SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 2000

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _______________ to __________________

Commission File No. 001-23407

                                  SURREY, INC.
                 (Name of small business issuer in its charter)

TEXAS                                                                 74-2138564
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)

                              13110 TRAILS END ROAD
                              LEANDER, TEXAS 78641
              (Address and zip code of principal executive offices)

                                  512-267-7172
                (Issuer's telephone number, including area code)

         Securities registered pursuant to Section 12(b) of the Act:        NONE
         Securities registered pursuant to Section 12(g) of the Act:

                   COMMON STOCK, NO PAR VALUE ("COMMON STOCK")
              REDEEMABLE COMMON STOCK PURCHASE WARRANTS ("WARRANT")
                                (Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 ___
No X .

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

                                       -1-

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The Issuer's revenues for the year ended December 31, 2000 where $16,845,000.

The aggregate market value of Common Stock held by non-affiliates as of April
16, 2001 was $739,475.00.

The number of shares of Common Stock outstanding as of the close of business on
April 16, 2001 was 2,472,727.

Transitional Small Business Disclosure Format:  Yes ___ No   X  .
                                                           -----

                                     PART I

Item 1.  Description of Business.

General

         Surrey, Inc. ("Surrey" or the "Company") specializes in the development
and manufacture of high quality transparent glycerin and specialty soap
products, as well as the production of certain personal care and home fragrance
products. The Company has built four successful retail brands and a strong
private label and contract manufacturing business for high-profile customers.

         Surrey uses a proprietary process for manufacturing poured bar soaps
that allows the Company to produce unique and affordable original soap products
in large quantities with consistent quality. In addition, the Company
manufactures a small amount of traditional bar soap. Surrey also maintains a
library of chemical formulations for producing purer, milder and harder glycerin
soap bars primarily through the use of synthetic moisturizing ingredients rather
than the use of tallow (i.e., animal fat). The Company manufactures and sells
home fragrance products and a full line of potpourri products as part of its
crafts market product line. The Company also manufactures a line of high-end
scented candles that complements its line of home fragrance products. See also
"Competition."

Contract for Sale of Substantially All Assets of Surrey, Inc.

         On April 5, 2001, Surrey, Inc. (the "Company") entered into an
Agreement for the Purchase and Sale of Assets (the "Asset Agreement"), dated as
of April 2, 2001, with Jean Charles Incorporated, a Utah corporation with an
address at 82449 Avenue 61, Thermal, California 92274. The Asset Agreement
provides for the sale by the Company to Jean Charles Incorporated of all of the
Company's tangible personal property, inventories, intangibles, books and
records and prepaid accounts. The Company is not selling its real property,
accounts receivable, bank accounts, tax deposits and certain of its contracts
not assumed by Jean Charles Incorporated pursuant to the Asset Agreement nor are
the Company's accounts payable being assumed.


                                       -2-

<PAGE>



         The sale of assets pursuant to the Asset Agreement has been approved by
the Company's board of directors and is subject to approval by the Company's
shareholders. The Company will prepare as soon as possible a notice to its
shareholders of a special shareholders' meeting to consider and vote upon the
Asset Agreement. The circumstances which led to the decision by the Board of
Directors to enter into the Asset Agreement were two-fold. Recently, the Board
of Directors has been advised by management that the Company's financial
statements for its year ended December 31, 2000 reveal that the Company has
experienced substantial losses for the year ended December 31, 2000, in the
amount of approximately $2,100,000. In addition, the Company has borrowed
heavily from The Chase Manhattan Bank over the past few years and is indebted to
The Chase Manhattan Bank in the amount of approximately $6,000,000, including
principal, interest and late fees, all of which debt is cross-collateralized by
the Company's real property, accounts receivable and inventories. By letter
dated January 3, 2001, The Chase Manhattan Bank accelerated the maturity of a
portion of the Company's debt and demanded immediate payment. The Company
unsuccessfully sought to refinance its debt owed to The Chase Manhattan Bank
with another lender. By letter dated March 7, 2001, The Chase Manhattan Bank
accelerated the maturity of all of the Company's indebtedness and demanded
immediate payment. The Board of Directors of the Company has considered various
alternatives available to the Company, including bankruptcy, receivership,
assignment for the benefit of creditors and sale of assets, and has discussed
these alternatives with the professional advisors to the Company. The Company
does not have the financial ability to continue as a going concern, nor does it
have the capital resources to continue its operations under the threat of
foreclosure by The Chase Manhattan Bank. The Board of Directors of the Company
has determined that the Asset Agreement is the preferred alternative for the
creditors and shareholders of the Company.

         In a Letter Agreement dated April 5, 2001 among the Company, The Chase
Manhattan Bank and Jean Charles Incorporated, The Chase Manhattan Bank has
agreed to forebear taking any action to collect the debt owed to it by the
Company for 180 days, subject to the continuing performance by Jean Charles
Incorporated pursuant to the Asset Agreement.

         The sale of assets pursuant to the Asset Agreement will close on July
31, 2001, unless postponed by the parties, but not later than September 29, 2001
(the "Closing"). At the Closing the Company will transfer and deliver title to
the assets to be sold pursuant to the Asset Agreement to Jean Charles
Incorporated.

         Jean Charles Incorporated has contracted to perform certain obligations
pursuant to the Asset Agreement in consideration for the assets to be sold,
including (i) operation of the Company's business as agent for the Company until
the Closing; (ii) payment of the Company's general, administrative and operating
expenses from the date of the Asset Agreement until the Closing; (iii) payment
of lease payments on the Company's operating and capital leases from the date of
the Asset Agreement until the Closing; and (iv) payment of certain other
expenses of the Company, subject to prior approval. Effective on the date of the
Asset Agreement, the Company laid-off all of its employees and Jean Charles
Incorporated hired and agreed to pay those employees it considers necessary to
the ongoing business of the Company. Jean Charles Incorporated also contracted

                                       -3-

<PAGE>



to lease the Company's office and warehouse facilities on a month- to-month
basis at a rental of $10,000 per month for as long as necessary to continue the
operations of the Company.

         In addition, Jean Charles Incorporated entered into a Guaranty
Agreement (the "Guaranty Agreement") dated April 5, 2001 with The Chase
Manhattan Bank pursuant to which Jean Charles Incorporated guaranteed the
payment by or on behalf of the Company of $3,000,000 to The Chase Manhattan Bank
within 180 days after the date of the Asset Agreement from collections on the
Company's accounts receivable and sales of product using the Company's
inventories. The Chase Manhattan Bank is owed approximately $6,000,000,
including principal, interest and late fees, by the Company, all of which is
cross-collateralized by the Company's real property, accounts receivable and
inventory.

         In addition, Jean Charles Incorporated has agreed, pursuant to the
Asset Agreement, to pay 10% of gross sales revenues, less returns and
allowances, from sales of products acquired from the Company directly to the
Company's trade creditors, until such time as the Company's trade creditors have
been paid in full.

         In addition, Jean Charles Incorporated has agreed, pursuant to the
Asset Agreement, to purchase from the Company all of its inventories on hand at
the Closing, valued at the lesser of cost or fair market value, less inventory
advances by Jean Charles Incorporated to the Company. In payment for the
inventory, Jean Charles Incorporated will pay 10% of gross sales revenues, less
returns and allowances, from sales of products acquired from the Company
directly to the Company, after the Company's trade creditors have been paid in
full, until such time as the Company has been paid in full for the inventories.

         Additionally, the Asset Agreement provides that all shares of stock of
the Company owned directly or indirectly by John van der Hagen will be canceled
by the Company at or prior to the Closing, John van der Hagen will enter into a
long term consulting agreement with Jean Charles Incorporated, and Marty van der
Hagen will enter into an employment agreement with Jean Charles Incorporated.

         Additionally, Jean Charles Incorporated has covenanted pursuant to the
Asset Agreement that within 18 months after the date of the Asset Agreement,
Jean Charles Incorporated will make a tender offer to the shareholders of the
Company to purchase all of their shares of stock of the Company for cash
consideration of $.80 per share, less distributions, if any, made to the
shareholders after the date of the Asset Agreement.

Background of the Company and its Business

         Surrey was incorporated in 1981 as a Texas corporation. The Company was
the successor to a venture begun in 1972 to market a brush, mug, and line of
shaving soap for men. Management began working to perfect techniques for
producing a milder bar soap for its shaving kits, and in 1979 began

                                       -4-

<PAGE>



manufacturing its own soap products and expanding a new library of soap
formulations. At that time, the Company discovered that specialty soaps were a
lucrative niche market which it believed was too small to attract significant
competition from the larger soap producers like Dial, Unilever,
Colgate-Palmolive and Procter & Gamble.

         During the 1980's, management began developing a new generation of soap
formulations and selling its products to drug store chains, supermarket chains,
and discount/mass merchandisers across the country. Surrey found that the
chemistry of most glycerin bar soaps made the soap soft and difficult to
process. Surrey's newly formulated glycerin soaps were firmer, lasted longer,
and could be used to create various unique shapes and formats, such as Surrey's
original "soap suspended in soap" products.

         In the early 1990's, Surrey entered the contract manufacturing business
and began producing specialty soap products for a variety of premier brand
consumer product companies and prestige accounts, including Elizabeth Arden,
Walt Disney Co., Avon, Ann Taylor, Wal-Mart, and Walgreen's. In 1990, the
Company acquired the assets of Simmer Scents, a line of potpourri home
fragrances, and began selling to major craft chains.

         In March 1987, the Company moved its operations to its current site in
Leander, Texas, close to Austin, originally occupying an 18,000 square foot
manufacturing plant. The Company has expanded several times over the years. Its
most recent expansion and remodeling, beginning in 1998, brought the total size
of its facilities to approximately 93,000 square feet, of which approximately
9,100 square feet contains the Company's corporate office and research facility,
approximately 25,900 square feet houses the production and manufacturing
facilities, and the remaining approximately 58,000 square feet are dedicated to
warehousing and storage. See also "Growth Strategy," "Bath & Body Works" and
"Significant Customers."

Products and Distribution

         Surrey's principal product line has traditionally been its high quality
glycerin bar soaps which it markets, both directly and through manufacturers'
representatives, to a large variety of retail establishments, and which it
manufactures, on a contract basis, for a variety of private-label customers. In
addition, the Company now manufactures and markets a full line of potpourri
products and began producing a candle line in late 1998. The Company's total
sales mix for 1999 and 2000 was approximately 65% contract manufacturing
products and approximately 35% retail products, including soaps, shaving
products, potpourri, and craft products.

         The Company has a wide variety of private label and contract
manufacturing clients for which it makes specialty glycerin soap bars and other
products. Many of the retail customers, such as Bath & Body Works, Wal-Mart,
K-Mart, Walgreen's, Tupperware, and Sara Lee Direct, buy products designed,
created and manufactured exclusively by Surrey's personnel. Contract
manufacturing customers, such as Elizabeth Arden, Avon, Liz Claiborne and Walt
Disney Co., work closely with the Company to create a product unique to that
customer through the use of specialty designs, fragrances, labeling, colors and

                                       -5-

<PAGE>



shapes. Surrey, through its proprietary processes, has been successful in
creating unique shapes and designs, including its "soap in a soap," tailored
specifically for certain customer requests.

         Surrey currently contracts with approximately 60 brokers and
manufacturers' representatives who sell the Company's products on a commission
basis to a variety of retail customers. All such brokers and manufacturers'
representatives sell products for manufacturers other than the Company. Such
products include both the Company's own branded products and private-label
products manufactured for such retailers under their individual labels. The
Company also produces, on a direct marketing basis, specialty products for a
variety of contract manufacturing customers. Those products are sold through
direct marketing efforts by the Company. The Company does not offer any products
through a retail catalogue.

         Surrey currently markets its products under its own four premium
in-house brand names:

         * THE TEA ROOM(TM)LINE                       * THE SIMMER SCENTS LINE

         * candle line                                * potpourri bags
         * potpourri                                  * potpourri liquids
         * soap                                       * oils
                                                      * sachets

         * THE SURREY MEN'S LINE                      * THE ILLUMATHERAPE(R)LINE

         * shaving mug, brush and soap set            * various shaped and
                                                          scented candles

         The Company has worked to diversify its product mix. In mid-1997 the
Company introduced a full line of potpourri intended to capitalize on the
Company's experience in producing high quality fragrances. The Company's
potpourri line is being sold both through craft stores (such as Garden Ridge)
and discount mass merchandisers (such as Wal-Mart and K-Mart). At the end of
1998, the Company entered the candle market with a line of high-end scented
candles that compliments its line of home fragrance products. During 1999, the
Company reintroduced its soap making kits as a holiday product. These additional
products have increased the Company's ability to market to craft stores. During
2000, the Company developed a second candle line, to produce clear wax candles,
which doubled the Company's candle production capacity and which became
operational in April 2000.

         In 1998, the Company also began manufacturing a small amount of
traditional bar soap. The Company does not expect to make significant inroads
into the traditional bar soap market; rather, the Company intends to meet the
existing demand of its customers for traditional bar soap. The addition of a
traditional line of bar soap allows the Company to offer a more complete line of
soap products including traditional soap products, liquid soap, and glycerin bar
soap. See also "Competition."

                                       -6-

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Management Information System

         During first quarter 2000, the Company began a replacement and upgrade
of its entire management information system. In order to finance this project,
the Company entered into a $250,000 operating lease with Softech Financial. The
new system was completed and operational during third quarter 2000. The upgrade
consists of new hardware, new software and training for Company employees. The
new system is expected to improve efficiency and cut costs for handling orders
and sales, to improve inventory control and to help track and manage general
cost control.

Growth Strategy

         Over the past several years, the Company has embarked on a growth
strategy designed to substantially increase revenue and profitability. To date,
the Company has met many of its stated goals and continues to work toward
developing others. The Company has expanded its business by:

         *  doubling its manufacturing and production capabilities

         *  doubling its sales

         *  hiring additional professional sales personnel

         *  increasing its direct marketing and sales efforts to attract new
contract manufacturing customers

         *  continuing to diversify its product mix

         *  developing new products for its retail market

         *  continuing to shift its marketing emphasis to its higher margin
products

         *  hiring a human resources director to decrease labor costs and
turnover

         During 2000, the Company focused on (1) continuing to develop new
products, such as its new clear wax candle line, increasing sales in all its
product lines, and entering into new markets, such as the UK and Europe; and (2)
cost containment to improve gross profit. The Company's gross profit margin was
approximately 21% in 1999 and was [?]__% in 2000.

Bath & Body Works

         The Company announced in November 1998 that it received a major letter
of commitment from Bath & Body Works, a wholly owned subsidiary of The Limited,

                                      -7-

<PAGE>


Inc., to purchase Company products. The letter of commitment was carried out
through periodic purchase orders and no formal agreement was entered into
between Bath & Body Works and the Company.

         In January 1999, Bath & Body Works placed an initial opening order for
approximately 2.0 million bars of glycerin specialty soap products, for
approximately $1.0 million in revenues. Total Bath & Body Work's purchases for
1999 were approximately 10 million bars, for approximately $7.0 million in
revenues, and for 2000 were approximately 8 million bars, for approximately $5.0
million in revenues. As of March 2001, the Company had received year 2001
purchase orders for approximately $1.8 million from Bath & Body Works. See also
"Item 6, Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."

Competition

         While there is extensive competition in the bar soap manufacturing
industry, the Company believes that it currently competes directly with only a
small number of manufacturers in the specialty soap market, notably Neutrogena,
Beiersdorf (Basis), and Johnson & Johnson (Purpose). In addition, many other
companies manufacture and/or market a range of personal care products which
compete with Surrey's soap and other products. These companies include, among
others, Twincraft Soap Company, Original Bradford Soap Works and Stahl Soap. See
also "Proprietary Processes and Trademarks."

         The Company also manufactures a small amount of traditional bar soap.
Within the traditional soap market, the Company competes directly with many
larger manufacturers, such as Procter & Gamble, Colgate-Palmolive, Unilever and
Dial, which are much larger and have greater financial resources than the
Company. The Company does not expect to make significant inroads into the
traditional bar soap market; rather the Company intends to meet the existing
demand of its customers for traditional soap.

         The Company currently believes that it will experience little
competition from the large manufacturers of traditional bar soap in its
specialty soap niche market due to the small relative size of the market and the
larger relative cost to mass produce a high quality glycerin bar soap product.
These larger manufacturers may, however, present more competition to the Company
for its liquid soap products.

         In late 1998, the Company added a line of high-end scented candles to
compliment its potpourri and craft products and in April 2000, the Company added
a second candle line which is expected to double the Company's candle production
capacity. These additions are intended to add variety to the Company's product
line. The candle industry is highly competitive and dominated by larger
manufacturers, most of which have greater financial resources than the Company.


                                       -8-

<PAGE>



         The Company believes that it is best able to compete based on the
variety of its product line, and to a lesser extent on price. The Company is
broadening its product line and believes its current and intended
diversification into traditional bar soaps, liquid soaps, potpourris, high-end
scented candles and crafts will be advantageous in its marketing, and
instrumental in helping it maintain a competitive position in its targeted
markets. However, as the Company continues its diversification into other
product lines and markets, it may experience competition from other sources, as
well as from foreign manufacturers.

Significant Customers

         Bath & Body Works accounted for approximately 30% of net sales in 2000
compared with 36% of net sales in 1999. No other customer accounted for more
than 3% of net sales.

Customer Contracts

         The Company's large retail customers, such as Bath & Body Works,
Wal-Mart, K-Mart and Walgreen's generally establish their product order plans on
a 12 month cycle. Once such plan is in place it is often not reviewed for a
year; however, only the first order under any such plan is guaranteed. The
Company has no standing orders or long-term contracts with any of its retail
customers. Any such customer can re-order at any time or cancel or replace the
Company's product in its 12 month plan at any time with no notice to the
Company.

         Most of the Company's contract manufacturing customers, such as
Elizabeth Arden, Avon and Walt Disney, order on a job-by-job basis only. Such
orders are generally cancelable by the customer if not shipped within two weeks
of the scheduled shipping date. Unless the Company is developing a new product
for a contract manufacturing customer (for which the development period can take
from months to years depending on the product and the customer), the Company
typically ships products within 60 to 90 days after receiving a purchase order.
Such period may be longer if special packaging or labeling is required by the
customer. Individual contract manufacturing clients generally supply the Company
with soap boxes and labeling; therefore, the Company is not required to carry
such inventory on its balance sheet. In addition, many of the Company's contract
manufacturing customers pay for the development and production of the die stock
and molds and, therefore, own such molds and the formulas for their individual
products.

         Because the Company generally does not have any standing orders or
long-term contracts with its customers and orders are generally shipped within
60 to 90 days after receipt of purchase orders, the Company had no significant
backlog in 2000.

Proprietary Processes and Trademarks

         Surrey has recently received four design patents from the United States
Department of Commerce Patent and Trademark office. As an industry leader in
creating new and exciting designs, processes and formulations, management

                                       -9-

<PAGE>


decided over a year ago to protect the Company's position with patents. The
Company currently has six additional patent applications under review, one of
the most unique of these, a dual action transparent and low ph synthetic
detergent combo bar, which was recently successfully manufactured and shipped to
one of the Company's customers, Arbonne International.

         The Company holds no patents on any of its equipment or processes and
relies substantially on certain formulas and processes that are not patentable.
In addition, much of the Company's proprietary information is the experience and
knowledge of its employees, contractors and business partners. To protect these
rights, the Company requires certain contractors, business partners and
distributors to enter into confidentiality agreements. There can be no assurance
that these agreements will provide meaningful protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure; however, the Company intends to defend its
trademark and proprietary information as appropriate. Further, in the absence of
patent protection, the Company may be exposed to competitors who independently
develop substantially equivalent technology or otherwise gain access to the
Company's trade secrets, knowledge or proprietary information. The Company
became aware in mid-1997 that a company which signed such a confidentiality
agreement appears to be using certain trade secrets of the Company in violation
of their agreement. No action is currently contemplated in relation to such
violation. Management believes that such infringement is not material. Because
the Company is in a niche market, any significant volume from a competitor could
reduce the Company's sales and revenue.

         The Company holds a registered trademark to use Hill Country Soap
Company(R), Pure Pleasure(R) and Illumatherape(R). The Company has applied for a
trademark to use Garden Party(TM) and Tea Room(TM). Although Surrey believes its
trademarks are important, it does not believe that its trademarks are material
to its business.

Research and Development

         During fiscal years 1999 and 2000, the Company's principal research and
development activities have been experimentation in the Company's laboratory by
its own personnel and ideas brought to the Company by its customers. The Company
has historically spent significantly less than 5% of its net sales on research
and development. While research and development is important to the Company's
ongoing business and a significant portion of certain employees' time is
committed to this area, the costs of research and development in the Company's
product line is significantly less than for other types of manufacturing
companies.

Seasonality

         The Company experiences seasonal fluctuations in operating results,
with sales and revenues generally higher during the third and fourth calendar
quarters. Orders shipped in the third and fourth quarters generally account for
approximately 60% of the Company's total net sales for the year, due primarily
to the holiday retail season. Generally, customers place holiday purchase orders

                                      -10-

<PAGE>

in the summer for initial shipment in August continuing through October. As a
consequence, the Company expects to hire full-time seasonal employees from May
through November to accommodate such increased production volume. During third
and fourth quarters the Company operates a third full-time production shift.

Employees

         As part of the Company's agreement with Jean Charles Incorporated, all
employees of the Company were terminated effective April 1, 2001, except for an
operational manager and an accounting supervisor. Many of the former employees
of the Company were hired by Jean Charles Incorporated as part of its agreement
to continue the operations of the Company.

Sources and Availability of Raw Materials

         Substantially all of the raw materials (predominantly glycerin and
other chemicals) used by the Company to manufacture its products are of a
generic nature and are available from several suppliers. To the best knowledge
of the Company, none of the raw materials for its products is in short supply,
and all are readily available from a variety of distributors. In 1999, the
Company purchased four 10,000 gallon containers to store key raw materials.
Management believes by buying in bulk the Company slightly reduces the cost of
such raw materials. The Company does not anticipate any significant difficulties
in securing adequate supplies of raw materials of acceptable quality and prices
in the foreseeable future.

Item 2. Description of Property.

         The Company owns the property and facilities that comprise its
production plant and corporate headquarters. The property consists of
approximately 12.50 acres in Travis County, Texas, approximately 22 miles
northwest of Austin. All of the Company's operations are currently centered in
one approximately 93,000 square foot single story warehouse building which
houses the offices, production facilities and warehouse and storage. Currently,
the Company's corporate offices and research facility occupy approximately 9,100
square feet, the production and manufacturing facilities occupy approximately
25,900 square feet, and the remaining approximately 58,000 square feet are
dedicated to warehousing and storage.

         The Company's production and manufacturing equipment is leased under
certain capital and operating equipment leases and on the lease lines of credit
described under "Item 6, Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."

         The principal manufacturing equipment currently in use consists of
eight poured bar soap production line units, two liquid fill lines, one
traditional manufacturing soap line production unit and filler, four high speed
wrapping machines, four low speed wrapping machines, and two candle making
lines.

                                      -11-

<PAGE>



         The Company's existing and future plant and equipment are pledged to
secure its outstanding bank loans. Management believes that the Company's
properties are adequately covered by insurance.

Item 3. Legal Proceedings.

         The Company is not a party to any pending legal proceeding, nor is its
property the subject of any pending legal proceeding.

Item 4. Submission of Matters to a Vote of Securities Holders.

         There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Market Information

         Surrey, Inc.'s Common Stock and Warrants are traded on the NASD's OTC
Bulletin Board under the symbols "SOAP" and "SOAPW," respectively. The Company's
Common Stock and Warrants were previous traded on The Nasdaq SmallCap Market but
because the Company was not in compliance with Nasdaq's requirements for
continued listing, the Company's Common Stock and Warrants were delisted,
effective October 20, 2000.

         As of April 16, 2001, there were 2,472,727 outstanding shares,
approximately 13 holders of record, approximately 736 beneficial holders of the
Common Stock, and 675,000 outstanding Warrants to purchase Common Stock. The
Warrants are exercisable on or before December 3, 2002 at an exercise price of
$4.80 per share. The Company may redeem the Warrants in whole at a price of $.01
per Warrant if the Company's price per share exceeds $5.00 per share for 20
consecutive trading days.

         The following table sets forth the high and the low bid prices for the
Company's Common Stock and Warrants for the periods indicated as reported on the
Nasdaq system and the NASD's OTC Bulletin Board (after October 20, 2000). OTC
Bulletin Board quotations reflect inter- dealer prices, without retail mark-up
or commission and may not represent actual transactions.


                                                       -12-

<PAGE>

<TABLE>
<CAPTION>

                                             Common Stock                       Warrants
                                       -------------------------      -------------------------
                                      High Bid          Low Bid        High Bid         Low Bid

<S>                                    <C>              <C>            <C>               <C>
Quarter Ended December 31, 2000        $1.375           $0.594         $0.313            $0.25
Quarter Ended September 30, 2000       $1.50            $0.438         $0.375            $0.156
Quarter Ended June 30, 2000            $1.563           $0.75          $0.813            $0.156
Quarter Ended March 31, 2000           $2.750           $1.031         $0.625            $0.375

Quarter Ended December 31, 1999        $3.000           $0.781         $0.50             $0.375
Quarter Ended September 30, 1999       $2.438           $1.281         $0.50             $0.313
Quarter Ended June 30, 1999            $2.000           $1.375         $0.375            $0.313
Quarter Ended March 31, 1999           $2.688           $1.75          $0.406            $0.25
</TABLE>

         The last sales price on April 16, 2001 was $0.55 per share for the
Common Stock and $0.01 per Warrant.

Dividend Policy

         The Company has not issued any dividends to stockholders. The Company
currently intends to retain earnings for use in the operation and expansion of
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future. The Company's bank loan restricts the payment of any
dividends or purchase by the Company of any shares of Common Stock without the
prior written consent of the lender. See "Item 6. Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Recent Sale of Unregistered Securities

         The Company has not sold any securities during the last fiscal year
without registering the securities under the Securities Act.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

         The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of the
Company's level of operation and financial condition. This discussion should be
read with the financial statements appearing elsewhere in this Annual Report.

Results of Operations

         Net Sales. Net sales for the Company reflect total sales less cash
discounts and estimated returns. Net sales decreased to $16,845,000 in 2000 from
$19,557,000 in 1999, a decrease of 13.9%. The substantial decrease in net sales
in 2000 is primarily attributable to two basic facts: (1) during first quarter
1999 the Company delivered opening order shipments (initial shipments of
products to stock store shelves) for two major accounts, Bath & Body Works
glycerin soap and Minnetonka Brands, for its "Star Wars" soap retail
distribution project and (2) during second quarter 1999 the Company shipped
large follow-on orders to both Bath & Body Works and Minnetonka Brands. In
addition, while the Company did not lose any significant customers in 2000, no
new major customers or business was booked during the year.

                                      -13-

<PAGE>



         Gross Profit. Gross profit decreased in 2000 to $3,092,000 from
$4,056,000 in 1999. Gross profit margin for 2000 decreased to 18.4% from 20.8%
in 1999. Gross profit and gross profit margin decreased primarily due to
substantially lower sales for 2000. The cost savings that had been driven by the
Company's use of lower cost seasonal full-time employees instead of higher cost
temporary agency workers was offset by the sales decline. Therefore, even though
the Company attempted to reduce costs, these reductions were not substantial
enough to prevent the decline in gross profit and gross profit margin in 2000.

         Operating Expenses. Operating expenses increased in 2000 by 33.4%
compared to 1999 and also increased as a percentage of net sales; $4,326,000 (or
25.7% of net sales) in 2000, as compared to $3,344,000 (or 17.1% of net sales)
in 1999. Operating expenses increased due to increased sales efforts and as a
percentage of sales because of the significant decrease in net sales. Therefore
the additional sales expenses incurred in 2000 did not lead to increased sales
for the year.

         Sales and marketing expenses increased in 2000 compared to 1999, and
also increased in as a percentage of net sales. Such expenses increased from
$1,020,000 (or 5.2% of net sales) in 1999 to $1,196,000 (or 7.1% of net sales)
in 2000. The increase is primarily due to general sales expenses for travel and
some sales promotional activity.

         General and administrative expenses increased in 2000 as compared to
1999 and also increased as a percentage of net sales, from $1,982,000 (or 10.1%
of net sales) in 1999 to $2,590,000 (or 15.4% of net sales) in 2000. This
increase was primarily due to increased salaries for personnel, higher costs for
medical insurance due to more full-time employees and higher product development
costs due to a higher level of new product launches for 2001.

         Interest Expense. Interest expense increased substantially in 2000 and
also increased as a percentage of net sales. Interest expense was $619,000 (3.7%
of net sales) in 2000, as compared to $448,000 in 1999 (2.3% of net sales). The
increase was primarily due to the Company's increased borrowings in connection
with its increased inventory needs and the replacement and entire upgrade of its
computer system. Increased interest obligations resulted as the Company
increased its revolving line of credit to fund working capital, increased its
long-term debt by moving an outstanding working capital line to term debt, and
incurred new lease financing of approximately $450,000 for new a computer system
and for candle making equipment.

Quarterly Financial Information (unaudited)

         The following table reflects certain selected quarterly operating
results, which have not been audited. The information has been prepared on the
same basis as the annual financial statements and includes all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the information shown. The Company's results may vary
significantly from quarter to quarter and the operating results for any quarter
are not necessarily indicative of the results that may be expected for any
future period.

                                      -14-

<PAGE>



         Subsequent to December 31, 2000, the Company determined that certain
adjustments to inventories and cost of sales should have been made to its
previously issued quarterly results for the quarter ended June 30, 2000. The
effect of these adjustments on the quarter ended June 30, 2000 was to decrease
gross profit by $441 and increase the loss from operations and net loss by $619.
The Company's quarterly results, which follow, have been adjusted as compared to
previously issued quarterly reports with respect to these changes.

<TABLE>
<CAPTION>

                                                                         Quarter Ended
                                            ------------------------------------------------------------------
                                            March 31,         June 30,          September 30,     December 31,
                                             2000               2000                2000             2000
                                                         (Amounts in thousands, except per share date)

<S>                                         <C>               <C>                  <C>               <C>
Net Sales                                   $3,350            $3,910               $5,034            $4,551

Gross Profit                                   633               499                1,394               566

Income (loss) from operations                 (355)             (661)                 433              (651)

Net income (loss)                             (341)             (745)                 206            (1,229)

Basic and diluted earnings
   (loss) per share                         $(0.14)           $(0.30)               $0.08            $(0.50)
</TABLE>


Liquidity And Capital Resources

         Traditionally, the Company's primary sources of liquidity have been
cash flows from operations and bank debt and lease financing. The terms of the
Company's bank financing are described below. However, in January and March
2001, The Chase Manhattan Bank (the "Lender") accelerated the Company's bank
debt, rendering the Company unable to pay its obligations as they came due. The
Company does not have the liquidity to meet its current obligations, although
the Company believes that its capital resources are sufficient to satisfy its
obligations. Due in large part to this lack of liquidity, the Company has
entered into a contract with Jean Charles Incorporated for the sale of
substantially all of the Company's assets to Jean Charles Incorporated. This
sale agreement is described in Item 1. Description of Business - Contract for
Sale of Substantially All Assets of Surrey, Inc.

         Effective April 2000, the Company amended its Loan Agreement with the
Lender. Under the amended Loan Agreement, the Company currently has three
outstanding term loans and a revolving line of credit to be used for working
capital purposes. The Company has (a) a construction/term loan in the original
principal amount of $2,300,000 ("Original Term Loan") with a final maturity in
April 2005; (b) a term loan, in the original principal amount of $400,000
("Second Term Loan") with a maturity of February 2004; and (c) a term loan, in
the original principal amount of $1,000,000 ("Third Term Loan") with a maturity

                                      -15-

<PAGE>


of April, 2003. An aggregate of approximately $3,196,000 was outstanding at
December 31, 2000 under all three term loans.

         The Company's current revolving line ("Revolving Note") with the Lender
is based, under the amended Loan Agreement, on eligible accounts and eligible
inventory and has a final maturity of May 8, 2001. Amounts currently available
under the Revolving Note include the lesser of (A) 80% of Eligible Accounts (as
defined), plus, on any date between April 1, 2000 and July 31, 2000 or between
January 1, 2001 and May 8, 2001, the lesser of 50% of current inventory balance
and (x) $1.2 million, or (B) $3,000,000. As of December 31, 2000, the Company
had $2,964,000 outstanding under the Revolving Note and $36,000 in excess
borrowing capacity.

         Under the current Loan Agreement, (a) interest on each of the Term
Loans and the Revolving Note will float at the Lender's Prime Rate plus 1%.

         The Company and the Lender have amended the financial covenants under
the Loan Agreement on several occasions to provide for reduced financial
covenants. Currently, the Loan Agreement contains (among other requirements) the
following covenants which are tested quarterly. The Company must maintain:

         (A) a current ratio of not less than 1.25 to 1.00 as of the end of each
calendar quarter after June 30, 1999;

         (B) a debt to tangible net worth ratio not greater than 2.25 to 1.00 as
of the end of each calendar quarter after June 30, 1999; and

         (C) a debt service coverage ratio, beginning with quarter ending March
31, 2000, of not less than 1.20 to 1.00, with the numerator of the debt service
coverage ratio being calculated on a rolling four quarters basis, tested for
compliance as of the end of each calendar quarter.

         At December 31, 2000, the Company was not in compliance with either the
current ratio, debt service coverage ratio or the debt to tangible net worth
covenant set forth above.

         Interest on each of the term loans and the Revolving Note is payable
monthly. Under the Loan Agreement, the Company is required to pay down the
Revolving Note and maintain a zero balance for 30 consecutive days once prior to
its maturity in April 2001. Principal and interest on the term loans is payable
in monthly installments, which aggregate approximately $93,700 per month.

         The Loan Agreement also limits indebtedness by the Company, restricts
borrowing under certain equipment leases to $2,000,000, restricts the Company
from making or incurring capital expenditures exceeding $2,000,000 in any 12
month period, restricts indebtedness in connection with acquisition of equipment
to $200,000 and limits sales of assets. The Loan Agreement also restricts

                                      -16-

<PAGE>



the Company from making any dividends or distributions on its capital stock
unless net income equals or exceeds $2,000,000, repurchasing or redeeming any
capital stock (other than pursuant to the terms of the Company's Warrants,
provided no default would occur under the bank loans), paying any bonus or other
non-salary compensation, replacing its President or Chief Financial Officer, or
entering into certain related party transactions without prior written consent
of Lender.

         The Company leases certain pieces of its manufacturing equipment
pursuant to capital leases. The capital leases currently in effect have maturity
dates ranging from dates during 2001 to 2004. Such leases provide that if no
event of default exists thereunder the Company may purchase the equipment
subject to the lease at the expiration of the lease or may renew the lease.

         The Company has a lease line of credit with Key Corporate Capital, Inc.
(due in 2005) which provides for a $1,562,000 leasing line of credit. The
Company drew the entire amount under this line of credit in 1998. The Chief
Executive Officer of the Company has personally guaranteed this lease line of
credit. Payments under this line are approximately $288,400 per year or $24,000
per month.

         The Company also has two three year capital lease lines of credit,
originally with Winthrop Resources, Inc., in the aggregate amount of
approximately $777,000. The Company has fully utilized these lines of credit.
Payments under these two lines of credit total approximately $300,000 per year
or $25,000 per month.

         The Company also has a three year capital lease line of credit,
originally entered into in March 1999 with Amembal Capital Corporation, in the
total amount of approximately $416,000. Payments under this line of credit are
approximately $70,900 per year or $5,900 per month.

         During second quarter 2000, the Company completed a system-wide
replacement and upgrade of its computer system. The final cost of this
replacement was $325,000, which was financed through a three-year operating
lease with Softech Financial. Payments under this line of credit are
approximately $114,000 per year or $9,500 per month.

         During second quarter 2000 the Company added an additional seven-year
$125,000 operating lease line of credit to provide financing for its new candle
production line. Payments under this line of credit are expected to be
approximately $36,000 per year or $3,000 per month.

         The Company experiences seasonal fluctuations in operating results,
with sales and revenues generally higher during the third and fourth calendar
quarters, reflecting primarily orders for the holiday retail season. Orders
shipped in the third and fourth quarters generally account for approximately 60%
of the Company's total net sales for the year.

Forward Looking Information
---------------------------

         Statements contained in this report regarding the Company's future
operations, including its growth strategy, future performance and results, its
ability to meet its working capital and capital expenditure needs, increased

                                      -17-

<PAGE>



sales, anticipated liquidity, and any reduction in expenses as a percentage of
net sales, are forward-looking and therefore are subject to certain risks and
uncertainties.

         Any forward-looking information regarding the operations of the Company
will be affected by the continued receipt of large orders from the Company's
significant customers, including Bath & Body Works, the Company's ability to
effectively manage its costs of operation, its ability to continue to increase
its marketing and sales efforts in order to take advantage of its increased
production facilities, and the continued availability of all of the Company's
current and anticipated lines of credit.

         Any forward looking information regarding an increase in the Company's
gross profit margin also will be affected by the Company's ability to implement
its strategy of increasing sales and its customer base, focusing on the sales of
higher margin products, and the Company's ability to efficiently utilize its
expanded facilities and effectively manage its labor costs. There can be no
assurance that the Company will be successful in efficiently managing its growth
in order to maximize potential production and contain costs.

Item 7. Financial Statements.

         The following financial statements are included on the pages indicated:
<TABLE>
<CAPTION>

                                                                                                               Page

         <S>                                                                                                    <C>
         Report of Independent Certified Public Accountants.....................................................F-1

         Balance Sheets as of December 31, 1999 and 2000........................................................F-2

         Statements of Operations for the years ended December 31, 1999 and 2000................................F-3

         Statements of Shareholders' Equity for the years ended December 31, 1999 and 2000......................F-4

         Statements of Cash Flows for the years ended December 31, 1999 and 2000................................F-5

         Notes to Financial Statements..........................................................................F-6

</TABLE>
               Report of Independent Certified Public Accountants



Board of Directors and Shareholders
Surrey, Inc.


We have audited the accompanying  balance sheets of Surrey,  Inc. as of December
31,  2000 and 1999,  and the related  statements  of  operations,  shareholders'
equity and cash flows for the years 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 audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Surrey,  Inc. at December 31,
2000 and 1999,  and the  results  of its  operations  and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern. As shown in the financial  statements,
the Company incurred a net loss of $2,109,000 during the year ended December 31,
2000,  its  total  current  liabilities  exceeded  its total  current  assets by
$2,732,000 at December 31, 2000, and it was in violation of financial  covenants
on substantially  all of its debt obligations.  These factors,  among others, as
discussed in Note B to the financial  statements,  raise substantial doubt about
the  Company's  ability to continue as a going  concern.  Management's  plans in
regard to these matters are also  described in Note B. The financial  statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.



GRANT THORNTON LLP

Dallas, Texas
March 21, 2001 except for Note B,
as to which the date is April 5,
2001

                                      F-1
<PAGE>


                                  Surrey, Inc.

                                 BALANCE SHEETS
                                 (in thousands)






                                                              December 31,
                              ASSETS                        2000            1999
                                                           -------         -----
Current assets
    Cash and cash equivalents                              $     14    $      -
    Accounts receivable, net of allowance for
       doubtful accounts of $91 and $116 in
       2000 and 1999, respectively                            3,137       4,091
    Inventories                                               2,913       2,838
    Prepaid expenses and other current assets                    53          23
    Deferred income taxes                                        -          143
    Income taxes receivable                                      32          40
                                                           --------    ---------

                  Total current assets                        6,149       7,135

Property and equipment, net                                   4,167       4,237
Deferred income taxes                                            -          113
                                                           --------    ---------

                                                           $ 10,316    $ 11,485
                                                           ========    =========

       LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Trade accounts payable                                 $  2,084    $  2,174
    Accrued expenses                                            469         312
    Current maturities of long-term debt                      6,136         418
    Current maturities of capital lease obligations             192         204
                                                           --------    ---------

                  Total current liabilities                   8,881       3,108

Long-term debt, less current maturities                          42       4,732
Capital lease obligations, less current maturities               53         196

Commitments and contingencies                                    -           -

Shareholders' equity
    Common stock; no par value; 10,000 shares authorized;
       2,473 shares issued and outstanding                    4,099       4,099
    Common stock warrants; 737 authorized; 675 issued
       and outstanding                                           64          64
    Accumulated deficit                                      (2,823)       (714)
                                                           --------    ---------

                  Total shareholders' equity                  1,340       3,449
                                                           --------    ---------

                                                           $ 10,316    $ 11,485
                                                           ========    =========



        The accompanying notes are an integral part of these statements.

                                       F-2


<PAGE>


                                  Surrey, Inc.

                            STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

                             Year ended December 31,



                                                             2000         1999
                                                           --------      ------

Net sales                                                  $ 16,845    $ 19,557
Cost of sales                                                13,753      15,511
                                                           --------    ---------

                  Gross profit                                3,092       4,056

Operating expenses
    Research and development                                    540         342
    Sales and marketing                                       1,196       1,020
    General and administrative                                2,590       1,982
                                                           --------    ---------

                  Total operating expenses                    4,326       3,344
                                                           --------    ---------

Income (loss) from operations                                (1,234)        712

Other income (expense)
    Interest expense                                           (619)       (448)
                                                           --------    ---------

                  Income (loss) before income taxes          (1,853)        264

Deferred income tax expense                                     256         105
                                                           --------    ---------

                  Net earnings (loss)                      $ (2,109)   $    159
                                                           ========    =========

Earnings (loss) per share - basic and diluted              $   (.85)   $   0.06
                                                           ========    =========

Weighted average shares outstanding
    Basic and diluted                                         2,473       2,473
                                                           ========    =========


        The accompanying notes are an integral part of these statements.

                                       F-3


<PAGE>

                                  Surrey, Inc.

                        STATEMENT OF SHAREHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>





                                                                                                        Total
                                       Shares                 Warrants                Accumulated    shareholders'
                                    outstanding     Amount   outstanding     Amount     deficit         equity
                                    -----------     ------   -----------     ------   -----------    -------------

<S>                                    <C>        <C>              <C>        <C>         <C>            <C>
Balances at January 1, 1999            2,473      $4,099           675        $64         $ (873)        $3,290

Net earnings                              -           -             -          -             159            159
                                       -----       -----           ---        ---         ------         ------

Balances at December 31,
    1999                               2,473       4,099           675         64           (714)         3,449

Net loss                                  -           -             -          -          (2,109)        (2,109)
                                       -----       -----           ---        ---         ------         ------

Balances at December 31, 2000          2,473      $4,099           675        $64        $(2,823)       $ 1,340
                                       =====       =====           ===         ==         ======         ======

</TABLE>

        The accompanying notes are an integral part of these statements.

                                       F-4

<PAGE>
                                  Surrey, Inc.

                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

                             Year ended December 31,

<TABLE>
<CAPTION>

                                                                         2000              1999
                                                                        -------            ------
<S>                                                                    <C>                <C>

Operating activities
    Net earnings (loss)                                                $  (2,109)         $    159
    Adjustments to reconcile net earnings (loss) to net cash
       used in operating activities
          Depreciation                                                       421               390
          Deferred income taxes                                              256               105
          Changes in operating assets and liabilities:
              Accounts receivable                                            954            (2,378)
              Inventories                                                    (75)             (606)
              Prepaid expenses and other current assets                      (22)              292
              Trade accounts payable                                         (90)            1,015
              Accrued expenses                                               157               108
              Income taxes receivable                                                          116
                                                                       ---------          --------

                  Net cash used in operating activities                     (508)             (799)

Investing activities
    Purchase of property and equipment                                      (253)             (449)

Financing activities
    Proceeds from issuance of long-term debt                               1,464             1,500
    Payments on long-term debt                                              (436)             (134)
    Payments on capital lease obligations                                   (253)             (195)
                                                                       ---------          --------

                  Net cash provided by financing activities                  775             1,171
                                                                       ---------          --------

                  Increase (decrease) in cash and cash equivalents            14               (77)

Cash and cash equivalents, beginning of year                                   -                77
                                                                       ---------          --------

Cash and cash equivalents, end of year                                 $      14          $      -
                                                                       =========          ========

Supplemental disclosure of cash flow information
  Cash paid during the period for:
       Interest                                                        $     621          $    409
       Income taxes                                                    $       -          $      -

Acquisition of property and equipment under capital leases             $      98          $     11

</TABLE>


        The accompanying notes are an integral part of these statements.

                                       F-5


<PAGE>
                                  Surrey, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2000 and 1999
                      (in thousands, except per share data)



NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
              POLICIES

    Nature of Operations
    --------------------

    Surrey, Inc. (the Company) specializes in the development and manufacture of
    high quality  transparent  glycerin and specialty soap products,  as well as
    the  production  of certain  personal care and home  fragrance  products for
    major drug, grocery and discount retailers and distributes its products on a
    nationwide  basis.  The Company also  manufactures  and sells home fragrance
    products and a full line of potpourri  products as part of its crafts market
    product line. The Company  recently began  manufacturing  a line of high-end
    scented candles that  compliments its line of home fragrance  products.  The
    Company conducts its business within one industry segment.

    Recognition of Revenue
    ----------------------

    Revenue  is  recognized  at the  time of  shipment.  Provision  is made  for
    estimated product returns.

    Cash and Cash Equivalents
    -------------------------

    The Company  considers all  investments  with original  maturities of ninety
    days or less when purchased to be cash equivalents.

    Inventories
    -----------

    Inventories  are  stated at the  lower of cost or  market,  with cost  being
    determined using the first-in, first-out (FIFO) method.

    Property and Equipment
    ----------------------

    Property and equipment are stated at cost.  Cost includes  expenditures  for
    major  renewals  and   improvements   and  interest  costs  associated  with
    significant   capital   additions.   Depreciation   is  recorded  using  the
    straight-line method over estimated useful lives as follows:

       Equipment                                  3 to 7 years
       Building                                   40 years
       Automobiles                                3 years
       Furniture and fixtures                     5 years

    Assets recorded under capital leases are amortized  using the  straight-line
    method over the lesser of the  estimated  useful  lives of the assets or the
    term  of  the  related  leases,   and  such   amortization  is  included  in
    depreciation  expense.  Repairs and  maintenance are charged to expense when
    incurred.

                                      F-6

<PAGE>


                                  Surrey, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999
                      (in thousands, except per share data)


NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       - Continued

    Use of Estimates
    ----------------

    The  preparation  of financial  statements  in  accordance  with  accounting
    principles  generally  accepted  in the United  States of  America  requires
    management to make estimates and assumptions that affect reported amounts of
    assets and liabilities  and disclosure of contingent  assets and liabilities
    at the date of the financial statements and reported amounts of revenues and
    expenses  during  the  reporting  period  in the  financial  statements  and
    accompanying notes. Actual results could differ from these estimates.

    Advertising
    -----------

    Advertising  costs  are  expensed  as  incurred.   Advertising  expense  was
    approximately $100,000 and $68,000 for the years ended December 31, 2000 and
    1999, respectively.

    Earnings (Loss) Per Share
    -------------------------

    The Company  computes basic earnings  (loss) per share based on net earnings
    or loss divided by the weighted average number of common shares outstanding.
    Diluted earnings (loss) per share is based on the weighted average number of
    common shares plus any dilutive stock options or warrants.

    In 2000 and 1999,  options  to  purchase  305,500  shares  of common  stock,
    warrants  to  purchase  675,000  shares  of common  stock  and a warrant  to
    purchase  62,500  Units  (consisting  of two shares of common  stock and one
    redeemable   common  stock  purchase  warrant)  were  not  included  in  the
    computation of diluted  earnings (loss) per share because their effect would
    be antidilutive.

    Stock-Based Compensation
    ------------------------

    The Company  accounts for its employee  stock-based  compensation  using the
    intrinsic  value  method in which  compensation,  if any, is measured by the
    excess of the exercise price over the fair value of underlying securities.

    Fair Value of Financial Instruments
    -----------------------------------

    Cash, accounts  receivable,  trade accounts payable and accrued expenses are
    stated at cost which approximates fair value due to the short-term  maturity
    of these  instruments.  All  significant  debt  instruments  carry  variable
    interest rates and their carrying value approximates fair value.


                                      F-7
<PAGE>



                                  Surrey, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999
                      (in thousands, except per share data)

NOTE B - LIQUIDITY

    The accompanying  financial statements have been prepared on a going concern
    basis,  which contemplates the realization of assets and the satisfaction of
    liabilities in the normal course of business.

    For the year ended  December  31, 2000,  the Company  incurred a net loss of
    $2,109,  and at December  31,  2000,  its current  liabilities  exceeded its
    current  assets by $2,732.  Additionally,  at December 31, 2000, the Company
    was in violation of the financial covenants on substantially all of its debt
    and in January 2001, the Company's  primary lender  accelerated its debt and
    demanded immediate payment.  These factors raise substantial doubt about the
    Company's ability to continue as a going concern.

    On April 5, 2001,  Jean  Charles  Incorporated  (the Buyer)  entered into an
    agreement to acquire  substantially  all of the Company's  operating assets,
    except  for real  property,  accounts  receivable,  cash and  certain  other
    assets. As consideration,  the Buyer guaranteed the Company's $3,000 line of
    credit to the extent the collection of accounts  receivable does not satisfy
    the  obligation.  Upon  satisfaction of the line of credit  obligation,  the
    Buyer will make  payments  equal to 10% of gross  sales,  less  returns  and
    allowances,  directly to the Company's  trade  creditors until paid in full.
    Additionally, the Company's majority shareholder agreed to cancel all of his
    shares of common stock and the Buyer agreed to make a tender  offer,  within
    18 months, to acquire the Company's  remaining  outstanding shares of common
    stock for $.80 per share, less any distributions made during the period.

    Concurrent with the aforementioned  transactions,  the Company,  its primary
    lender,  and the Buyer  entered into an agreement  whereby all proceeds from
    the collection of the Company's accounts receivable would be remitted to the
    lender and the lender  agreed to  forbear  taking any action to collect  the
    debt owed to it by the Company for 180 days.


NOTE C - INVENTORIES

    Inventories consist of the following at December 31:

                                                    2000              1999
                                                  -------            ------

    Raw materials                                  $1,891            $1,991
    Work in progress                                  114               266
    Finished goods                                    908               581
                                                   ------            ------

                                                   $2,913            $2,838
                                                   ======            ======


                                      F-8
<PAGE>


                                  Surrey, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999
                      (in thousands, except per share data)


NOTE D - PROPERTY AND EQUIPMENT

                                                        2000              1999
                                                      -------            ------

    Equipment                                         $ 3,398           $ 3,075
    Building                                            2,784             2,752
    Automobiles                                           143               145
    Furniture and fixtures                                 95                97
                                                      -------           -------
                                                        6,420             6,069
    Accumulated depreciation and amortization          (2,534)           (2,113)
                                                      -------           -------
                                                        3,886             3,956
    Land                                                  281               281
                                                      -------           -------

    Property and equipment, net                       $ 4,167           $ 4,237
                                                      =======           =======


NOTE E - LONG-TERM DEBT

                                                        2000              1999
                                                       ------            ------

    Borrowings under a $3.0 million revolving
       line of credit (the Line), bearing
       interest at the bank's prime rate (8.5%
       at December 31, 2000), plus 1%, with
       interest due monthly and all principal
       due in May 2001. The Line is
       collateralized by accounts receivable,
       inventories and property and equipment.
       Amounts available under the Line are
       subject to certain borrowing base
       limitations.                                   $2,964            $2,500

    Note payable to a bank for bearing interest
       at the bank's prime rate (8.5% at
       December 31, 2000) plus 1% monthly
       principal payments of approximately $28
       due May 2000 through April 2003, the
       maturity date of the  note. The note is
       collateralized by accounts receivable,
       inventories and property equipment.               806                -

    Notes payable to a bank bearing interest
       at prime + 1% (9.5% at December 31,
       2000), monthly principal payments of
       approximately $10 due through April
       2000, then increasing to approximately
       $13 through April 2005, when the unpaid
       balance is due. The notes are
       collateralized by accounts receivable,
       inventories and property and equipment.         2,346             2,570

    Notes payable to various banks for
       automobiles, bearing interest at rates
       ranging from 7.75% to 8.75%, due in
       monthly installments of principal and
       interest of approximately $1, maturing
       at various dates through January
       2003. The notes are collateralized by
       automobiles.                                       62                80
                                                      ------             -----
                                                       6,178             5,150
       Less current maturities                         6,136               418
                                                      ------             -----

    Long-term debt, less current maturities           $   42            $4,732
                                                      ======            ======


                                      F-9
<PAGE>


                                  Surrey, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999
                      (in thousands, except per share data)


NOTE E - LONG-TERM DEBT - Continued

    At December 31, 2000,  the Company was not in  compliance  with certain debt
    covenants. As a result, the bank accelerated the terms of the line of credit
    and  all  notes  payable  (except  for the  notes  payable  relating  to the
    automobiles) and demanded immediate  payment.  As such, all of the long-term
    debt has been classified as current except for the long-term  portion of the
    automobile debt.

    Maturities of long-term debt are as follows at December 31:

              2001                                          $6,155
              2002                                              21
              2003                                              11
              2004                                              11
                                                            ------

                                                            $6,178
                                                            ======

NOTE F - LEASES

    The Company leases  certain  equipment  under capital and operating  leases.
    Commitments for minimum rentals under  non-cancelable  leases as of December
    31, 2000 are as follows:

                                                           Capital     Operating
       Year ending December 31,                            leases       leases
       ------------------------                           --------     ---------

              2001                                          $ 210       $  691
              2002                                             39          581
              2003                                             15          438
              2004                                              1          428
              2005                                             -           264
              Thereafter                                       -            48
                                                            -----       ------

       Total minimum lease payments                           265       $2,450
                                                                        ======

       Less amount representing interest                      (20)
                                                            -----

       Present value of minimum lease payments                245

       Less current maturities                               (192)
                                                            -----

                                                            $  53
                                                            =====

    Rent expense was approximately $644 and $418 in 2000 and 1999, respectively.


                                      F-10
<PAGE>

                                  Surrey, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999
                      (in thousands, except per share data)


NOTE F - LEASES - Continued

    Property and equipment include the following amounts for capitalized  leases
    at December 31, 2000 and 1999:

                                                            2000         1999
                                                            -----        ----

       Equipment                                           $ 857        $ 759
       Less accumulated amortization                        (343)        (191)
                                                           ------       ------

                                                           $ 514        $ 568
                                                           =====        =====


NOTE G - INCOME TAXES

    Deferred income taxes consist of the following:

                                                                December 31,
                                                            2000           1999
                                                           -----           ----

       Deferred tax assets
          Net operating losses                             $  970          $188
          Accounts receivable                                  27            44
          Inventories                                          89            99
                                                           ------          ----
                                                            1,086           331

       Deferred tax liability
          Property and equipment                              117            75
                                                           ------          ----
                                                              969           256

       Less valuation allowance                              (969)            -
                                                           ------          ----

                                                           $    -          $256
                                                           ======          ====

    The Company has tax net operating losses of  approximately  $2,800,000 which
    will expire in 2018 through 2020.  Due to the Company's net loss in 2000 and
    the  other  factors  described  in Note B, a  valuation  allowance  has been
    provided for the deferred tax asset at December 31, 2000.

                                      F-11

<PAGE>

                                  Surrey, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999
                      (in thousands, except per share data)

NOTE G - INCOME TAXES - Continued

    The  reconciliation  of income tax at the U.S. Federal statutory tax rate to
    income tax expense is:

                                                               Year ended
                                                               December 31,
                                                            2000          1999
                                                            ------        ----

       Tax at Federal statutory rate                       $ (717)         $ 90
       Meals and entertainment                                  7             6
       Increase in valuation allowance                        969            -
       Other                                                   (3)            9
                                                           ------          ----

                                                           $  256          $105
                                                           ======          ====


NOTE H - SHAREHOLDERS' EQUITY

    Warrants
    --------

    The Company has outstanding  675,000 warrants to purchase common stock. Each
    warrant entitles the holder thereof to purchase one share of common stock at
    $4.80 per share.  The warrants expire on December 9, 2002. The warrants have
    a call  provision  whereby the  Company may call the  warrants at a price of
    $0.01 per  warrant  at any time that the market  value of the  common  stock
    exceeds $5.00 per share for a period of twenty consecutive trading days.

    Also outstanding,  are warrants for an aggregate of 62,500 units (consisting
    of two shares of common stock and a warrant to purchase an additional  share
    at $4.80 per share) at $9.75 per unit.  The  warrants  expire on December 2,
    2002.

    Stock Options
    -------------

    The Surrey,  Inc. 1997 Long-Term  Incentive Plan to provide for the grant of
    incentive  and  nonqualified  stock  options,   stock  appreciation  rights,
    restricted  stock,   performance  awards  or  any  combination   thereof  to
    employees,  under which  350,000  shares of common  stock are  reserved  for
    issuance.  The  exercise  price of each  option  shall equal the fair market
    value of the  Company's  common stock on the date of grant (110% of the fair
    market value in the case of options  granted to a person  possessing  10% or
    more of the  combined  voting power of the Company as of the date of grant).
    The stock options  generally vest over a four to five year period.  The term
    of each option  shall not exceed 10 years from the date of grant (five years
    in the case of  options  granted to a person  possessing  10% or more of the
    combined voting power of the Company as of the date of grant).

                                      F-12

<PAGE>

                                  Surrey, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999
                      (in thousands, except per share data)

NOTE H - SHAREHOLDERS' EQUITY - Continued

    Stock  appreciation  rights may be granted by themselves or in tandem with a
    stock option.  Stock  appreciation  rights  granted in tandem with an option
    shall  become  nonexercisable  upon the exercise of the option and an option
    granted in tandem with stock appreciation rights shall become nonexercisable
    upon the exercise of the rights. The term of stock appreciation rights shall
    not exceed 10 years from the date of grant. No grants of stock  appreciation
    rights had been made as of December 31, 2000.

    Restricted  stock shall be subject to a restricted  period as  determined by
    the Board of Directors.  The Board of Directors may provide for the lapse of
    restrictions in installments, upon the occurrence of certain events, or upon
    other terms and conditions as the Board of Directors deems  appropriate.  No
    grants of restricted stock had been made as of December 31, 2000.

    Performance awards shall be awarded to individuals specified by the Board of
    Directors based upon the  achievement of long-term  performance  goals.  The
    Board of Directors  shall define  performance  objectives with a performance
    period of not less than five years,  and establish a fixed or variable value
    for each  performance  award  (which may be  expressed in terms of specified
    dollar  amounts or a  specified  number of shares) at the date of the award.
    Payments  related  to  performance  awards  may be made  in  lump  sum or in
    installments,  and shall be subject to such vesting, deferral or other terms
    and  conditions  as the  Board of  Directors  may  determine.  No  grants of
    performance awards had been made as of December 31, 2000.

    The  Surrey,  Inc.  1997  Non-Employee  Directors'  Stock  Option  Plan (the
    "Directors'  Plan") under which 100,000  shares of common stock are reserved
    for  issuance.  This  Directors'  Plan allows for two types of stock  option
    grants;  an initial grant of 6,000 options effective on the Company's public
    offering,  with options vesting one third upon the first  anniversary of the
    grant date, and one third on each of the next two anniversaries of the grant
    date; and an annual grant of 2,000 shares upon  re-election to the Board for
    a fourth or subsequent term, with options vesting immediately.  The exercise
    price of each  option  shall equal the fair  market  value of the  Company's
    common  stock on the date of grant.  All  options  expire ten years from the
    date of grant.

                                      F-13

<PAGE>

                                  Surrey, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999
                      (in thousands, except per share data)



NOTE H - SHAREHOLDERS' EQUITY - Continued

    A summary of the  Company's  stock option  activity and related  information
    follows:

                                                                       Weighted-
                                                                        average
                                                                        exercise
                                                           Shares        prices
                                                         --------      ---------

      Options outstanding January 1, 1999 and
        December 31, 1999                                 305,500          4.07
      Granted                                             442,000          1.56
      Forfeited                                           (15,625)         1.53
                                                          -------          ----

      Options outstanding December 31, 2000               731,875         $2.61
                                                          =======          ====

      Options exercisable at:
         December 31, 1999                                125,000
         December 31, 2000                                274,500

    The following is additional  information relating to options outstanding and
    options exercisable at December 31, 2000 is as follows:

<TABLE>
<CAPTION>


                                                     Options Outstanding                   Options Exercisable
                                                    ---------------------               ---------------------------
                                                   Weighted     Weighted                                   Weighted
                                      Number        Average      Average                Number             Average
          Range of                      of        Remaining    Exercise                   of              Exercise
      Exercise Prices                Shares         Life        Price                   Shares              Price
      ---------------               --------      ---------    ---------                 --------           -------

      <S>                           <C>            <C>           <C>                      <C>                 <C>
      $1.53 to $1.82                426,375        5 years       $1.56                     85,500             $1.55
      $4.00 to $4.40                305,500        9 years        4.07                    189,000              4.07
                                    -------                       ----                    -------              ----

                                    731,875                      $2.61                    274,500             $3.29
                                    =======                       ====                    =======              ====
</TABLE>

    Pro forma net earnings  (loss) and net earnings  (loss) per share, as if the
    Company  had  accounted  for  employee  stock  options  at fair value are as
    follows:

                                                            2000          1999
                                                            ----          ----

    Net earnings (loss)
      As reported                                         $(2,109)        $159
      Pro forma                                           $(2,374)        $ 36
    Basic and diluted earnings (loss) per share
      As reported                                         $  (.85)        $.06
      Pro forma                                            $ (.96)        $.01

                                      F-14
<PAGE>

                                  Surrey, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 2000 and 1999
                      (in thousands, except per share data)


NOTE H - SHAREHOLDERS' EQUITY - Continued

    The fair  value of  options  was  estimated  at the date of grant  using the
    Black-Scholes  option  pricing  model  with the  following  weighted-average
    assumptions:

                                                                2000
                                                                ----

      Risk-free interest rate                                   6.16%
      Dividend yield                                               0%
      Expected life                                           7 years
      Volatility factor                                          106%

      Weighted average fair value of options granted           $ 1.31


NOTE I - CONCENTRATIONS OF CREDIT RISK AND SALES TO MAJOR CUSTOMERS

    The Company is engaged in the manufacturing and distribution of personal and
    home care products  within the United  States.  Consequently,  the Company's
    ability to  collect  the  amounts  due from  customers  may be  affected  by
    economic  fluctuations  within the United States and the major drug, grocery
    and discount retailer industry.

    For  the  year  ended  December  31,  2000,  two  customers   accounted  for
    approximately 25% and 10%, respectively, of the Company's net sales. For the
    year ended December 31, 1999, one customer  accounted for  approximately 39%
    of the Company's net sales.



                                      F-15


Item 8. Changes in And Disagreements With Accountants on Accounting And
Financial Disclosure.

         On August 2, 1999 the Company and Ernst & Young LLP ("E&Y") mutually
ceased their client-auditor relationship. E&Y served as the Company's
independent certifying auditors for the fiscal years 1995, 1996, 1997 and 1998.
No report of E&Y during its tenure as auditor contained an adverse opinion or
disclaimer of opinion or was qualified or modified in any way.


                                      -18-

<PAGE>



         On November 9, 1999 the Company agreed to retain Grant Thornton LLP
("Grant Thornton") as its certifying accountants to audit the Company's
financial statements for the fiscal year ended December 31, 1999. Prior to this
engagement, the Company had not consulted with Grant Thornton with respect to
any other transaction or financial information.

                                                     PART III

Item 9. Directors, Executive Officers, Promoters And Control Persons; Compliance
With Section 16(a) of the Exchange Act.

Directors

         John B. Van Der Hagen, 68, is a co-founder of Surrey and has served as
a Director since 1981. He served as President of the Company from 1988 until
being named CEO in August 1997 Chairman of the Board in September 1997. From
1981 to 1988 he served as Vice-President of the Company. As Chief Executive
Officer, he is responsible for overall Company operations. He has been actively
involved in and has had primary responsibility for, marketing and product
development since becoming President of the Company in 1988. Prior to founding
Surrey, John van der Hagen was President and founder of Alpine Oil Company. He
attended St. Thomas University in St. Paul, Minnesota. John van der Hagen is the
father of Martin van der Hagen and Mark van der Hagen. Mary van der Hagen is his
wife.

         Martin J. Van Der Hagen, 38, was elected as a Director and President of
Surrey in September 1997. Prior to that time he served as Executive Vice
President of the Company. He has been responsible for manufacturing operations,
marketing and product development since becoming Vice President in 1988. He
joined the Company in 1985 after attending the University of Texas and receiving
a Bachelor of Arts degree in finance. Martin van der Hagen is the son of John
and Mary van der Hagen. Mark van der Hagen is his brother.

         Mary Van Der Hagen, 60, was elected to the Board of Directors of Surrey
in 1981. She has served as Secretary of the Company from 1981 to the present.
From 1981 to May 1997, Ms. van der Hagen was employed on a part-time basis by
the Company. She resigned from such employment with the Company in May 1997, but
continues to serve as a Director and as Secretary. Mary van der Hagen is the
wife of John van der Hagen and mother of Martin and Mark van der Hagen.

         Bruce A. Masucci, 40, was elected to the Board of Directors of Surrey
in September 1997. Mr. Masucci is currently President of Golden Mile Sales
Association, Inc. in Framingham, Massachusetts, a position he has held since
1982. Golden Mile is a manufacturers representative, concentrating in the New
England states, which currently represents Surrey in that geographic area.
Golden Mile has represented the Company for approximately nine years, and
receives compensation from Surrey in the form of sales-based commissions in an
amount customarily received by other manufacturers representatives who do
business with the Company.

                                      -19-

<PAGE>



Executive Officers And Key Employees Who Are Not Directors

         Mark J. Van Der Hagen, 44, was elected Vice President of Finance and
Treasurer in September 1997. Prior to that time he served as Vice President. His
primary responsibility is overseeing Company finances. He also has held
positions in retail sales and marketing since joining the Company in 1991. Prior
to joining Surrey, he was a Manager of Account Services for First Bank Systems
(now U.S. Bank) in St. Paul, Minnesota from 1988 to 1991, and a Senior Financial
Analyst for The Federal Reserve Bank in Minneapolis from 1980 to 1988. Mark van
der Hagen attended the Carlson School of Management at the University of
Minnesota and received a Bachelor of Science in Business. Mark van der Hagen is
the son of John and Mary van der Hagen. Martin van der Hagen is his brother.

         David L. Wills, 43, has been Plant Manager for the Company since 1985.
His primary responsibilities include plant operations, including production,
processing and purchasing. He served as a production assistant prior to being
promoted to Plant Manager. Mr. Wills supervised production for a Midwestern
agricultural processing plant before joining Surrey, Inc. in 1981. Mr. Wills
attended Western Washington University.

             Section 16(a) Beneficial Ownership Reporting Compliance

         The Company's directors, its executive officers and any persons holding
more than 10% of outstanding common stock are required to file reports
concerning their initial ownership of common stock and any subsequent changes in
that ownership. The Company believes that the filing requirements for the last
fiscal year were satisfied. In making this disclosure, the Company has relied on
the written representations of its directors, executive officers and beneficial
owners of more than 10% of Common Stock and copies of the reports that they have
filed with the Securities and Exchange Commission.

Item 10. Executive Compensation.

Summary Compensation Table

         The following table sets forth certain information regarding
compensation for the fiscal year ended December 31, 2000 and the prior two years
earned by or paid to the current Chief Executive Officer and the only other
executive officer whose annual compensation exceeded $100,000 (the "Named
Executive Officers").

                                      -20-

<PAGE>
<TABLE>
<CAPTION>

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


                                                Annual Compensation             Long-Term Compensation
                                 --------------------------------------  -----------------------------------

                                                                                      Securities
                                                          Other Annual   Restricted   Underlying               All Other
Name and Principal      Fiscal                             Compensation    Stock      Options/     LTIP        Compen-
   Position              Year    Salary ($)    Bonus ($)      ($)(1)     Award(s)($)    SARs(#)   Payouts($)   sation($)
------------------------------------------------------------------------------------------------------------------------


<S>                      <C>    <C>            <C>          <C>             <C>          <C>        <C>
John B. van der Hagen,   2000   $175,000          ---       $17,000         --           --         --
Chairman and CEO         1999   $175,000(2)    $25,000(3)   $17,000         --           --         --
                         1998   $125,000(2)       ---       $17,000         --           --         --

Martin van der Hagen,    2000   $175,000          --        $ 6,000         --           --         --
President                1999   $175,000(2)    $25,000(3)   $ 6,000         --           --         --
                         1998   $125,000(2)       ---       $ 6,000         --           --         --

</TABLE>

         (1)   Represents automobile allowance for such years.

         (2) In addition to the amounts shown in the table for 1998, each
officer received $25,000 in 1998 as an advance on 1999 salary. That amount is
included in the amounts shown in the table for 1999.

         (3) A bonus of $25,000 was received by each officer in May 2000, but
was reported with 1999 compensation.

Employment Agreements with Chief Executive Officer and President

         The Company entered into an employment agreement with each of John van
der Hagen, CEO, and Martin van der Hagen, President, in December 1997 in
connection with the Company's initial public offering. Each such agreement
provided for a minimum annual base salary as follows: (a) for the year ended
December 31, 1998, such base salary was $150,000, provided the Company's gross
sales for such year were at least $12 million; and (b) for the year ended
December 31, 1999, such base salary was increased to $175,000, provided the
Company's gross sales for such year were at least $15 million. The Company did
not meet its 1998 gross sales target. As a result, $25,000 paid to each of the
CEO and President in 1998 was taken as an advance on their respective 1999
salaries.

         In addition, each such officer is also entitled to a bonus in
accordance with Company policy in effect from time to time, if any. In 1999,
under the employment agreements, each such officer was entitled to receive a
bonus not to exceed $20,000, unless the Company's after tax income exceeds
$1,300,000, in which case such officer may receive an additional bonus of
$20,000. Each such officer is also entitled to an annual automobile allowance,
to participate in the Company's stock option and other benefit plans. A $25,000
bonus for was paid to each officer in March 2000.

                                      -21-

<PAGE>



         The Company has no written employment agreement with either John van
der Hagen or Martin van der Hagen with respect to their 2000 base salary or any
bonus for year 2000. The Company has agreed to pay a base salary of $175,000 to
each such officer in 2000. In addition, in March 2000, the Company paid a bonus
of $25,000 to each of John and Martin van der Hagen. Under the Company's current
bank loan, any bonus paid to an executive officer must received written consent
of the lender. The Company has requested consent from the lender, Chase Bank.

         The Company does not have employment agreements with any of its other
key personnel. However, as part of its effort to expand its marketing and sales
force, the Company may enter into employment agreements with employees hired in
the future.

Long-term Incentive Plans

         In September 1997, the Board of Directors and shareholder of the
Company adopted the 1997 Long-Term Incentive Plan (the "1997 Plan"), to provide
for the granting of stock options and other incentive awards to key employees
and employee directors of the Company and reserved 350,000 shares of common
stock for issuance under the 1997 Plan. As of April 16, 2001, the Company had
granted options to purchase an aggregate of 317,500 shares under the 1997 Plan,
242,000 of which were outstanding.

         In March 2000, the Board of Directors adopted the 2000 Long-Term
Incentive Plan (the "2000 Plan"), to provide for the granting of stock options
and other incentive awards to any employee of the Company or its Affiliates.
("Affiliate" is defined as a parent or subsidiary of the Company.) In addition,
any director of the Company or any individual who is rendering services to the
Company or an Affiliate at the request of the Board of Directors or the
President shall be eligible to receive a grant of nonqualified awards. The
Company reserved 1,000,000 shares of its common stock for issuance under the
2000 Plan. As of April 16, 2001, the Company had granted options to purchase an
aggregate of 426,250 shares under the 2000 Plan, all of which are outstanding.

         Either Plan may be administered by a committee of the Board of
Directors which consists of a majority of "nonemployee directors," as defined
under applicable securities laws, or the full Board acting as a committee
(collectively, "Committee"). Both Plans are currently administered by the entire
Board acting as the Committee. Eligible persons may receive awards of options to
purchase common stock ("Options"), stock appreciation rights ("Stock
Appreciation Rights" or "Rights"), restricted stock of the Company ("Restricted
Stock"), or performance awards ("Performance Awards"), or any combination
thereof, pursuant to the respective Plan. The Committee has the discretion to
select eligible individuals to whom awards will be granted and establish the
type, price, amount, size and terms of awards, subject in all cases to the
provisions of the respective Plan and the applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"). Options, Rights, Restricted Stock
and Performance Awards are hereinafter referred to as "Awards."


                                      -22-

<PAGE>


         Options may be incentive stock options qualified under Section 422 of
the Code ("Incentive Stock Options"), options not so qualified ("Nonqualified
Stock Options") or a combination of both. The exercise price of an Incentive
Stock Option cannot be less than 100% of the fair market value of the common
stock on the date the option is granted; provided, however, that if the optionee
owns 10% or more of the voting rights of all of the Company's stock, the
exercise price of an Incentive Stock Option cannot be less than 110% of the fair
market value of the common stock on the date the option is granted and the term
cannot exceed five years. The Company will not issue any option or warrant with
an exercise price of less than 85% of the fair market value of the underlying
common stock on the date of grant.

         The following stock options for the purchase of shares of Common Stock
are granted and outstanding to employees as of April 16, 2001: (i) under the
1997 Plan, options to purchase 242,000 shares of common stock, at $4.00 per
share, had been granted and were outstanding to 12 employees, and (ii) under the
2000 Plan, no options had been granted.

         Except as described below, each of the Options currently outstanding
becomes exercisable in five equal installments commencing on the first
anniversary of the date of grant. Options granted to John van der Hagen, as a
holder of greater than 10% of the voting shares, have an exercise price of 110%
of such price, vest over a four year period, and expire at the end of five
years. Each of the Options currently outstanding generally provides for
forfeiture of any nonvested portion upon termination of employment and
expiration of any nonexercised options three months after termination of
employment (or one year after the employee's death or disability), and expires
on the tenth anniversary of the date of grant.

1997 Non-employee Directors' Stock Option Plan

         In September 1997, the Board of Directors and shareholder of the
Company adopted the 1997 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") to provide for the granting of stock options to directors of
the Company who are not employees. These Options do not qualify as incentive
stock options under Section 422 of the Code. The Company has reserved 100,000
shares of its common stock for issuance under the Directors' Plan.

         The Directors' Plan was amended (the "Amendment") by the Board of
Directors in April 1999. The Amendment, a copy of which is attached this to
Proxy Statement as Exhibit B, is being presented to the shareholders at the
Annual Meeting for adoption and approval. (See Proposal Three.)

         The Directors' Plan is administered by the Company's Board of Directors
as a whole. The Directors' Plan, as amended, provides that nonemployee directors
receive, upon initial election to the Board, an automatic, nondiscretionary
grant of 15,000 options to purchase common stock, vesting over a three year
period. In addition, upon election to a fourth and each subsequent term, each
nonemployee director receives an automatic annual grant of options to purchase
5,000 shares, which are immediately exercisable. Each option specifies the
expiration date, which may not exceed ten years from the date the option

                                      -23-

<PAGE>



is granted. The exercise price of an option cannot be less than 100% of the fair
market value of the common stock on the date the option is granted.

Stock options for the purchase of 6,000 shares of common stock were granted to
each of three nonemployee directors effective as of December 3, 1997, to vest
over a three-year period. Currently, options to purchase 4,000 shares of common
stock of each such grant have vested and the remaining 2,000 options vest on
December 3, 2000. The exercise price of the initial options is $4.00 per share.

         The Amendment granted, in addition to the 1997 grants, to each
nonemployee director an additional grant of options to purchase 9,000 shares at
$1.82 per share. At the current time, 6,000 options from the April 1999 grant
have vested and the remaining 3,000 options will vest December 3, 2000. As
stated above, each individual that becomes a non-employee director in the future
will receive a grant of options to purchase 15,000 shares which will vest over
three years.

         Each of the options generally provides for forfeiture of any nonvested
portion if such holder ceases to be a director and expiration of any
nonexercised option three months after an optionee ceases to be a director (or
one year after the director's death), and expires on the tenth anniversary of
the date to grant.

         In addition, the 2000 Plan provides for the discretionary grant of
options to any director of the Company.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

         The following table sets forth as of April 16, 2001, certain
information with respect to the beneficial ownership of the common stock (i) by
each person who is known by the Company to beneficially own more than five
percent (5%) of the outstanding common stock, (ii) by each of the Company's
Named Executive Officers and each director and nominee, and (iii) by all current
executive officers, directors and nominees as a group. Unless otherwise noted,
each person or group identified has sole voting and investment power with
respect to the shares shown.

                                      -24-

<PAGE>

                                                  Shares                Percent
                                                 Beneficially             of
         Name and Address(1)                       Owned                Class(7)
         -------------------                     ------------           --------
         John B. van der Hagen                      940,727(2)             37.2%

         Martin J. van der Hagen                    237,500(3)              9.3%

         Mary van der Hagen                         940,727(2)             37.2%


         Bruce A. Masucci
         Golden Mile Sales Associates, Inc.
         225 Worcester Road
         Framingham, MA 01701                        16,000(4)                 *

         Mark van der Hagen                          50,000(5)              2.0%

         All directors and executive officers
         as a group (5 persons)                   1,244,227(6)             47.3%

         * Less than 1%.

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

(1) Unless otherwise noted, the business address of each person listed above is
at the Company, 13110 Trails End, Leander, Texas 78641.

(2) Includes 884,727 shares, 1,000 Warrants to purchase Common Stock, and 55,000
options which are currently exercisable and owned as joint tenants by John and
Mary van der Hagen. The 55,000 options consist of 30,000 options exercisable at
$4.40 per share; 10,000 options exercisable at $1.68 per share; 9,000 options
exercisable at $1.82 per share; and 6,000 options exercisable at $4.00 per
share. John and Mary van der Hagen also own 60,000 options which are not
currently exercisable, consisting of 20,000 options at $4.40 per share; and
40,000 options at $1.68 per share.

(3) Includes 207,500 shares and 70,000 options which are currently exercisable,
consisting of 45,000 options exercisable at $4.00 per share and 25,000 options
exercisable at $1.53 per share. Marty van der Hagen also owns 130,000 options
which are not currently exercisable, consisting of 30,000 options at $4.00 per
share and 100,000 options at $1.53 per share.

(4) Includes 1,000 shares and 15,000 options which are currently exercisable,
consisting of 6,000 options exercisable at $4.00 per share and 9,000 options
exercisable at $1.82 per share.

(5) Included 35,000 shares and 15,000 options which are currently exercisable at
$1.53 per share. Mark van der Hagen also owns 60,000 options which are not
currently exercisable but which may become exercisable at $1.53 per share.

(6) Includes1,128,227 shares, 1,000 Warrants that are currently exercisable and
155,000 options that are currently exercisable. Excludes 250,000 options that
are not currently exercisable.

(7) Applicable ownership is based on 2,472,727 shares outstanding as of April
16, 2001, together with exercisable options and Warrants for such holder.

Item 12. Certain Relationships and Related Transactions.

                                      -25-

<PAGE>

Guarantee by Officer

         John van der Hagen, Chief Executive Officer and a Director of the
Company, has personally guaranteed payments by the Company under its lease line
of credit with Key Corporation Capital Inc. and certain other of the Company's
capital leases, as described in the Company's Annual Report. Payments under the
Key Corporation Capital lease line are approximately $24,000 per month.

Item 13. Exhibits List and Reports on Form 8-K.

(a)      Exhibits List

Number      Description
------      -----------

3.1         Articles of Incorporation, as amended to date (incorporated by
            reference to the Company's registration statement on Form SB-2 dated
            September 16, 1997; Reg. No. 333-35757).

3.2         Amended and Restated By-laws (incorporated by reference to the
            Company's registration statement on Form SB-2 dated September 16,
            1997; Reg. No. 333-35757).

4.2         Form of Warrant Agreement and Warrant Certificate (incorporated by
            reference to the Company's Amendment No. 1 to the registration
            statement on Form SB-2 dated November 12, 1997; Reg. No. 333-35757).

10.1        1997 Long-Term Incentive Plan (incorporated by reference to the
            Company's registration statement on Form SB-2 dated September 16,
            1997; Reg. No. 333-35757)

10.2(a)     1997 Non-Employee Directors' Stock Option Plan ("Directors' Plan")
            (incorporated by reference to the Company's registration statement
            on Form SB-2 dated September 16, 1997; Reg. No. 333-35757)

10.2(b)     Amendment to Directors' Plan

10.3        Employment Agreement, effective December 1997, between Surrey, Inc.
            and John van der Hagen (incorporated by reference to the Company's
            registration statement on Form SB-2 dated September 16, 1997; Reg.
            No. 333-35757)

10.4        Employment Agreement, effective December 1997, between Surrey, Inc.
            and Martin van der Hagen (incorporated by reference to the Company's
            registration statement on Form SB-2 dated September 16, 1997; Reg.
            No. 333-35757)

                                      -26-

<PAGE>



10.5        Form of Consulting Agreement between the Company and Stuart, Coleman
            & Co., Inc. (incorporated by reference to the Company's registration
            statement on Form SB-2 dated September 16, 1997; Reg. No. 333-35757)

10.6        Loan Agreement, April 8, 1998, between Company and Chase Bank of
            Texas, National Association ("Lender") (incorporated by reference to
            the Company's quarterly report on Form 10-QSB dated May 15, 1998).

10.7        Construction Loan Agreement, April 8, 1998, between Company and
            Lender (incorporated by reference to the Company's quarterly report
            on Form 10-QSB dated May 15, 1998).

10.8        Security Agreement between Company and Lender securing all
            obligations of the Company to Lender under the Loan Agreement
            (incorporated by reference to the Company's quarterly report on Form
            10-QSB dated May 15, 1998).

10.9        Promissory Note, in the face amount of $2,300,000.00, due to Lender
            April 8, 2005 (incorporated by reference to the Company's quarterly
            report on Form 10-QSB dated May 15, 1998).

10.10       Master Equipment Lease between the Company and Key Corporate
            Capital, Inc. (incorporated by reference to the Company's quarterly
            report on Form 10-QSB dated May 15, 1998).

10.11       Second Amended Loan Agreement, January 25, 1999, between Company and
            Lender (incorporated by reference to the Company's annual report on
            Form 10-KSB for December 31, 1998).

10.12       Construction Loan Agreement, January 25, 1999, between Company and
            Lender (incorporated by reference to the Company's annual report on
            Form 10-KSB for December 31, 1998).

10.13       Promissory Note, in the face amount of $400,000.00, due to Lender
            February 8, 2004 (incorporated by reference to the Company's annual
            report on Form 10-KSB for December 31, 1998).

10.14       Promissory Note, in the face amount of $2,000,000.00, due to Lender
            April 8, 2000 (incorporated by reference to the Company's annual
            report on Form 10-KSB for December 31, 1998).

10.15       Third Amendment of Loan Agreement, March 31, 1999, between the
            Company and Lender (incorporated by reference to the Company's
            quarterly report on Form 10-QSB dated May 14, 1999).

                                      -27-

<PAGE>



10.16       Fourth Amendment of Loan Agreement, June 17, 1999, between the
            Company and Lender (incorporated by reference to the Company's
            quarterly report on Form 10-QSB dated August 13, 1999).

10.17       Fifth Amendment of Loan Agreement, effective June 30, 1999, between
            Company and Lender (incorporated by reference to the Company's
            quarterly report on Form 10-QSB dated November 12,1999).

10.18       2000 Long-Term Incentive Plan (incorporated by reference to the
            Company's annual report on Form 10-KSB for December 31, 1999).

10.19       Sixth Amendment of Loan Agreement, effective April 8, 2000, between
            the Company and Chase Bank of Texas, National Association, as lender
            ("Lender") (incorporated by reference to the Company's quarterly
            report on Form 10-QSB dated May 12, 2000).

10.20       April 8, 2000 Note ($3,000,000.00) to Lender (incorporated by
            reference to the Company's quarterly report on Form 10-QSB dated May
            12, 2000).

10.21       April 8, 2000 Note ($1,000,000.00) to Lender (incorporated by
            reference to the Company's quarterly report on Form 10-QSB dated May
            12, 2000).

10.22       Modification Agreement with Lender ($2,300,000.00 Note)
            (incorporated by reference to the Company's quarterly report on Form
            10-QSB dated May 12, 2000).

10.23       Modification Agreement with Lender ($400,000.00 Note) (incorporated
            by reference to the Company's quarterly report on Form 10-QSB dated
            May 12, 2000).

10.24       Agreement for the Purchase and Sale of Assets dated as of April 2,
            2001 between Surrey, Inc. and Jean Charles Incorporated
            (incorporated by reference to the Company's current report on form
            8-K dated April 5, 2001).

10.25       Guaranty Agreement dated April 5, 2001 between Jean Charles
            Incorporated and The Chase Manhattan Bank (incorporated by reference
            to the Company's current report on form 8-K dated April 5, 2001).

10.26       Letter Agreement dated April 5, 2001 among Surrey, Inc.; Jean
            Charles Incorporated and The Chase Manhattan Bank (incorporated by
            reference to the Company's current report on form 8-K dated April 5,
            2001).


                                      -28-

<PAGE>



10.27       Consulting Agreement dated April 2, 2001 between Jean Charles
            Incorporated and John van der Hagen (incorporated by reference to
            the Company's current report on form 8-K dated April 5, 2001).

10.28       Employment Agreement dated April 2, 2001 between Jean Charles
            Incorporated and Marty van der Hagen (incorporated by reference to
            the Company's current report on form 8-K dated April 5, 2001).

16          Letter from former certifying accountant (incorporated by reference
            to the Company's current report on Form 8-K dated August 4, 1999).

(b)      Reports on Form 8-K

         The Company filed a Report on Form 8-K dated October 20, 2000,
reporting that its shares had been delisted from the Nasdaq SmallCap Market and
would trade on the Nasdaq OTC Bulletin Board under the symbol "SOAP."

         The Company filed a Report on Form 8-K dated March 27, 2001, reporting
the contents of the Company's press release announcing that (i) the Company had
entered into a letter of intent with Jean Charles Incorporated relating to the
sale of substantially all of the Company's operating assets, (ii) The Chase
Manhattan Bank (the "Bank") has accelerated the maturity dates of the
Registrant's promissory notes payable to, and loan agreements with, the Bank,
and (iii) G. Tom MacIntosh II has resigned as a member of the Registrant's Board
of Directors.

         The Company filed a Report on Form 8-K dated April 5, 2001, reporting
the agreement between the Company and Jean Charles Incorporated relating to the
sale of substantially all of the Company's operating assets.



                                      -29-

<PAGE>


                                   SIGNATURES

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

                                                SURREY, INC.

         Date: April 28, 2001               By:    /s/ John B. van der Hagen
                                                -----------------------------
                                                John B. van der Hagen
                                                Chief Executive Officer

         Pursuant to the requirements of the Exchange Act, this 10-KSB has been
signed below by the following persons on behalf of the Issuer on April 28, 2001
in the capacities indicated.

/s/ John B. van der Hagen                     Chairman of the Board of Directors
-------------------------                     and Chief Executive Officer
John B. van der Hagen

/s/ Martin van der Hagen                      President and Director
------------------------
Martin van der Hagen

/s/ Mary van der Hagen                        Secretary and Director
----------------------
Mary van der Hagen

/s/ Bruce A. Masucci                          Director
--------------------
Bruce A. Masucci

/s/ Mark J. van der Hagen                     Vice President - Finance and
-------------------------                     Treasurer
Mark J. van der Hagen

                                      -30-

<PAGE>