal
year 2001 non-cash charges totaled $3.4 million,  as compared to $6.8 million in
fiscal year 2000. Net Profit (loss) before non-cash  charges is commonly used in
the Company's industry to measure cash flow and liquidity. It is not intended to
represent  results  of  operations  or  cash  flows  from  operating  activities
determined in accordance with accounting  principals  generally  accepted in the
United States of America.

                                      -27-

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2001,  the Company's  current  assets have  increased 2%
from $5.2 million to $5.3 million. The increase is attributed to minor increases
in inventory, cash and marketable securities.

     Working capital decreased by approximately $683,000 to $744,710 at December
31,  2001.  The  decrease  in  working  capital  is  attributable  to a $300,000
investment in Interline Travel and Tours (ITT) and cash loss of $908,000 for the
year ended  December  31,  2001.  The  Company  completed  a $1 million  Private
Placement in the third quarter of 2001,  in order to increase  inventory for the
Company's  B2B  operations.  In order to  achieve  continued  growth  additional
inventory  may be needed.  The Company  plans to explore  opportunities  for and
attempt to gain inventory  financing from a potential asset based lender.  There
are no  assurances  that the Company  will be  successful  in  obtaining  such a
lender.  In the event that the Company does not obtain such a financing  source,
future growth may be limited.  However,  maintaining  current levels of revenues
does not require any external financing.

     The  Company's  operating  forecasts  should not require any major  capital
transactions,  including offerings and/or private placement transactions for the
remainder  of fiscal 2002  except for merger  and/or  acquisition  transactions.
Sales are being financed by GE Capital through a conventional line of credit and
the Company maintains a traditional  business model that has enabled the Company
to grow during the recent "dot-com"  consolidation and correction.  Furthermore,
all of the  Company's  businesses  rely on the marketing  and  merchandising  of
nationally  branded  products  together  with  manufacturers  that already spend
billions of dollars to build their brands. The manufacturers of grocery products
have  encouraged  DealByNet to use its platform to reduce  product  distribution
costs through logistics.

     The  Company  plans to  continue  to  partner  with  media  and  technology
companies on a media for equity basis.  The Company  believes that this strategy
allows  its  operating   subsidiaries  to  brand  and  expand  their  respective
franchises  without  causing  adverse  ramifications  on the  Company's  working
capital.  In addition the Company  plans to leverage its media assets to acquire
interests in related companies that would complement its expansion strategy

     Management believes that cost containment, improved financial and operating
controls,  and a focused sales and  marketing  effort  should  provide  positive
results from  operations  and cash flows in the near term.  Achievement of these
goals,  however,  will be dependent  upon the Company's  attainment of increased
revenues,  improved operating costs and trade support levels that are consistent
with  management's  plans.  Such  operating   performance  will  be  subject  to
financial,  economic and other factors  beyond its control,  and there can be no
assurance that the Company's goals will be achieved.

                              Balance Sheet Table

                                                         12/31/01      12/31/00

Balance Sheet Data

Cash, Marketable Securities (net) and
Cash Security deposit                                   $1,784,532    $2,599,719

Working Capital                                         $  744,710    $1,427,782

Total Assets                                            $8,398,130    $8,840,215

CRITICAL ACCOUNTING POLICIES.

ALLOWANCE FOR DOUBTFUL ACCOUNTS.

     The Company  records a provision  for doubtful  accounts  based on specific
indentification of its accounts  receivable.  This involves a degree of judgment
based on discussion  with the  Company's  internal  sales and marketing  groups,
cusotmer base and the  examination  of the financial  stability of the Company's
customers.  There can be no assurance  that  management's  estimates  will match
actual amounts  ultimately written off. During periods of downturn in the market
for the Company's products and services or economic recession,  a greater degree
of risk exists concerning the ultimate collectibility of accounts receivable.

VALUATION OF DEFERRED TAX ASSETS.

     Deferred tax assets and liabilities represent temporary differences between
the basis of assets and  liabilities  for financial  reporting  purposes and tax
purposes.  Deferred tax assets are  primarily  comprised of reserves  which have
been deducted for financial statement  purposes,  but have not been deducted for
income tax  purposes.  The  Company  annually  reviews  the  deferred  tax asset
accounts to  determine  if is appears more likely than not that the deferred tax
assets will be fully realized. At December 31, 2001, the Company has established
a full valuation allowance.

                                      -28-

<PAGE>

CRITICAL ACCOUNTING POLICIES.

ALLOWANCE FOR DOUBTFUL ACCOUNTS.

     The Company  records a provision  for doubtful  accounts  based on specific
indentification of its accounts  receivable.  This involves a degree of judgment
based on discussion  with the  Company's  internal  sales and marketing  groups,
cusotmer base and the  examination  of the financial  stability of the Company's
customers.  There can be no assurance  that  management's  estimates  will match
actual amounts  ultimately written off. During periods of downturn in the market
for the Company's products and services or economic recession,  a greater degree
of risk exists concerning the ultimate collectibility of accounts receivable.

VALUATION OF DEFERRED TAX ASSETS.

     Deferred tax assets and liabilities represent temporary differences between
the basis of assets and  liabilities  for financial  reporting  purposes and tax
purposes.  Deferred tax assets  primarily  compised of reserves  which have been
deducted for financial statement purposes, but have not been deducted for income
tax purposes.  The Company  annually  reviews the deferred tax asset accounts to
determine  if is appears  more likely than not that the deferred tax assets will
be fully  realized.  At December 31, 2001,  the Company has  established  a full
valuation allowance.

VALUATION OF LONG-LIVED ASSETS.

     The  Company  reviews  its  long-lived  assets  periodically  to  determine
potential impairment by comparing the carrying value of the assets with net cash
flows  expected to be provided by the  operating  activities  of the business or
related  products.  Should the sum of the expected future net cash flows be less
than the carrying value, the Company would determine  whether an impairment loss
should be  recognized.  An  impairment  loss would be measured by comparing  the
amount by which the carrying  value exceeds the fair value of the asset based on
the discounted cash flows expected to be generated by the asset.

RECENTLY ISSUED ACCOUNTING ANNOUNCEMENTS.

     In August 2001, the Financial  Accounting  Standards  Board issued SFAS No.
144,  "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144  modifies  the  rules for  accounting  for the  impairment  or  disposal  of
long-lived  assets. The new rules are effective for the Company as of January 1,
2002.  Management does not believe that the impact of adopting SFAS No. 144 will
have a material effect on the Company's consolidated financial statements.

SEASONALITY

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

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

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.

                                      -29-

<PAGE>

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.  These statements relate to
future events or the Company's future financial performance and include, but are
not limited to, statements concerning:

         The  anticipated  benefits  and risks of the  Company's  key  strategic
         partnerships, business relationships and acquisitions;

         The Company's ability to attract and retain customers;

         The  anticipated  benefits  and  risks  associated  with the  Company's
         business  strategy,  including those relating to its  distribution  and
         fulfillment  strategy  and its current  and future  product and service
         offerings;

         The  Company's  future  operating  results and the future  value of its
         common stock;

         The  anticipated  size or trends of the  market  segments  in which the
         Company competes and the anticipated competition in those markets;

         Potential government regulation; and

         The Company's  future capital  requirements  and its ability to satisfy
         its capital needs.

     Furthermore,  in some cases, you can identify forward-looking statements by
terminology such as may, will, could, should, expect, plan, intend,  anticipate,
believe, estimate, predict, potential or continue, the negative of such terms or
other  comparable  terminology.  These statements are only  predictions.  Actual
events  or  results  may  differ  materially.  Factors  that  could  cause  such
differences  include,  but are not limited to, those identified herein and other
risks included from time to time in the Company's other  Securities and Exchange
Commission  ("SEC")  reports and press  releases,  copies of which are available
from the Company upon request.

     Although  the  Company  believes  that the  expectations  reflected  in the
forward-looking  statements are reasonable,  it cannot guarantee future results,
levels of activity, performance or achievements. Moreover the Company assumes no
responsibility  for  the  accuracy  and  completeness  of  the   forward-looking
statements  to conform such  statements  to actual  results or to changes in its
expectations.

     In addition to the other  information  in this Form 10-KSB,  the  following
risk factors should be carefully  considered in evaluating the Company  business
because these factors may have a significant  impact on the Company's  business,
operating  results  and  financial  condition.  As a result of the risk  factors
discussed below and elsewhere in this Form 10-KSB and the risks discussed in the
Company's other SEC filings,  actual results could differ  materially from those
projected in any forward-looking statements.

         1. THE COMPANY HAS INCURRED OPERATING LOSSES.

         While it is the Company's  goal to achieve  operating cash flow profits
during 2002,  the Company has  experienced  losses and negative cash flow in the
past and, even though the Company has achieved  profitability,  it may be unable
to sustain or increase the Company's  profitability  in the future.  The Company
has been able to minimize its losses  through barter  transactions  in the media
and  technology  industries.  These  transactions  have afforded the Company the
utilization  of  technology  and media  assets  that were  needed to develop the
Company's  Internet  properties.  The Company's  operating model relies on these
types of transactions for its expansion.  Failure to attract barter transactions
and/or other similar  alliances may cause the Company to incur operating  losses
beyond  its  available  resources.  However,  the  Company  plans to  limit  its
expansion  if these  resources  are not  available,  rather then incur a risk of
expansion without meaningful alliances.

         2. INTERNET

         The internet  environment  is relatively 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.

                                      -30-

<PAGE>


         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 product 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.

         6. COMPETITION.

         The Company is subject to  competition  in all of its  various  product
sale 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. 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  should not materially  affect
the financial position,  results of operations or cash flows of the Company, but
there can be no assurance as to this.

         8. POSSIBLE LOSS OF NASDAQ SMALL CAP LISTING.

         Synergy's  qualification for trading on the Nasdaq Small Cap system has
in the recent past been questioned, the focus being on the market quotes for the
Company's  stock, the current bid price having for a time been reduced below the
minimum  NASDAQ  standard  of $1  and  having  been  below  such  level  for  an
appreciable period of time. 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
alternative  criteria which are now eliminated  under the new rules.  If the bid
price dips  below  $1.00 per share,  and is not  brought  above such level for a
sustained  period of time 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

                                      -31-

<PAGE>

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 to dispose of their shares.  The Company's  common stock has  historically
remained at NASDAQ  trading  levels above $1 except for limited  periods of time
and such historical  stability combined with the Company's  increasing  business
share in the market and its  continuing  establishment  as a viable force in the
industries  wherein  it  participates  gives  the  Company  confidence  that its
susceptibility to market  deficiencies is in a much lessened state then in years
past.

                                      -32-

<PAGE>

         9. RISKS OF BUSINESS DEVELOPMENT.

         Because still the lines of product and product distribution established
for  the  Company  are   relatively   new  and  different  from  its  historical
non-internet  product distribution  business,  the Company's operations in these
areas should continue to be considered subject to all of the risks inherent in a
new  business  enterprise,  including  the absence of an  appreciable  operating
history and the expense of new product  development and  uncertainties on demand
and logistics of delivery and other  satisfaction of customer  demands.  Various
problems,  expenses,  complications  and delays may be encountered in connection
with the  development  of the  Company's  new  products  and  methods of product
distribution.  These  expenses must either be paid out of the proceeds of future
offerings or out of generated  revenues and Company profits and will likely be a
drain on Company  capital if revenue and revenue  collection  does not keep pace
with  Company  expenses.   There  can  be  no  assurance  as  to  the  continued
availability of funds from any of these sources.

         10. 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 and to continue to have access to
such products from their sources on a pricing schedule  conducive to the Company
operating  at a profit.  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 and be made available for sale by the Company conducive to the
Company's fiscal needs. Any delay or failure of these products to achieve market
acceptance  or  limits  on  their  availability  for sale by the  Company  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.

         Management  believes actions  presently being taken to meet and enhance
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.

                                      -33-

<PAGE>

         11.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 increase in
popularity of cigars may likely 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. Although, except for warning labeling and smoke free facilities,
current legislation and regulation focuses on cigarette smoking and sales, there
is no assurance that the scope of legislation will not be expanded in the future
to encompass cigars as well.

         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.  These restrictions  generally do not distinguish  between cigarettes and
cigars.  These restrictions and future restrictions of a similar nature have and
likely  will  continue  to have an  adverse  effect  on the  Company's  sales or
operations  because of resulting  difficulty placed upon advertising and sale of
tobacco products,  such as restrictions and in many cases prohibition of counter
access to or display of premium handmade  cigars,  and/or decisions by retailers
not to advertise for sale and in many cases to sell tobacco  products because of
public pressure to stop the selling of tobacco products. Numerous proposals also
have been and are being considered at the state and local levels, in addition to
federal  regulations,  to restrict  smoking in certain public areas,  regulating
point of sale placement and promotions of tobacco products and requiring warning
labels.

                                      -34-

<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(albeit  focusing
primarily  on cigarette  smoking)  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).

                                      -35-

<PAGE>

         12. 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.

         13. POTENTIAL LIABILITY FOR CONTENT ON THE COMPANY'S WEB SITE.

         Because the Company posts product  information and other content on its
Web sites,  the Company faces  potential  liability for  negligence,  copyright,
patent,  trademark,  defamation,  indecency and other claims based on the nature
and  content of the  materials  that the  Company  posts.  Such claims have been
brought,  and sometimes  successfully  pressed,  against other Internet  content
distributors.  In  addition,  the  Company  could be exposed to  liability  with
respect to the unauthorized  duplication of content or unauthorized use of other
parties'  proprietary  technology or infiltration  into the Company's  system by
unauthorized personnel.

         14.  THE  COMPANY'S  NET  SALES  WOULD  BE  HARMED  IF  IT  EXPERIENCES
              SIGNIFICANT CREDIT CARD FRAUD.

         A failure to adequately  control  fraudulent  credit card  transactions
would harm the Company's net sales and results of operations because it does not
carry  insurance  against such risk.  Under current credit card  practices,  the
Company may be held liable for fraudulent credit card transactions where it does
not obtain a cardholder's signature, a frequent practice in internet sales.

         15. THE COMPANY DEPENDS ON CONTINUED USE OF THE INTERNET AND GROWTH  OF
             THE ONLINE PRODUCT PURCHASE MARKET.

         The Company's future revenues and profits, if any, substantially depend
upon the widespread acceptance and use of the internet as an effective medium of
business and  communication by the Company's target  customers.  Rapid growth in
the use of and interest in the Internet has occurred only recently. As a result,
acceptance  and use may not  continue  to develop  at  historical  rates,  and a
sufficiently  broad base of  consumers  may not adopt,  and continue to use, the
Internet and other online services as a medium of commerce.

                                      -36-

<PAGE>

         In addition,  the  Internet  may not be accepted as a viable  long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network  infrastructure  or delayed  development of
enabling  technologies and performance  improvements  and/or potential  customer
continued  preferences  for  more  traditional  see and  touch  purchasing.  The
Company's success will depend, in large part, upon third parties maintaining the
Internet  infrastructure  to provide a reliable network backbone with the speed,
data capacity,  security and hardware necessary for reliable Internet access and
services  and  hopeful  continued  shifting  of  potential   customers  shopping
preferences to the internet.

         16.IF THE COMPANY  DOES NOT RESPOND TO RAPID  TECHNOLOGY  CHANGES,  ITS
            SERVICES COULD BECOME OBSOLETE AND ITS BUSINESS WOULD BE SERIOUSLY
            HARMED.

         As the Internet and online commerce  industry evolve,  the Company must
license  leading  technologies  useful in its  business,  enhance  its  existing
services,  develop new services  and  technology  that address the  increasingly
sophisticated  and varied  needs of its  prospective  customers  and  respond to
technological  advances  and  emerging  industry  standards  and  practices on a
cost-effective  and timely  basis.  The Company may not be able to  successfully
implement   new   technologies   or  adapt  its   proprietary   technology   and
transaction-processing  systems to customer  requirements  or emerging  industry
standards.  If the  Company  is unable to do so, it could  adversely  impact its
ability to build on its varied businesses and attract and retain customers.

                                      -37-

<PAGE>

         17. POTENTIAL FUTURE SALES OF COMPANY STOCK.

         The majority of the shares of common  stock of the Company  outstanding
are  "restricted  securities"  as that term is defined  in Rule 144  promulgated
under the Securities Act of 1933. In general under Rule 144 a person (or persons
whose shares are  aggregated)  who has satisfied a one year holding  period may,
under  certain  circumstances,  sell within any three  month  period a number of
shares which does not exceed the greater of 1% of the then outstanding shares of
common stock or the average weekly trading volume during the four calendar weeks
prior to such sale. Rule 144 also permits, under certain circumstances, the sale
of  shares  by a  person  who is not an  affiliate  of the  Company  and who has
satisfied a two year holding period without, any quantity  limitation.  The vast
majority of holders of the shares of the outstanding common stock of the Company
deemed  "restricted  securities" have already  satisfied at least their one year
holding period or will do so with the next fiscal year, and such stock is either
presently  or within the next fiscal year will become  eligible  for sale in the
public market (subject to volume  limitations of Rule 144 when applicable).  The
Company is unable to predict  the effect  that sales of its common  stock  under
Rule 144, or  otherwise,  may have on the then  prevailing  market  price of the
common stock.  However,  the Company believes that the sales of such stock under
Rule 144 may have a depressive effect upon the market.

         18. THE COMPANY MAY NOT BE ABLE TO CONTINUE ATTRACTING NEW CUSTOMERS.

         The success of the  Company's  business  model depends in large part on
its continued  ability to increase its number of  customers.  The market for its
businesses may grow more slowly than anticipated  because of or become saturated
with competitors,  many of which may offer lower prices or broader distribution.
The Company is also highly dependant on internet sales which require interest of
potential suppliers in the internet mode of product  purchasing.  Some potential
suppliers may not want to join the Company's networks because they are concerned
about the  possibility  of their  products  being  listed  together  with  their
competitors'  products thus limiting  availability of product mix made available
by the Company.  If the Company  cannot  continue to bring new  customers to its
sites or maintain its existing  customer base or attract listing of a mixture of
product, the Company may be unable to offer the benefits of the network model at
levels sufficient to attract and retain customers and sustain its business.

                                      -38-

<PAGE>

         19. BECAUSE THE COMPANY'S  INDUSTRY IS HIGHLY  COMPETITIVE  AND HAS LOW
             BARRIERS TO ENTRY, THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY
             COMPETE.

         The U.S. market for e-commerce services is extremely  competitive.  The
Company  expects  competition to intensify as current  competitors  expand their
product offerings and enter the e-commerce market, and new competitors enter the
market.

         The  principal  competitive  factors  are the  quality  and  breadth of
services  provided,  potential for  successful  transaction  activity and price.
E-commerce  markets  are  characterized  by rapidly  changing  technologies  and
frequent new product and service  introductions.  The Company may fail to update
or  introduce  new market  pricing  formats,  selling  techniques  and/or  other
mechanics and  administrative  tools and formats for internet  sales  consistent
with current  technology  on a timely basis or at all. If its fails to introduce
new service  offerings or to improve its existing service  offerings in response
to  industry  developments,  or if its prices are not  competitive,  the Company
could lose customers, which could lead to a loss of revenues.

         Because there are  relatively  low barriers to entry in the  e-commerce
market, competition from other established and emerging companies may develop in
the future.  Many of the Company's  competitors  may also have  well-established
relationships with the Company's existing and prospective  customers.  Increased
competition is likely to result in fee reductions, reduced margins, longer sales
cycles for the  Company's  services and a decrease or loss of its market  share,
any of which could harm its business, operating results or financial condition.

         Many of the Company's  competitors have, and new potential  competitors
may have, more experience  developing  Internet-based  software applications and
integrated purchasing solutions, larger technical staffs, larger customer bases,
more established  distribution  channels,  greater brand recognition and greater
financial,  marketing  and other  resources  than the Company  has. In addition,
competitors  may be able to develop  products and services  that are superior to
those of the Company or that achieve greater customer  acceptance.  There can be
no assurance that the e-commerce solutions offered by the Company's  competitors
now or in the future will not be  perceived  as superior to those of the Company
by either businesses or consumers.

                                      -39-

<PAGE>

         20.  THE  COMPANY'S  BUSINESS  MAY  SUFFER IF IT IS NOT ABLE TO PROTECT
              IMPORTANT INTELLECTUAL PROPERTY.

         The Company's ability to compete effectively against other companies in
its industry  will depend,  in part,  on its ability to protect its  proprietary
technology and systems designs  relating to its  technologies.  The Company does
not know  whether  it has been or will be  completely  successful  in doing  so.
Further,  its competitors may independently  develop or patent technologies that
are substantially equivalent or superior to those of the Company.

         21. THE COMPANY MAY NOT BE ABLE TO MAINTAIN THE  CONFIDENTIALITY OF ITS
             PROPRIETARY KNOWLEDGE.

         The Company relies,  in part, on contractual  provisions to protect its
trade secrets and proprietary  knowledge.  These agreements may be breached, and
the Company may not have adequate remedies for any breach. Its trade secrets may
also  be  known  without  breach  of  such  agreements  or may be  independently
discovered by competitors.  Its inability to maintain the proprietary  nature of
its  technology  could harm its business,  results of  operations  and financial
condition by adversely affecting its ability to compete.

         22. OTHERS MAY ASSERT THAT THE  COMPANY'S  TECHNOLOGY  INFRINGES  THEIR
             INTELLECTUAL PROPERTY RIGHTS.

         The  Company  believes  that  its  technology  does  not  infringe  the
proprietary rights of others.  However, the e-commerce industry is characterized
by the existence of a large number of patents and trademarks and frequent claims
and  litigation  based on allegations  of patent  infringement  and violation of
other   intellectual   property  rights.   As  the  e-commerce  market  and  the
functionality  of products in the industry  continues  to grow and overlap,  the
Company believes that the possibility of an intellectual  property claim against
it will  increase.  For  example,  the  Company  may  inadvertently  infringe an
intellectual property right of which it is unaware, or there may be applications
to protect intellectual property rights now pending of which it is unaware which
it may be  infringing  when they are  issued  in the  future,  or the  Company's
service or systems may incorporate  and/or utilize third party technologies that
infringe the  intellectual  property rights of others.  The Company has been and
expects to continue to be subject to alleged infringement claims. The defense of
any claims of infringement made against the Company by third parties, whether or
not meritorious, could involve significant legal costs and require the Company's
management to divert time and attention from its business operations.  Either of
these consequences of an infringement claim could have a material adverse effect
on the Company's  operating results. If the Company is unsuccessful in defending
any  claims of  infringement,  it may be forced  to  obtain  licenses  or to pay
royalties  to  continue  to use its  technology.  The Company may not be able to
obtain any necessary licenses on commercially reasonable terms or at all. If the
Company fails to obtain necessary licenses or other rights, or if these licenses
are costly,  its operating results may suffer either from reductions in revenues
through the Company's inability to serve customers or from increases in costs to
license third-party technologies.

                                      -40-

<PAGE>

         23. THE COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED IF IT IS UNABLE TO
             CONTINUE TO LICENSE SOFTWARE THAT IS NECESSARY FOR ITS SERVICE
             OFFERING.

         Through  distributors,  the Company  licenses a variety of commercially
available Internet  technologies,  which are used in its services and systems to
perform key functions. As a result, the Company is to a certain extent dependent
upon continuing to maintain these  technologies.  There can be no assurance that
the Company would be able to replace the  functionality  provided by much of its
purchased Internet technologies on commercially  reasonable terms or at all. The
absence of or any  significant  delay in the  replacement of that  functionality
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

         24. THE  COMPANY'S  SYSTEMS  INFRASTRUCTURE  MAY NOT KEEP PACE WITH THE
             DEMANDS OF ITS CUSTOMERS.

         Interruptions of service as a result of a high volume of traffic and/or
transactions could diminish the attractiveness of the Company's services and its
ability to attract  and retain  customers.  There can be no  assurance  that the
Company will be able to accurately  project the rate or timing of increases,  if
any,  in the use of its  service,  or that it will be able to expand and upgrade
its systems and infrastructure to accommodate such increases in a timely manner.
The Company  currently  maintains  systems in the U.S.  Any failure to expand or
upgrade  its  systems  could have a material  adverse  effect on its  results of
operations and financial condition by reducing or interrupting  revenue flow and
by limiting its ability to attract new  customers.  Any such failure  could also
have a material  adverse  effect on the business of its  customers,  which could
damage the  Company's  reputation  and expose it to a risk of loss or litigation
and potential liability.

         25. A SYSTEM FAILURE COULD CAUSE DELAYS OR  INTERRUPTIONS OF SERVICE TO
             THE COMPANY'S CUSTOMERS.

         Service offerings  involving complex technology often contain errors or
performance  problems.  Many  serious  defects are  frequently  found during the
period  immediately  following  introduction and initial  implementation  of new
services or enhancements to existing services.  Although the Company attempts to
resolve all errors that it believes would be considered serious by its customers
before  implementation,  its systems are not  error-free.  Errors or performance
problems could result in lost revenues or  cancellation  of customer  agreements
and may expose the Company to litigation and potential  liability.  In the past,
the Company has  discovered  errors in  software  used in the Company  after its
incorporation  into Company  sites.  The Company  cannot assure that  undetected
errors or  performance  problems in its existing or future  services will not be
discovered  or that known errors  considered  minor by it will not be considered
serious by its  customers.  The Company has  experienced  periodic  minor system
interruptions, which may continue to occur from time to time.

                                      -41-

<PAGE>

         26. THE  FUNCTIONING  OF THE COMPANY'S  SYSTEMS OR THE SYSTEMS OF THIRD
             PARTIES ON WHICH IT RELIES COULD BE DISRUPTED BY FACTORS OUTSIDE
             THE COMPANY'S CONTROL.

         The  Company's  success  depends  on the  efficient  and  uninterrupted
operation of its computer and communications hardware systems. These systems are
vulnerable to damage or interruption from natural disasters,  fires, power loss,
telecommunication failures,  break-ins,  sabotage, computer viruses, intentional
acts of vandalism and similar events.  Despite any precautions the Company takes
or plans to take,  the occurrence of a natural  disaster or other  unanticipated
problems  could result in  interruptions  in its services.  In addition,  if any
hosting  service fails to provide the data  communications  capacity the Company
requires,  as a result of human  error,  natural  disaster or other  operational
disruption,  interruptions in the Company's services could result. Any damage to
or failure of its systems could result in reductions in, or terminations of, its
services, which could have a material adverse effect on its business, results of
operations and financial condition.

         27. THE COMPANY MAY ACQUIRE  OTHER  BUSINESSES OR  TECHNOLOGIES,  WHICH
             COULD RESULT IN DILUTION TO ITS  STOCKHOLDERS,  OR  OPERATIONAL
             OR  INTEGRATION DIFFICULTIES WHICH COULD IMPAIR ITS FINANCIAL
             PERFORMANCE.

         If  appropriate  opportunities  present  themselves,  the  Company  may
acquire  complementary  or  strategic  businesses,   technologies,  services  or
products  that it  believes  will be useful in the growth of its  business.  The
Company does not currently have any  commitments  or agreements  with respect to
any new acquisitions. They may not be able to identify, negotiate or finance any
future acquisition successfully. Even if the Company does succeed in acquiring a
business, technology, service or product, the process of integration may produce
unforeseen  operating  difficulties and expenditures and may require significant
attention from the Company's  management  that would  otherwise be available for
the ongoing  development of its business.  Moreover the anticipated  benefits of
any  acquisition  may not be realized or may depend on the continued  service of
acquired  personnel  who could  choose to leave.  If the  Company  makes  future
acquisitions, it may issue shares of stock that dilute other stockholders, incur
debt,  assume contingent  liabilities or create  additional  expenses related to
amortizing  intangible assets, any of which might harm its financial results and
cause its stock price to decline.  Any  financing  that it might need for future
acquisitions  may only be available to it on terms that restrict its business or
that impose on it costs that reduce its revenue.

         28.  THE  COMPANY'S  SUCCESS  DEPENDS  ON THE  CONTINUED  GROWTH OF THE
              INTERNET AND ONLINE COMMERCE.

         The Company's future revenues and profits depend to a large extent upon
the widespread acceptance and use of the Internet and other online services as a
medium for  commerce by  merchants  and  consumers.  The use of the Internet and
e-commerce  may not continue to develop at past rates and a  sufficiently  broad
base of business and  individual  customers may not adopt or continue to use the
Internet as a medium of commerce.  The market for the sale of goods and services
over the Internet is a relatively  new and  emerging  market.  Demand and market
acceptance for recently  introduced  services and products over the Internet are
subject to a high level of  uncertainty.  Growth in the Company's  customer base
depends  on  obtaining  businesses  and  consumers  who have  historically  used
traditional  means  of  commerce  to  purchase  goods.  For  the  Company  to be
successful,  these  market  participants  must  accept  and  use  novel  ways of
conducting business and exchanging information.

                                      -42-

<PAGE>

         E-commerce  may not prove to be a viable medium for  purchasing for the
following reasons, any of which could seriously harm the Company's business:

         - the  necessary  infrastructure  for Internet  communications  may not
           develop adequately;

         - the  Company's  potential  customers,  buyers and  suppliers may have
           security and confidentiality concerns;

         - complementary  products,  such as high-speed  modems and  high-speed
           communication lines, may not be developed or be adequately available;

         - alternative-purchasing solutions may be implemented;

         - buyers may dislike the  reduction  in the human  contact  inherent in
           traditional purchasing methods;

         - use of the  Internet  and other  online  services may not continue to
           increase or may increase more slowly than expected;

         - the development or adoption of new technology standards and protocols
           may be delayed or may not occur; and

         - new and burdensome governmental regulations may be imposed.

         29. THE COMPANY'S  SUCCESS DEPENDS ON THE CONTINUED  RELIABILITY OF THE
             INTERNET.

         The Internet  continues to experience  significant growth in the number
of users, frequency of use and bandwidth requirements. There can be no assurance
that the  infrastructure  of the Internet and other online services will be able
to  support  the  demands  placed  upon  them.  Furthermore,  the  Internet  has
experienced  a variety  of  outages  and  other  delays as a result of damage to
portions of its  infrastructure,  and could face such  outages and delays in the
future.  These outages and delays could  adversely  affect the level of Internet
usage and also the level of  traffic  and the  processing  of  transactions.  In
addition,  the Internet or other online  services could lose their viability due
to delays in the development or adoption of new standards and protocols required
to handle increased levels of Internet or other online service activity,  or due
to increased governmental regulation. Changes in or insufficient availability of
telecommunications  services or other Internet service  providers to support the
Internet or other online services also could result in slower response times and
adversely  affect usage of the Internet and other online services  generally and
the  Company's  service in  particular.  If use of the Internet and other online
services  does not continue to grow or grows more slowly than  expected,  if the
infrastructure  of the Internet and other online  services does not  effectively
support growth that may occur,  or if the Internet and other online  services do
not become a viable commercial  marketplace,  the Company will have to adapt its
business model to the new environment,  which would materially  adversely affect
its results of operations and financial condition.

                                      -43-

<PAGE>

         30.  GOVERNMENT  REGULATION  OF THE INTERNET  MAY IMPEDE THE  COMPANY'S
              GROWTH OR ADD TO ITS OPERATING COSTS.

         Like  many  Internet-based  businesses,  the  Company  operates  in  an
environment of tremendous uncertainty as to potential government regulation. The
Internet has rapidly emerged as a commerce  medium,  and  governmental  agencies
have not yet  been  able to  adapt  all  existing  regulations  to the  Internet
environment.   Laws  and   regulations   have  been   introduced  or  are  under
consideration  and court  decisions  have been or may be reached in the U.S. and
other  countries in which the Company does  business that affect the Internet or
other online services, covering issues such as pricing, user privacy, freedom of
expression,  access  charges,  content  and quality of  products  and  services,
advertising, intellectual property rights and information security. In addition,
it is uncertain how existing laws  governing  issues such as taxation,  property
ownership,  copyrights and other intellectual property issues, libel,  obscenity
and personal privacy will be applied to the Internet. The majority of these laws
were adopted prior to the introduction of the Internet and, as a result,  do not
address the unique  issues of the  Internet.  Recent laws that  contemplate  the
Internet, such as the Digital Millennium Copyright Act in the U.S., have not yet
been  fully  interpreted  by the  courts and their  applicability  is  therefore
uncertain.  The Digital Millennium Copyright Act provides certain "safe harbors"
that limit the risk of copyright  infringement  liability for service  providers
such as the Company with respect to infringing activities engaged in by users of
the service,  such as end-users of the Company's  customers'  auction sites. The
Company  has adopted and is further  refining  its  policies  and  practices  to
qualify  for one or more of these safe  harbors,  but there can be no  assurance
that its efforts will be successful since the Digital  Millennium  Copyright Act
has not been fully interpreted by the courts and its interpretation is therefore
uncertain.

         In the area of user privacy,  several states have proposed  legislation
that  would  limit the uses of  personal  user  information  gathered  online or
require  online  services to  establish  privacy  policies.  The  Federal  Trade
Commission also has become increasingly  involved in this area. The Company does
not sell personal user information regarding its customers. The Company does use
aggregated  data  for  analysis  regarding  the  Company  network,  and does use
personal user  information in the performance of its services for its customers.
Since the Company does not control what its  customers do with the personal user
information  they collect,  there can be no assurance that its customers'  sites
will be considered compliant.

                                      -44-

<PAGE>

         As online commerce evolves, the Company expects that federal,  state or
foreign  agencies  will  adopt  regulations  covering  issues  such as  pricing,
content,  user  privacy,  and  quality  of  products  and  services.  Any future
regulation may have a negative impact on its business by restricting its methods
of operation or imposing  additional  costs.  Although many of these regulations
may not  apply to its  business  directly,  the  Company  anticipates  that laws
regulating the  solicitation,  collection or processing of personal  information
could indirectly affect its business.

         Title  V  of  the   Telecommunications   Act  of  1996,  known  as  the
Communications  Decency Act of 1996,  prohibits the knowing  transmission of any
comment,  request,  suggestion,  proposal,  image or other communication that is
obscene or pornographic to any recipient under the age of 18. The  prohibition's
scope and the liability associated with a violation are currently unsettled.  In
addition,  although  substantial  portions of the Communications  Decency Act of
1996 have been held to be  unconstitutional,  the Company cannot be certain that
similar legislation will not be enacted and upheld in the future. It is possible
that such  legislation  could expose  companies  involved in online  commerce to
liability,   which  could  limit  the  growth  of  online  commerce   generally.
Legislation  like the  Communications  Decency  Act could  reduce  the growth in
Internet  usage and decrease its  acceptance  as a  communications  and commerce
medium.

         The worldwide availability of Internet web sites often results in sales
of goods  to  buyers  outside  the  jurisdiction  in which  the  Company  or its
customers are located,  and foreign  jurisdictions may claim that the Company or
its customers are required to comply with their laws. As an Internet company, it
is unclear which  jurisdictions may find that the Company is conducting business
therein.  Its failure to qualify to do business in a jurisdiction  that requires
it to do so could  subject the Company to fines or penalties and could result in
its inability to enforce contracts in that jurisdiction.

         The  Company  is  not  aware  of any  recent  related  legislation  not
specifically  mentioned  herein  but  there  can  be no  assurance  that  future
government  regulation  will  not  be  enacted  further  restricting  use of the
internet that might adversely affect the Company's business.

                                      -45-

<PAGE>

         31. NEW TAXES MAY BE IMPOSED ON INTERNET COMMERCE.

         In the U.S.,  the Company does not collect sales or other similar taxes
on goods sold through the Company's internet websites.  The Internet Tax Freedom
Act of 1998, (extended through November 2003), prohibits the imposition of taxes
on electronic  commerce by United States  federal and state taxing  authorities.
However,  a number of proposals have been made at the state and local level that
would  impose  additional  taxes on the sale of goods and  services  through the
Internet.   Such  proposals,  if  adopted  and  not  in  conflict  with  federal
prohibitions,  could substantially impair the growth of electronic commerce, and
could adversely  affect the Company's  opportunity to derive  financial  benefit
from such activities. In addition, non-U.S. countries may seek to impose service
tax (such as value-added tax) collection obligations on companies that engage in
or facilitate Internet commerce. A successful assertion by one or more states or
any foreign  country that the Company should collect sales or other taxes on the
sale of  merchandise  could  impair its  revenues and its ability to acquire and
retain customers.

         32.  THERE  MAY BE  SIGNIFICANT  SECURITY  RISKS AND  PRIVACY  CONCERNS
              RELATING TO ONLINE COMMERCE.

         A  significant  barrier to online  commerce and  communications  is the
secure  transmission  of  confidential   information  over  public  networks.  A
compromise or breach of the technology used to protect the Company's  customers'
and their  end-users'  transaction  data could result from,  among other things,
advances in computer capabilities, new discoveries in the field of cryptography,
or other  events or  developments.  Any such  compromise  could  have a material
adverse  effect on the Company's  reputation  and,  therefore,  on its business,
results of operations and financial condition.  Furthermore, a party who is able
to circumvent the Company's security measures could  misappropriate  proprietary
information  or  cause  interruptions  in its  operations.  The  Company  may be
required to expend  significant  capital and other  resources to protect against
security  breaches or to alleviate  problems  caused by such breaches.  Concerns
over the  security of  transactions  conducted  on the Internet and other online
services  and the privacy of users may also  inhibit the growth of the  Internet
and  other  online  services  generally,  especially  as a means  of  conducting
commercial  transactions.  The Company currently has practices and procedures in
place to protect the  confidentiality  of its  customers'  and their  end-users'
information.  However,  its security  procedures to protect  against the risk of
inadvertent  disclosure  or  intentional  breaches  of  security  might  fail to
adequately  protect  information  that its obligated to keep  confidential.  The
Company may not be successful in adopting more effective systems for maintaining
confidential  information,  and its  exposure to the risk of  disclosure  of the
confidential  information  of others  may grow with  increases  in the amount of
information it possesses.  To the extent that the Company activities involve the
storage  and  transmission  of  proprietary  information,  such as  credit  card
numbers,  security  breaches could damage its reputation and expose it to a risk
of loss or litigation and possible  liability.  The Company's insurance policies
may not be adequate to reimburse it for losses caused by security breaches.

         33. IF THE COMPANY'S  FULFILLMENT  CENTERS ARE NOT EFFECTIVELY OPERATED
             THE COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED.

         If the Company does not  successfully  operate its fulfillment  centers
such could  significantly limit the Company's ability to meet customers demands,
which would  likely  result in  diminished  revenues,  adversely  affecting  the
Company's  business.  Because it is difficult  to predict  sales  increases  the
Company  may not manage  its  facilities  in an optimal  way which may result in
excess inventory,  warehousing,  fulfillment and distribution capacity having an
adverse impact on working capital of the Company,  or the lack of sufficiency in
such areas causing delays in fulfillment of customer orders adversely  affecting
customer confidence and loyalty.

                                      -46-

<PAGE>

         34. THE COMPANY'S STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.

         The stock  market,  and in particular  the market for  Internet-related
stocks,   has,  from  time  to  time,   experienced  extreme  price  and  volume
fluctuations.  Many factors may cause the market price for the Company's  common
stock to decline, perhaps substantially, including:

         - failure to meet its development plans;

         - the demand for its common stock;

         - downward  revision in  securities  analyst's  estimates or changes in
           general market conditions;

         - technological   innovations   by   competitors   or  in   competing
           technologies; and

         - investor perception of the Company's industry or its prospects.

         The Company's  stock pricing has fluctuated  significantly  in the past
and there is no assurance such trend may not continue in the future.

ITEM 7.  FINANCIAL STATEMENTS

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

                                                              Page
                                                              ----

Report of Independent
Certified Public Accountants:  Grant Thornton LLP             F-2

Report of Independent
Certified Public Accountants:  BDO Seidman LLP                F-3

Consolidated Balance Sheet as of December 31, 2001            F-4 - F-5

Consolidated Statements of Operations for the
Years Ended December 31, 2001 and 2000                        F-6

Consolidated Statement of
Changes in Stockholders' Equity for the
Years Ended December 31, 2001 and 2000                        F-7 - F-8

Consolidated Statements of
Cash Flows for the Years Ended December 31, 2001 and 2000     F-9 - F-10

Notes to Consolidated Financial Statements                    F-11 - F-30


                                      -47-

<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         BDO Seidman LLP was  previously the principal  accountants  for Synergy
Brands, Inc. ("the Registrant"). On January 22, 2002, that firm's appointment as
principal  accountants  was  terminated by the Registrant and Grant Thornton LLP
was engaged as principal  accountants.  The decision to change  accountants  was
approved by the Board of Directors of the Registrant.

         In  connection  with the audits of the two fiscal years ended  December
31, 2000, and the subsequent interim period through January 22, 2002, there were
no  disagreements  with BDO Seidman LLP or Belew Averitt LLP, whose practice was
combined  with BDO  Seidman  LLP,  on any  matter of  accounting  principles  or
practices,  financial  statement  disclosure,  or auditing  scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection  with their opinion to the subject matter of the
disagreement.

         The  audit  report of BDO  Seidman  LLP on the  consolidated  financial
statements of the Registrant as of and for the year ended December 31, 2000, did
not contain any adverse  opinion or disclaimer of opinion,  nor was it qualified
or modified as to uncertainty,  audit scope, or accounting principles. The audit
report of Belew  Averitt LLP on the  consolidated  financial  statements  of the
Registrant as of and for the year ended  December 31, 1999,  did not contain any
adverse opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles.

         During the two years ended December 31, 2000 and the subsequent interim
period  preceding  the  termination  of BDO Seidman LLP on January 22, 2002,  no
reportable  events  occurred in  connection  with the  relationship  between BDO
Seidman LLP, Belew Averitt LLP and the Registrant.

                                    PART III

     The  information  required  by items 9-12 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,  2002.  The annual  meeting  is  scheduled  to be in June  2002.  Such Proxy
Statement  expected  to be  filed  with the  Commission  by  April  30,  2002 is
incorporated herein by reference.

ITEM 13. EXHIBITS, LIST 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
         2001.  However the Company did file January 30, 2002 on Form 8-K notice
         of their change in  accountants  with an effective  date of January 22,
         2002.

3.       Financial Statement Schedules
             none

                                      -48-

<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
                                      Chairman of the Board

Dated: April 1, 2002

     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
                                      Chairman of the Board

Signed: April 1, 2002

                               by /s/ Mitchell Gerstein
                               ----------------------------------
                                      Mitchell Gerstein, Director
                                      Chief Financial Officer
Signed: April 1, 2002

                                      -49-

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
    Synergy Brands, Inc.


We have audited the accompanying  consolidated  balance sheet of Synergy Brands,
Inc. and  Subsidiaries  (the "Company") as of December 31, 2001, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year then ended. 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 audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Synergy Brands,
Inc. and Subsidiaries as of December 31, 2001, and the  consolidated  results of
their operations and their  consolidated  cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.




/s/ GRANT THORNTON LLP


Melville, New York
March 5, 2002


                                      -F2-

<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Synergy Brands, Inc.

We have audited the accompanying consolidated statements of operations,  changes
in  stockholders'  equity and cash flows for the year ended December 31, 2000 of
Synergy  Brands,  Inc.  and  Subsidiaries  (collectively,   the  Company)  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 audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the results of their operations and their cash
flow  for  the  year  ended  December  31,  2000 of  Synergy  Brands,  Inc.  and
Subsidiaries, in conformity with accounting principles generally accepted in the
United States of America.

Dallas, Texas
February 28, 2001
                                   /s/ BDO SEIDMAN LLP

                                      -F3-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEET

                                December 31, 2001


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

CURRENT ASSETS
    Cash and cash equivalents                                                     $   611,316
    Collateral security deposit                                                       658,542
    Marketable securities                                                           1,731,407
    Accounts receivable, less allowance for doubtful accounts of $50,220              541,625
    Inventory                                                                       1,340,171
    Related party note receivable                                                      44,750
    Prepaid assets                                                                    386,186
                                                                                  -----------
              Total current assets                                                  5,313,997

PROPERTY AND EQUIPMENT, NET                                                           577,849

OTHER ASSETS                                                                          309,577

WEB SITE DEVELOPMENT COSTS,
    net of accumulated amortization of $304,461                                       625,018

TRADE NAMES AND CUSTOMER LIST,
    net of accumulated amortization of $1,122,600                                   1,571,689
                                                                                  -----------
                                                                                   $8,398,130
                                                                                  ===========

</TABLE>

         The accompanying notes are an integral part of this statement.

                                      -F4-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEET

                                December 31, 2001

                      LIABILITIES AND STOCKHOLDERS' EQUITY

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

CURRENT LIABILITIES
    Line of credit                                                              $   398,337
    Note payable to stockholder                                                     555,763
    Accounts payable                                                              2,120,729
    Accrued expenses                                                                277,725
    Due to broker                                                                 1,216,733
                                                                                -----------
                    Total current liabilities                                     4,569,287

OTHER LIABILITIES                                                                   592,689

COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST                                                                   209,125

STOCKHOLDERS' EQUITY
    Class A preferred stock - $.001 par value; 100,000 shares authorized
        and outstanding;  liquidation preference of $10.50 per share                    100
    Class B preferred stock - $.001 par value; 10,000,000 shares authorized,
        and no shares outstanding
    Common stock - $.001 par value; 49,900,000 shares authorized;
        4,950,484 shares outstanding                                                  4,950
    Additional paid-in capital                                                   34,791,585
    Deficit                                                                     (30,609,537)
    Accumulated other comprehensive income                                            1,685
    Stockholders' notes receivable                                                 (115,629)
    Stockholder's advertising and in-kind services receivable,
        net of reserve of $500,000                                                 (794,990)
                                                                                -----------
                                                                                  3,278,164

Less treasury stock, at cost, 63,504 shares                                        (251,135)
                                                                                -----------
                                                                                  3,027,029
                                                                                -----------
                                                                                $ 8,398,130
                                                                                ===========

</TABLE>

         The accompanying notes are an integral part of this statement.

                                      -F5-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,

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

                                                                            2001                  2000
                                                                        -----------           -----------
Net sales                                                               $24,347,928           $20,665,018
                                                                        -----------           -----------
Cost of sales
    Cost of product                                                      22,347,887            19,391,844
    Shipping and handling costs                                             657,793               332,845
                                                                        -----------           -----------
                                                                         23,005,680            19,724,689
                                                                        -----------           -----------
              Gross profit                                                1,342,248               940,329
Operating expenses
    Advertising and promotional                                           1,501,267             2,547,891
    Development costs                                                        16,133               632,696
    General and administrative                                            3,072,900             4,419,753
    Depreciation and amortization                                         1,004,553               663,146
                                                                        -----------           -----------
                                                                          5,594,853             8,263,486
                                                                        -----------           -----------
              Operating loss                                             (4,252,605)           (7,323,157)
Other income (expense)
    Interest income                                                         128,189                66,183
    Other expenses                                                         (461,401)              (55,676)
    Interest and financing expenses                                        (154,745)             (178,964)
    Dividends on preferred stock of subsidiary                              (24,500)              (24,500)
                                                                        -----------           -----------
                                                                           (512,457)             (192,957)
                                                                        -----------           -----------
              Loss from continuing operations before minority
                  Interest and income taxes                              (4,765,062)           (7,516,114)
Minority interest in loss                                                   -                     266,258
                                                                        -----------           -----------
              Loss from continuing operations before income tax          (4,765,062)           (7,249,856)
Income tax expense                                                           21,865                21,433
                                                                        -----------           -----------
              Loss from continuing operations                            (4,786,927)           (7,271,289)
Discontinued operations
    Loss on discontinued operations of PCW, net of applicable
        income tax benefit of $0                                            -                    (495,534)
                                                                        -----------           -----------
              Loss from operations before extraordinary items            (4,786,927)           (7,766,823)
Extraordinary items, net                                                    486,788               -
                                                                        -----------           -----------
              NET LOSS                                                 $ (4,300,139)         $ (7,766,823)
                                                                        ===========           ===========
Basic and diluted loss per common share
    Loss from continuing operations                                          $(1.15)               $(2.28)
    Discontinued operations                                                       -                  (.16)
    Extraordinary items                                                         .12
                                                                        -----------           -----------
              Net loss per common share                                      $(1.03)               $(2.44)
                                                                        ===========           ===========

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -F6-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                     Years ended December 31, 2001 and 2000

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

                                                                                                                     Accumulated
                                           Class A                                  Additional                          other
                                       Preferred stock         Common stock          paid-in                         comprehensive
                                     Shares       Amount    Shares        Amount     capital           Deficit          income
                                     -------      ------   ---------     -------    -----------     -------------    -------------
Balance at January 1, 2000           100,000        $100   2,691,102     $2,691     $25,230,196     $(18,542,575)


Issuance of common stock                                     307,320        307       1,669,668
Common stock issued in
 connection with compensation
  plan                                                       353,877        354       2,660,548
Common stock issued in
 connection with compensation
 plan and cashless stock exchange                             31,185         31          97,798
Common stock and warrants
 issued in exchange for minority
 interest of subsidiary and
 advertising credits, net of
 commissions                                                 100,000       100        2,515,042
Advertising credits sold, net of
 commissions
Common stock issued in
 connection with compensation
 plan for notes receivable from
 stockholders                                                 42,000        42         102,458
Proceeds from stockholder
 receivables
Advertising credits utilized
Net loss
                                                                                                    (7,766,823)
                                     -------      ------   ---------     -------    -----------     -------------    -------------
Comprehensive loss

Balance at December 31, 2000         100,000         100   3,525,484     3,525      32,275,710     (26,309,398)             -
    (carried forward)

</TABLE>

                                      -F7-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                     Years ended December 31, 2001 and 2000
                                   (CONTINUED)


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

                                                                     Stockholders'
                                                                     advertising
                                                      Stockholders'  and in-kind        Total
                                      Treasury           notes        services         stockholders'  Comprehensive
                                        Stock         receivable     receivable         equity            loss
                                     ----------       ------------  -------------    ------------    --------------
Balance at January 1, 2000           $(167,500)       $(331,750)    $(3,000,000)     $3,191,162

Issuance of common stock                                                              1,669,975
Common stock issued in
 connection with compensation
 plan                                                                                 2,660,902
Common stock issued in
 connection with compensation
 plan and cashless stock exchange                                                         97,829
Common stock and warrants
 issued in exchange for minority
 interest of subsidiary and
 advertising credits, net of
 commissions                                                         (2,660,000)      (144,858)
Advertising credits sold, net of
 commissions                                                          2,660,000      2,660,000
Common stock issued in
 connection with compensation
 plan for notes receivable from
 stockholders                                          (102,500)
Proceeds from stockholder
 receivables                                            318,621                        318,621
Advertising credits utilized                                          1,592,565      1,592,565
Net loss                                                                            (7,766,823)     $(7,766,823)
                                     ----------       ------------  -------------    ------------    ------------

Comprehensive loss                                                                                  $(7,766,823)
                                                                                                    =============

Balance at December 31, 2000          (167,500)        (115,629)     (1,407,435)     4,279,373
    (carried forward)

</TABLE>

                                      -F7-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (continued)

                     Years ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
<S>                                       <C>                       <C>                 <C>             <C>         <C>
                                                                                                                      Accumulated
                                             Class A                                   Additional                         other
                                         Preferred stock          Common stock          paid-in                      comprehensive
                                        Shares      Amount      Shares      Amount      capital        Deficit          income
                                        -------     ------     ---------    -------    -----------   ------------   -------------
Balance at December 31, 2000            100,000      $100      3,525,484     $3,525    $32,275,710   $(26,309,398)   $
    (brought forward)

Issuance of common stock
   pursuant to a private offering                                800,000        800        999,200
Costs incurred in conjunction with
   private offering of common
   stock                                                                                  (132,200)
Common stock issued in
    connection with compensation
    plan                                                         325,000        325        893,125
Issuance of common stock and
   warrants to guarantee a line of
   credit                                                        200,000        200        439,800
Issuance of warrants as payment
   for services                                                                            191,050
Exercise of warrants                                             100,000        100        124,900
Purchase of treasury stock
Advertising credits utilized
Provision for advertising receivable
Unrealized gain on marketable
    securities                                                                                                              1,685

Net loss                                                                                              (4,300,139)
                                        -------     ------     ---------    -------    -----------   ------------   -------------
Comprehensive loss

Balance at December 31, 2001            100,000      $100      4,950,484     $4,950    $34,791,585  $(30,609,537)          $1,685
                                        =======     ======     =========    =======    ===========   ============   =============

</TABLE>

         The accompanying notes are an integral part of this statement.

                                      -F8-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (continued)

                     Years ended December 31, 2001 and 2000
                                  (CONTINUED)

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

                                                                        Stockholders'
                                                                         advertising
                                                                            and
                                                     Stockholders'        in-kind                Total
                                        Treasury        notes             services             stockholders'   Comprehensive
                                         stock        receivable         receivable              equity            loss
                                      ----------    -------------       -----------          --------------    -------------

Balance at December 31, 2000          $(167,500)     $(115,629)         $(1,407,435)         $4,279,373
    (brought forward)

Issuance of common stock
   pursuant to a private offering                                                             1,000,000
Costs incurred in conjunction with
   private offering of common
   stock                                                                                      (132,200)
Common stock issued in
    connection with compensation
    plan                                                                                        893,450
Issuance of common stock and
   warrants to guarantee a line of
   credit                                                                                       440,000
Issuance of warrants as payment
   for services                                                                                 191,050
Exercise of warrants                                                                            125,000
Purchase of treasury stock              (83,635)                                                (83,635)
Advertising credits utilized                                                112,445             112,445
Provision for advertising receivable                                        500,000             500,000
Unrealized gain on marketable
    securities                                                                                    1,685       $     1,685
Net loss                                                                                     (4,300,139)       (4,300,139)
                                      ----------    -------------       -----------          ------------     -------------
Comprehensive loss                                                                                            $(4,298,454)
                                                                                                              =============
Balance at December 31, 2001          $(251,135)      (115,629)            (794,990)          3,027,029
                                      ==========    =============       ===========          ============     =============

</TABLE>

         The accompanying notes are an integral part of this statement.

                                      -F8-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,

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

                                                                                2001          2000
                                                                          --------------    -----------
Cash flows from operating activities
 Net loss                                                                 $  (4,300,139)   $(7,766,823)
 Adjustments to reconcile net loss to net cash
   provided by (used) in operating activities
     Extraordinary gain                                                        (486,788)
     Depreciation and amortization                                            1,004,553         663,146
     Provision for doubtful accounts                                             25,000          31,417
     Provision for advertising receivable                                       500,000               -
     Utilization of advertising credits                                         112,445       1,592,565
     Gain on sale of marketable securities                                        7,874               -
     Dividends on preferred stock of subsidiary                                  24,500          24,500
     Operating expenses paid with common stock and warrants                     493,350       2,353,431
     Common stock and warrants issued to guarantee line of credit               440,000               -
     Minority interest in loss                                                                 (266,258)
     Changes in operating assets and liabilities
      Net (increase) decrease in
       Accounts receivable                                                      343,528        (164,218)
       Inventory                                                               (152,388)        680,789
       Trade credits receivable                                                               2,660,000
       Prepaid, related party note receivable and other assets                   71,086         (43,425)
      Net increase (decrease) in
       Accounts payable, accrued expenses and other
       current liabilities                                                    1,536,670        (726,033)
       Other liabilities                                                        592,689
                                                                          --------------    -----------
         Net cash provided by (used in) operating activities                    212,380        (960,909)

Cash flows from investing activities
    Purchase of marketable securities                                        (4,221,152)
    Proceeds from sale of marketable securities                               2,483,556
    Purchase of property and equipment                                         (118,038)        (52,580)
    Payment of collateral security deposit                                     (300,000)
    Refund of collateral security deposit                                                        38,069
    Purchase of web site                                                        (32,166)       (405,157)
    Investment in equity affiliate                                             (290,880)
    Proceeds of note receivable from shareholders                                 -             318,621
                                                                          --------------    -----------
           Net cash used in investing activities                             (2,478,680)       (101,047)

</TABLE>

                                      -F9-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                             Year ended December 31,

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

                                                                          2001           2000
                                                                   --------------    ------------
Cash flows from financing activities
    Borrowings under line of credit                                $   9,782,032     $ 3,517,288
    Repayments under line of credit                                  (10,047,694)     (2,912,526)
    Proceeds from issuance of common stock                             1,000,000       1,535,275
    Costs incurred in conjunction with private placement                (132,200)
    Proceeds from the exercise of stock purchase warrants                125,000
    Purchase of treasury stock                                           (83,635)              -
                                                                   --------------    ------------
        Net cash provided by financing activities                        643,503       2,140,037
                                                                   --------------    ------------
        NET  (DECREASE) INCREASE IN CASH                              (1,622,797)      1,078,081

Cash and cash equivalents, beginning of year                           2,234,113       1,156,032
                                                                   --------------    ------------
Cash and cash equivalents, end of year                              $    611,316     $ 2,234,113
                                                                   ==============    ============

Supplemental disclosures of cash flow information:
    Cash paid during the year for
       Interest                                                     $    108,000     $   190,000
                                                                   ==============    ============
       Income taxes paid                                            $     22,000     $    22,000
                                                                   ==============    ============
Supplemental disclosures of noncash operating, investing
    and financing activities:
      Commissions paid through the issuance of common stock         $    591,150
                                                                   ==============
      Unrealized gains on marketable securities                     $      1,685
                                                                   ==============
      Common stock issued for notes receivable                                       $   102,500
                                                                                     ============
      Common stock issued for prepaid assets and web site
          development                                                                $   540,000
                                                                                     ============
      Common stock issued in exchange for minority interest
          of subsidiary, web site development, and advertising
          credits, net of commissions                                                $ 2,515,142
                                                                                     ============

</TABLE>

        The accompanying notes are an integral part of these statements.

                                     -F10-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2001 and 2000

NOTE A - DESCRIPTION OF THE BUSINESS, LIQUIDITY AND CAPITAL RESOURCES

     Synergy Brands, Inc. and its subsidiaries  (collectively,  "Synergy" or the
     "Company")  is engaged  in the  distribution  business.  In  addition,  the
     Company   develops   and  operates   Internet   platform   operations   and
     Internet-based businesses designed to sell a variety of products, including
     health and beauty aids and premium handmade  cigars,  directly to consumers
     (business to consumer)  and to businesses  (business to business).  Synergy
     was incorporated on September 26, 1988 in the state of Delaware.

     At  December  31,  2001,  the  Company  had cash,  cash  equivalents  and a
     collateral  security deposits of approximately  $1,269,900,  net marketable
     securities,  of  approximately  $514,700,  working capital of approximately
     $745,000  and an  accumulated  deficit of  approximately  $30,610,000.  The
     Company incurred a loss of approximately  $4,300,000  during the year ended
     December 31, 2001.

     As  discussed  in Note I, the  Company  has a line of credit  available  to
     finance  certain  sales.  In addition,  the Company  completed a $1 million
     Private  Placement in the third  quarter of 2001.  The  proceeds  from this
     transaction  were  used  to  increase   inventory  for  the  Company's  B2B
     operations.  In order to achieve continued growth, additional inventory may
     be needed.  The Company plans to explore  opportunities  for and attempt to
     gain inventory financing from a potential  asset-based lender. There are no
     assurances  that the Company will be successful in obtaining such a lender.
     In the event that the  Company  does not obtain  such a  financing  source,
     future growth may be limited.

     Management believes that cost containment, improved financial and operating
     controls,  and a focused sales and marketing effort should provide positive
     results from  operations  and cash flows in the near term.  Achievement  of
     these goals,  however,  will be dependent upon the Company's  attainment of
     increased revenues,  improved operating costs and trade support levels that
     are consistent with management's plans. Such operating  performance will be
     subject to financial,  economic and other factors  beyond its control,  and
     there can be no assurance that the Company's goals will be achieved.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     A summary of the significant accounting policies applied in the preparation
     of the accompanying consolidated financial statements is as follows:

                                     F-11-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE B (continued)

     1. PRINCIPLES OF CONSOLIDATION

         The accompanying 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.  The
         equity  method of  accounting  is used for  investments  in 50% or less
         owned  companies  over which the  Company  has the  ability to exercise
         significant influence.

     2. CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments with a maturity, at
         the purchase date, of three months or less to be cash equivalents.

     3. MARKETABLE SECURITIES

         The Company determines the appropriate  classification of securities at
         the  time  of  purchase  and  reassesses  the  appropriateness  of  the
         classification  at each  reporting  date.  At December  31,  2001,  all
         marketable  securities  held by the  Company  have been  classified  as
         available-for-sale  and,  as  a  result,  are  stated  at  fair  value.
         Unrealized  gains  and  losses  on  available-for-sale  securities  are
         recorded as a separate  component  of  stockholders'  equity.  Realized
         gains and losses on the sale of securities, as determined on a specific
         identification  basis, are included in the  Consolidated  Statements of
         Operations.

     4. CONCENTRATIONS OF CREDIT RISK

         Financial   instruments  that   potentially   subject  the  Company  to
         concentrations  of credit  risk  consist  principally  of cash and cash
         equivalents, marketable securities and accounts receivable. The Company
         places its cash and cash  equivalents  with financial  institutions  it
         believes  to be of high  credit  quality.  Cash  balances  in excess of
         Federally  insured  limits at December 31, 2001  totaled  approximately
         $446,000.    Marketable   securities   are   potentially   subject   to
         concentration  of credit  risk,  but such risk is  limited  due to such
         amounts being invested in investment grade securities.

                                     -F12-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE B (continued)

         The  concentration of credit risk with respect to accounts  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  such  receivables.   Fair  value  approximates
         carrying value for all financial instruments.

     5. CONCENTRATION OF BUSINESS RISK

         During  the  years  ended  December  31,  2001 and  2000,  the  Company
         purchased  over 85% and 71%,  respectively,  of its  products  from one
         supplier.  If the Company were unable to maintain this  relationship it
         might have a  material  impact on future  operations.  During the years
         ended December 31, 2001 and 2000,  sales to one customer  accounted for
         22% and 17% of the  Company's  total  sales,  respectively,  and 23% of
         accounts receivable at December 31, 2001. These  concentrations  relate
         to the Company's B2B segment. (See Note Q.)

     6. 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.

     7. PROPERTY AND EQUIPMENT

         Property and equipment are stated at cost. Depreciation of property and
         equipment is computed using the  straight-line  method over the assets'
         estimated  useful  lives,  ranging  from  3  to  10  years.   Leasehold
         improvements  are amortized over the shorter of their estimated  useful
         lives or the lease term.

         Maintenance  and repairs of a routine  nature are charged to operations
         as incurred.  Betterments and major renewals that substantially  extend
         the useful life of an existing asset are  capitalized  and  depreciated
         over the asset's estimated useful life.

     8. WEB SITE DEVELOPMENT COSTS

         In March 2000,  the Emerging  Issues Task Force (EITF) of the Financial
         Accounting  Standards Board reached a consensus on EITF Issue No. 00-2,
         "Accounting for Web Site  Development  Costs." This consensus  provides
         guidance on what types of costs incurred to develop a web site

                                     -F13-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE B (continued)

         should be capitalized or expensed.  The Company  adopted this consensus
         in the third  quarter of 2000.  The  Company's web sites were ready for
         application  during the year ended  December 31, 2001,  and the Company
         began to amortize these costs using the  straight-line  method over the
         estimated useful lives of the web sites, not to exceed 3 years.

     9. TRADE NAMES AND CUSTOMER LIST

         Trade names consist of the "Proset" and "Gran  Reserve" trade names and
         customer list acquired in November 1999, which are being amortized over
         their  expected  useful  lives  not to  exceed  5  years.  The  Company
         re-evaluates the carrying value of these intangible  assets and/or when
         factors  indicating  impairment  are  present,  using  an  undiscounted
         operating cash flow assumption.

     10. LONG-LIVED ASSETS

         Long-lived  assets and  intangible  assets are reviewed for  impairment
         whenever events or changes in circumstances indicate the carrying value
         may  not be  recoverable.  Impairment  is  measured  by  comparing  the
         carrying value of the long-lived  assets to the estimated  undiscounted
         future  cash flows  expected to result from use of the assets and their
         ultimate  disposition.  In instances where  impairment is determined to
         exist, the Company writes down the asset to its fair value based on the
         present value of estimated future cash flows.

     11. REVENUE RECOGNITION

         The Company  recognizes  revenue upon  shipment of goods when title and
         risk of loss passes to the customer.  The Company issues credits to the
         customer for any returned  items at the time the returned  products are
         received.  Net sales  include  gross  revenue  from  product  sales and
         related  shipping  fees,  net of  discounts  and  provision  for  sales
         returns,  third-party reimbursement and other allowances. Cost of sales
         consists  primarily of costs of products sold to  customers.

     12. ADVERTISING

         The Company expenses advertising and promotional costs as incurred.

                                     -F14-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE B (continued)

     13. SHIPPING AND HANDLING COSTS

         Pursuant to EITF 00-10,  "Accounting for Shipping and Handling Fees and
         Costs," the  Company  includes  fees  billed to a customer  relating to
         shipping  and  handling  costs in net  sales.  All other  shipping  and
         handling  expenses  incurred  by the  Company  are  included in cost of
         sales.

     14. INCOME TAXES

         Deferred income taxes are recognized for temporary  differences between
         financial  statement and income tax bases of assets and liabilities and
         net  operating  loss  carryforwards  for which  income tax  expenses or
         benefits  are  expected  to be realized  in future  years.  A valuation
         allowance  is  established  if it is more  likely than not that all, or
         some portion, of deferred tax assets will not be realized.

     15. STOCK SPLIT

         On April 19,  2001,  the  Company's  Board of  Directors  authorized  a
         1-for-5  reverse  split of its common  stock.  Per share amounts in the
         accompanying  consolidated financial statements have been retroactively
         adjusted for the reverse split.

     16. BASIC AND DILUTED LOSS PER SHARE

         Basic and diluted loss per share is calculated by dividing the net loss
         by the weighted-average number of common shares outstanding during each
         period.  The incremental shares from assumed exercises of stock options
         and warrants are not  included in the  calculation  of diluted loss per
         share since their effect would be antidilutive.

     17. STOCK-BASED COMPENSATION PLANS

         Statement of Financial  Accounting  Standards No. 123 ("SFAS No. 123"),
         "Accounting for  Stock-Based  Compensation,"  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

                                     -F15-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE B (continued)

         to account  for  stock-based  compensation  using the  intrinsic  value
         method  prescribed in Accounting  Principles Board Opinion No. 25 ("APB
         No.  25"),  "Accounting  for Stock  Issued to  Employees,"  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. For the Cashless Stock
         Option Plan, the Company uses variable plan accounting.

     18. SEGMENT INFORMATION

         Segment  information  is  presented  in  accordance  with SFAS No. 131,
         "Disclosures about Segments of an Enterprise and Related  Information."
         This  standard  is  based  on a  management  approach,  which  requires
         segmentation  based upon the Company's  internal  organization  that is
         used for making  operating  decisions and assessing  performance as the
         source of the Company's  reportable  operating  segments.  SFAS No. 131
         also requires disclosures about products and services, geographic areas
         and major customers.

     19. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD

         In August 2001, the Financial  Accounting  Standards  Board issued SFAS
         No. 144,  "Accounting  for the  Impairment  or  Disposal of  Long-Lived
         Assets."  SFAS No.  144  modifies  the  rules  for  accounting  for the
         impairment  or  disposal  of  long-lived  assets.  The  new  rules  are
         effective  for the  Company on January  1,  2002.  Management  does not
         believe  that the impact of adopting  SFAS No. 144 will have a material
         effect on the Company's consolidated financial statements.

     20. USE OF ESTIMATES

         The  preparation of financial  statements in conformity with accounting
         principles  generally accepted in the United States of America requires
         management to make estimates and  assumptions  that affect the reported
         amounts of assets and liabilities  and disclosure of contingent  assets
         and  liabilities  at the  date  of the  financial  statements  and  the
         reported amounts of revenues and expenses during the reporting  period.
         Actual results may vary from management's estimates.

     21. RECLASSIFICATIONS

         Certain  2000  amounts  have been  reclassified  to conform to the 2001
         presentation.

                                     -F16-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amount of cash and cash equivalents,  collateral  security
         deposit,  marketable  securities  and accounts  receivable and accounts
         payable approximates fair value due to the short-term maturities of the
         instruments.  The  carrying  amounts  of  borrowings  under the line of
         credit agreement and the note payable to stockholder  approximate their
         fair values.

NOTE D - COLLATERAL SECURITY DEPOSIT

         At December 31, 2001,  the Company had a security  deposit with a major
         supplier aggregating approximately $658,500, which serves as collateral
         for credit purchases made by the Company from the supplier.

NOTE E - MARKETABLE SECURITIES

         At  December  31,  2001,  the  aggregate  market  value  of  marketable
         securities was $1,731,407,  while the aggregate cost of such securities
         was  $1,729,722.  Unrealized  holding  gains at December  31, 2001 were
         $1,685 on a net of tax  basis.  Marketable  securities  consist  of the
         following at December 31, 2001:

           Available-for-sale securities:
            Corporate equities               $   373,990
            Mutual funds                         393,357
            Government bonds                     964,060
                                             -----------
                                             $ 1,731,407
                                             ===========

         Proceeds  from  the  sale  of  available-for-sale  securities  and  the
         resulting net realized gains included in the  determination of net loss
         are as follows:

           Available-for-sale securities:
            Proceeds                         $2,483,556
            Net realized gains               $    7,300

                                     -F17-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE F - PROPERTY AND EQUIPMENT

         Property  and  equipment  as of  December  31,  2001  consisted  of the
         following:

            Office equipment                                 $ 165,384
            Furniture and fixtures                             231,265
            Leasehold improvements                             407,919
                                                            -----------
                                                               804,568
            Less accumulated depreciation and amortization    (226,719)
                                                            -----------
                                                             $ 577,849
                                                            ===========

         Depreciation and amortization  expense for the years ended December 31,
         2001 and 2000 was approximately $161,244 and $119,019, respectively.

NOTE G - INVENTORY

         Inventory as of December 31, 2001 consisted of the following:

            Grocery, health and beauty products             $   844,092
            Tobacco finished goods                              496,079
                                                            -----------
                                                            $ 1,340,171
                                                            ===========

NOTE H - OTHER ASSETS

         Other assets consist of the following at December 31, 2001:

             Investment                                       $ 292,463
             Other                                               17,114
                                                            -----------
                                                              $ 309,577
                                                            ===========

         In December 2001, the Company made an investment of  approximately  20%
         in the  outstanding  common  stock of an  investee.  The  Company  also
         purchased 288,000 shares of nonvoting redeemable preferred stock of the
         investee.  The  aggregate  cost of the  investment  was  $290,880.  The
         Company accounts for this investment under the equity method.

                                     -F18-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE I - LINE OF CREDIT AGREEMENT AND NOTE PAYABLE TO STOCKHOLDER

         On April 17, 2000, the Company entered into a line of credit  agreement
         with a financial  institution (the "Lender") which may be terminated by
         the  Lender or by the  Company,  provided  60 days'  written  notice is
         given. Under the terms of the agreement,  the Company has the option to
         borrow against eligible receivables, with the Lender on a full recourse
         basis.  The Company has the ability to obtain advances against eligible
         receivables  up to 90% of the face amount of the eligible  receivables.
         The  agreement  calls for a 0.25% fee on accounts  receivable  invoices
         which are borrowed against and a per annum rate equal to the prime rate
         plus 2% (6.75% at  December  31,  2001) on funds  borrowed  against the
         eligible  receivables.  The Company had $210,996 available for advances
         under the agreement at December 31, 2001. Obligations due to the Lender
         under  the  Agreement  are  collateralized  by  a  continuing  security
         interest in all of the Company's accounts receivable, notes receivable,
         chattel   paper,   documents,   instruments,   inventory   and  general
         intangibles  now existing or hereafter  acquired of every kind wherever
         located,  together  with  merchandise  returns  and  goods  represented
         thereby, and all proceeds there from of every kind and nature.

         As of December 31, 2001, the Company had outstanding  borrowings from a
         stockholder  totaling  $555,763.  This  money  was  borrowed  under  an
         unsecured  promissory  notes bearing  interest at 7.5%. These notes are
         due on December 31, 2002.

NOTE J - MINORITY INTEREST

         Premium Cigar Wrappers,  Inc.  ("PCW") was incorporated in October 1997
         with 7,750  shares of  authorized  $.001 par value common stock for the
         purpose of producing premium cigar wrappers in the Dominican  Republic.
         PCW had 1,000 shares of common stock outstanding,  which were issued at
         par value.  The  Company  owned 66% of the common  stock and an outside
         investor owns the minority interest. In addition,  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
         $104,125 of preferred stock dividends payable at December 31, 2001. 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.

                                     -F19-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE J (continued)

         During the year ended  December 31,  2000,  the Company  abandoned  the
         operations of PCW (see Note O).

         In June 1999, the Company formed  BeautyBuys.com ("BB") and in November
         1999 BB was  authorized to issue  50,000,000  shares of $.001 par value
         common stock, of which  49,100,000  shares are Class A common stock and
         900,000  shares are Class B common stock.  At December 31, 2001, BB had
         9,000,000  shares of Class A common stock and 900,000 shares of Class B
         common  stock  outstanding.  The Company owns all of the Class A common
         stock and the Class B common stock was  formerly  owned by the minority
         interest.  In December  2000,  the minority  interest was exchanged for
         Synergy stock. For financial reporting purposes,  results of operations
         and  cash  flows  of BB  are  included  in the  Company's  consolidated
         financial  statements,  and the outside  investor's  interest in BB was
         reflected in the minority interest  liability until December 2000, when
         the minority interest was exchanged for Synergy stock. (See Note K).

NOTE K - STOCKHOLDERS' EQUITY

         The Company has 100,000  authorized and  outstanding  shares of Class A
         preferred  stock with a par value of $.001;  13-to-one  voting  rights;
         cumulative  dividends at $2.20 per annum per share before common stock;
         liquidation  of $10.50 per share and before common stock and redemption
         at option of Company at $10.50 per share.

         During the year ended December 31, 2001, the Company repurchased 63,224
         shares of treasury stock for an aggregate amount of $83,635.

         At  December  31,  2001,  Synergy  had issued  outstanding  warrants to
         Sinclair  Broadcast Group ("SBG") to purchase  100,000 shares of common
         stock at $3.50 per share.  The  warrants  become  exercisable  when the
         shares are  registered  and expire in December  2010.  At December  31,
         2001,  Synergy had issued outstanding  restricted  cashless warrants to
         purchase  90,000  shares of common stock  ranging from $7.50 to $10 per
         share. These warrants expire in 2005. At December 31, 2001, the Company
         had  outstanding  25,000 warrants to purchase common stock at $3.00 per
         share that expire in May 2004. The

                                     -F20-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE K (continued)

         Company has also issued 200,000  cashless  warrants to purchase 100,000
         shares of common  stock at $3.00 and 100,000  shares of common stock at
         $5.00.  These warrants  expire in September 2002. The fair value of all
         warrants issued as payment for services in the 2001, as estimated using
         the Black-Scholes  option-pricing  model, of $191,050 was recorded as a
         charge to  operations  in the  accompanying  consolidated  statement of
         operations.

         In September 2001, the Company raised  $1,000,000 in a private offering
         by issuing 800,000  restricted  shares of its common stock and warrants
         to  purchase  200,000  shares of common  stock at $1.25 per share.  The
         Company incurred  $132,000 in offering expenses in conjunction with the
         private placement. The Company also issued warrants to purchase 300,000
         shares of common stock at $1.25 to  investment  bankers  related to the
         private  offering.  All of the warrants issued in conjunction  with the
         private offering expire in September 2006.

         In July 2001,  the Company  issued 200,000 shares of its stock and five
         year warrants to purchase 100,000 shares of common stock at an exercise
         price of $2.50 per share in  connection  with a guarantee  of a line of
         credit by a subsidiary of the Company. (See Note N).

         In April  2001,  the Company  cancelled  244,889  outstanding  cashless
         warrants in exchange  for the  forgiveness  of $113,129 in  shareholder
         indebtedness  to the Company and 100,000 shares of common stock,  which
         were issued in January 2002.

         On January 2, 2001,  Synergy issued 100,000 restricted shares of common
         stock for services and warrants to purchase 40,000 restricted shares of
         common stock at $12.50 per share.  The warrants expire on July 1, 2003.
         The fair value of the  restricted  stock and  warrants of $320,800  was
         recorded as a charge to  operations  in the  accompanying  consolidated
         statement of operations.

         In November 1999,  Synergy entered into a stock purchase agreement with
         SBG whereby SBG purchased 440,000 shares of Synergy's  restricted $.001
         par value common stock for $4,400,000.  The purchase price consisted of
         $1,400,000  cash,  a  credit  for a  minimum  of  $2,000,000  of  radio
         advertising and a credit for a minimum of $1,000,000 of certain in-kind
         services, as defined.

         In November 1999, BB entered into a stock purchase  agreement with SBG,
         whereby SBG purchased  900,000 shares of $.001 par value Class B common
         stock in BB for $765,000 cash. The Class B

                                     -F21-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE K (continued)

         common  shares  constitute  50% of the voting power of the common stock
         issued and outstanding.  At December 31, 1999,  Synergy owned 9,000,000
         shares of Class A common stock and SBG owned 900,000  shares of Class B
         common stock of BB.

         Simultaneously  with the  purchase  of the Class B  shares,  BB and SBG
         entered into a Class A Common Stock Option  Agreement  providing  for a
         grant by BB to SBG of the  right to  purchase  8,100,000  shares of its
         Class A common stock.  In  consideration  for the grant,  SBG agreed to
         provide   $50,000,000  of  radio  and/or  television   advertising  and
         promotional  support, as defined, to be used from November 1999 through
         December 31, 2004.

         In  December  2000,  Synergy,  BB and SBG entered  into a  modification
         agreement by which SBG  transferred  to Synergy  900,000 shares of BB's
         Class B common stock,  $7,000,000 of transferable  advertising credits,
         web site developments costs previously provided in exchange for Synergy
         issuing  100,000  shares of common  stock to SBG and options to acquire
         100,000  additional  shares of Synergy  common  stock.  Simultaneously,
         Synergy sold the  $7,000,000  advertising  credits to a third party for
         $2,660,000 in cash and trade credits. Synergy paid a broker $375,000 in
         cash and the remaining balance with stock valued at $591,150 on January
         2, 2001.

         In 1994, Synergy adopted the 1994 Services and Consulting  Compensation
         Plan (the  "Plan").  Under the Plan,  as amended,  8,400,000  shares of
         common stock have been  reserved for  issuance.  Since the inception of
         the Plan,  Synergy has issued  1,391,800 shares for payment of services
         to  employees  and  professional   service  providers  such  as  legal,
         marketing,  promotional and investment consultants. 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, Synergy granted options to
         selected employees and professional service providers.

                                     -F22-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE K (continued)

         The  following is a summary of such stock option  transactions  for the
         years ended December 31, 2001 and 2000 in accordance  with the Plan and
         other restricted stock option agreements:

                                                                    Weighted-
                                                    Number           average
                                                  of shares       exercise price
                                                  -----------     --------------
       Outstanding at January 1, 2000               913,120            $  6.80
           Granted                                  135,000              14.50
           Exercised                               (148,996)              3.90
           Forfeited                                 (4,000)             10.00
                                                  -----------     --------------
       Outstanding at December 31, 2000             895,124               8.48
           Granted
           Exercised
           Cancelled/ Forfeited                    (331,889)              9.25
                                                  -----------     --------------
       Outstanding at December 31, 2001             563,235            $  8.03
                                                  ===========     ==============
       Option price                               $ 2.00 to $17.50
                                                  ----------------
       Available for grant
           December 31, 2001                      6,444,965
                                                  ===========
           December 31, 2000                              -
                                                  ===========

         The  following  table  summarizes   information   concerning  currently
         outstanding and exercisable stock options:


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

                                     Options outstanding                Options exercisable
                         ---------------------------------------    -------------------------
                                          Weighted
                            Number         Average       Weighted        Number      Weighted
                        Outstanding at    Remaining       Average    exercisable at   average
          Ranges of      December 31,    contractual     Exercise      December 31,  exercise
       exercise prices      2001         life (years)     price          2001          price
       ---------------   -------------   ------------   --------    -------------   ----------
       $ 2.00 - $5.00         206,415            2.25       $3.67         206,415       $ 3.67
         6.25 -  8.90         175,820            2.37        6.81         175,820         6.81
        10.00 - 12.50          54,000            2.13       11.39          54,000        11.39
        15.00 - 17.50         127,000            2.62       15.39         127,000        15.39
                          ------------                              -------------
                              563,235                                     563,235
                          ============                              =============

</TABLE>

                                     -F23-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE K (continued)

         The Company  applies APB No. 25 in  accounting  for its stock  options.
         Compensation costs related to options and charged to operations were $0
         and $212,650 in 2001 and 2000, respectively. Had compensation costs for
         the stock options been determined  based on the fair value at the grant
         date consistent with the method of SFAS No. 123, the Company's net loss
         and per share  would  have  been  increased  to the pro  forma  amounts
         indicated below:

                                                 2001         2000
                                            ------------  -------------
               Net loss
                   As reported              $(4,300,139)  $(7,766,823)
                                            ============  =============
                   Pro forma                $(4,300,139)  $(7,916,423)
                                            ============  =============
               Net loss per common share
                   As reported              $     (1.03)  $     (2.44)
                                            ============  =============
                   Pro forma                $     (1.03)  $     (2.48)
                                            ============  =============

         The  weighted-average  fair value at date of grant for options  granted
         during 2000 was $5.06 per option. The weighted-average contractual life
         of options  outstanding  at December  31, 2001 was  approximately  2.36
         years.  The fair  value of each  option  grant is  estimated  using the
         Black-Scholes  option-pricing model with the following weighted-average
         assumptions used:

                                                       2000
                                                   ------------
               Dividend yield                            0%
               Expected volatility                      25%
               Risk-free rate of return            6.17 - 6.72%
               Expected life                       1 to 5 years

         The Company has also  reserved  100,000  shares for a stock option plan
         ("Option Plan") for nonemployee,  independent directors, which entitles
         each  nonemployee,  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 no options
         outstanding and  exercisable  and 94,000 shares  available for grant at
         December 31, 2001 at an option price of $1.25 per share.

                                      -F24

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE L - TRANSACTIONS WITH RELATED PARTIES

         The Company pays consulting fees to two entities, one of which is owned
         by the Company's  Chairman and Chief Executive Officer and the other is
         owned  by  the  Company's   President  and  Chief  Operating   Officer.
         Consulting  fees paid during the years ended December 31, 2001 and 2000
         aggregated approximately $172,000 and $129,000, respectively.

         In addition,  at December 31, 2001, there is an amount  receivable from
         the entity that is owned by the Company's  Chairman and Chief Executive
         Officer aggregating $44,750.

NOTE M - INCOME TAXES

         At December 31, 2001, the Company had a net operating loss carryforward
         of  approximately  $25,321,000,  which,  if not  utilized,  will  begin
         expiring in 2011. During the last three years,  issuances of stock have
         effected an ownership  change under Internal  Revenue Code Section 382.
         The ownership  change  resulting from these stock issuances will likely
         limit  the  Company's   ability  to  utilize  any  net  operating  loss
         carryforwards or credits generated before the change in ownership.

         The  components  of the  deferred  tax asset at December  31, 2001 were
         approximately as follows:

          Net operating loss carryover                 $ 8,694,000
          Deferred compensation                            108,000
          Allowance for doubtful accounts                  187,000
          Inventory                                        131,000
          Capital losses                                    10,000
          Other                                             53,000
          Valuation allowance                           (9,183,000)
                                                      ------------
                                                       $         -
                                                      ============

         Taxes for the years ended  December 31, 2001 and 2000  consisted of the
         following:

                                                 2001            2000
                                               -------         -------
       State and local income tax expense      $21,865         $21,433
                                               =======         =======

                                     -F25-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE M (continued)

         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, 2001 and 2000 are as follows:

                                                              2001      2000

           Federal income tax expense at statutory rate       (34)%     (34)%

           Increase (decrease) resulting from
            Increase in valuation allowance                    34        34
            State and local income taxes, net of Federal
               Benefit                                         .5        .3
                                                              -----     -----
                                                               .5 %      .3%
                                                              =====     =====

NOTE N - COMMITMENTS AND CONTINGENCIES

     1. LEASE COMMITMENTS

         The  Company   leases  office  and  warehouse   space  in   Wilmerding,
         Pennsylvania, Syosset, New York, Melville, New York, and Miami, Florida
         under  operating  leases expiring in July 2002, May 2003, June 2008 and
         January 2003, respectively.  The Company is also leasing vehicles under
         operating leases expiring in 2004.  Future minimum lease payments under
         noncancelable operating leases as of December 31, 2001 were as follows:

          Year ending December 31,
          ------------------------
                 2002             $197,643
                 2003              142,407
                 2004              107,486
                 2005               96,980
                 2006               96,708
                 Thereafter        153,738
                                  --------
                                  $794,962
                                  ========

         Rent expense under  operating  leases for the years ended  December 31,
         2001 and 2000 was approximately $252,000 and $213,000, respectively.

                                     -F26-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000


NOTE N (continued)

     2. SERVICE AGREEMENT

         BB's inventory is maintained in a public warehouse in South Kearny, New
         Jersey.  The Company is required to make rental payments based on 4% of
         BB's sales of inventory stored in the warehouse.  The agreement expires
         in  October  2018 and may be  cancelled  by either  party with a 90 day
         written notice under certain circumstances, as defined.

     3. DISTRIBUTION AGREEMENTS

         A  wholly-owned  subsidiary  of  the  Company,  New  Era  Foods,  Inc.,
         maintains a 25-year exclusive worldwide distribution agreement expiring
         in December 2022,  with a Dominican  Republic  corporation 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.

     4. 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,  if any,  with respect to these  actions
         will not materially affect the Company's financial position, results of
         operations or cash flows.

     5. 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.  In
         July 2001, the Company issued 200,000 shares of its stock and five year
         warrants  to  purchase  100,000  shares of common  stock at an exercise
         price of $2.50 per share to satisfy the  guarantee  and  receive  brand
         names as part of the  agreement.  The fair  value  of the  warrants  of
         $186,000 was  recorded as a charge to  operations  in the  accompanying
         consolidated statement of operations.

                                     -F27-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE N (continued)

     6. OTHER LIABILITIES

         Since 1999, the Company has disputed services performed by a vendor and
         the Company has indicated that its proposed  exclusive  contract was in
         violation.  The vendor has not sought  payment since December 1999. The
         Company does not believe  that it will have to use any current  working
         capital since the vendor services have been disputed.

NOTE O - DISCONTINUED OPERATIONS

         In 2000, the Company abandoned the operations of PCW. Accordingly,  PCW
         is accounted for as a discontinued  operation in the accompanying  2000
         consolidated  financial  statements  and had no revenues from continued
         operations in 2000. The liabilities of PCW included in the accompanying
         consolidated  balance  sheet  as of  December  31,  2001  consisted  of
         $209,125 related to the "minority interest." This liability may only be
         funded by available funds within PCW.

NOTE P - EXTRAORDINARY ITEM

         The  Company  recorded  a  $486,788  extraordinary  gain as a result of
         nonperformance by a vendor at June 30, 2001.

NOTE Q - SEGMENT AND GEOGRAPHICAL INFORMATION

         The  Company  offers a broad  range of  Internet  access  services  and
         related  products to  businesses  and consumers  throughout  the United
         States and Canada. All of the Company's identifiable assets and results
         of operations  are located in the United States.  Management  evaluates
         the  various  segments  of the  Company  based on the types of products
         being distributed which were, as of December 31, 2001, as shown below:

                                      -F28

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE Q (continued)

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

                                       Salon
                                     products              B2B               B2C              Total
                                     ----------         -----------       ----------        -----------
   Revenue                2001       $2,144,905         $20,036,232       $2,166,791        $24,347,928
                          2000       $2,719,525         $16,495,662       $1,449,831        $20,665,018

   Net                    2001         (847,351)           (864,732)      (2,588,056)        (4,300,139)
       Earnings           2000       (1,445,049)            (10,624)      (6,311,150)        (7,766,823)

   Interest               2001           33,119              65,088           56,538            154,745
       Expense            2000           48,337              17,363          113,264            178,964

   Depreciation and       2001          526,068             272,559          205,926          1,004,553
       amortization       2000          525,784               1,605          135,757            663,146

   Discontinued           2001
     Operations           2000                                              (495,534)          (495,534)

   Extraordinary          2001                                               486,788            486,788
     Items                2000

   Identifiable           2001        2,437,719           2,344,607        3,615,804          8,398,130
       Assets             2000        3,026,477           2,089,808        3,723,930          8,840,215

</TABLE>

NOTE R - FOURTH QUARTER ADJUSTMENTS

         During the year ended  December  31,  2001,  the  Company  made  fourth
         quarter  adjustments  to record the  estimated  fair value of  warrants
         issued  during  the year of  $377,050  and to  record an  allowance  of
         $500,000 in connection with advertising credits.

         During the year ended  December  31,  2000,  the  Company  made  fourth
         quarter  adjustments to record advertising and promotional  expenses of
         approximately  $500,000  and  discontinued  operations  adjustments  of
         approximately $495,600.

                                     -F29-

<PAGE>

                      Synergy Brands, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                           December 31, 2001 and 2000

NOTE S - NET LOSS PER SHARE

         The  following  data  shows the  amounts  used in  computing  basic and
         dilutive earnings per share:

                                                          2001          2000
                                                      ------------  ------------
        Net loss applicable to common stock           $(4,300,139)  $(7,766,823)
                                                      ============  ============
        Weighted-average number of shares in basic
            and dilutive EPS                            4,159,443      3,188,771
                                                      ============  ============

                                     -F30-

<PAGE>

                                 EXHIBIT INDEX

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

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

3.2              By-Laws (2)                                                         --

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

10.3             Synergy Brands Inc. 1994 Services and Consulting  Compensation  EX-3.1
                 Plan, as amended (4)

10.4             Stock Purchase Agreement dated November 23, 1999 by and between     --
                 the Company and Sinclair Broadcast Group Inc. (5)

10.5             Stock  Purchase  Agreement  dated  November  23,  1999  between     --
                 BeautyBuys.com Inc., and Sinclair Broadcast Group Inc. (5)

16.              Letter on changes in certifying accountant (6)                      --

21               Listing of Company Subsidiaries                                  EX-21

99               Listing of Company Intellectual Properties                       EX-99

</TABLE>

(1)      Only a copy of the amendment to the Certificate of Incorporation  filed
         April 2001 is included in the Exhibits.  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 amendment to the Certificate of Incorporation  filed
         July 2000 is  incorporated  by reference  to the exhibits  filed to the
         form 10KSB/A of the Company filed 8/9/01.  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

(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 as well as the amendment to the certificate
         of  incorporation  filed in July 2000 and included as an exhibit to the
         Form 10KSB/A of the Company filed 8/9/01.  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  amendments  or reports filed for the
         purpose  of  updating  such  description.  A  facsimile  of the  latest
         warrants issued in the private placement  completed in fiscal tear 2001
         is included herewith as an exhibit.

(4)      Incorporated by reference to the Registration  Statement of the Company
         on Form S-8 (File No. 333-92243) filed with the Commission on 12/17/99.

(5)      incorporated  by  reference  to  exhibits  filed to the form 8-k of the
         company filed with the commission (file no. 0-19409) on 12/7/99.

(6)      incorporated  by  reference  to  exhibits  filed to the Form 8-K of the
         Company filed with the Commission (File No. 0-19409 on 1/30/02)

                                      -50-