FORM 10-Q. QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the period ended SEPTEMBER 30, 2000
Commission File Number: 0-19409
SYNERGY BRANDS, INC.
(Exact name of registrant as it appears in its charter)
Delaware 22-2993066
(State of incorporation) (I.R.S. Employer
identification no.)
40 Underhill Blvd., Syosset NY 11791
(Address of principal executive offices) (zip code)
516-682-1980
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[x] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. On November 6, 2000 there
were 16,567,011 shares outstanding of the registrant's common stock.
<PAGE>
SYNERGY BRANDS, INC.
FORM 10-Q SB
SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION Page
Consolidated Balance sheets as of September 30, 2000 2 - 3
(Unaudited) and December 31, 1999
Consolidated Statements of operations for the nine
months ended September 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of operations for the three months
ended September 30, 2000 and 1999 (Unaudited) 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 (Unaudited) 6 - 7
Notes to Consolidated Financial Statements 8 - 14
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 - 19
Forward Looking Information and Cautionary 20 - 24
Statements
PART II: OTHER INFORMATION
Item VI: Exhibits and Reports on Form 8-K 25
<PAGE>
SYNERGY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 247,214 $1,156,032
Accounts Receivable, less allowance for doubtful accounts of
$69,965 691.749 788,077
Inventory 1,688,860 1,868,572
Collateral and Security Deposit 474,811 400,900
Other Current Assets 1,002,021 6,505
------------------ -----------------
Total Current Assets 4,104,655 4,220,086
Property and Equipment - Net 668,211 687,493
Trade Names, net of accumulated amortization of $449,040 2,245,249 2,657,440
------------------ -----------------
Total Assets $7,018,115 $7,565,019
================== =================
</TABLE>
-2-
<PAGE>
SYNERGY BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 2000 December 31, 1999
------------------- -----------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note Payable $ 428,522 $ 150,000
Accounts Payable & Accrued Expenses 2,452,611 2,916,388
------------------- -----------------
Total Current Liabilities 2,881,133 3,066,338
Long-term debt 465,000 465,000
Commitments and Contingencies - -
Minority Interest 508,818 682,394
Preferred Stock of Subsidiary 178,500 160,125
Stockholders' Equity:
Class A Preferred stock - $.001 par value; 100,000 shares
authorized 100 100
Class B Preferred stock - $.001 per value; 10,000,000
shares authorized 10,000 -
Common stock - $.001 par value; 49,900,000 Shares
authorized 15,658,635 and 13,455,510 Shares were outstanding at
9/30/00 and 12/31/99 respectively: 15,659 13,456
Additional paid-in capital 28,750,885 25,219,431
Deficit (22,219,351) (18,542,575)
Stockholders' notes receivable (405,129) (331,750)
Advertising and in-kind services receivable from stockholder (3,000,000) (3,000,000)
------------------- -----------------
3,152,164 3,358,662
Less treasury stock at cost, 1,400 shares (167,500) (167,500)
------------------- -----------------
Total stockholders' equity 2,984,664 3,191,162
Total Liabilities and Stockholder's Equity $7,018,115 $ 7,565,019
=================== =================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-3-
<PAGE>
SYNERGY BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---------------- -------------
Net Sales $14,697,865 $10,619,556
Cost of Sales 13,808,227 9,086,112
---------------- -------------
Gross Profit 889,638 1,533,444
Selling General and Administrative Expense 4,211,281 1,399,515
Depreciation and Amortization 479,328 17,607
---------------- -------------
Operating Income (Loss): (3,800,971) 116,322
---------------- -------------
Other Income (Expense):
Miscellaneous Income (Expense) 34,602 1,865
Interest Income 4,061 67,612
Interest Expense (69,669) (151,226)
---------------- -------------
Total Other Income (Expense) (31,006) (81,749)
---------------- -------------
Income (Loss) Before Income Tax and Minority Interest (3,831,977) 34,573
Minority interest & dividends on preferred stock of subsidiary 155,201 -
---------------- -------------
Net Income (Loss) (3,676,776) 34,573
================ =============
Income (Loss) Applicable to Common Stock $(3,676,776) $ 34,573
================ =============
Basic Earnings (Loss) Per Common Share $ (.25) -
---------------- -------------
Net Income (Loss) Per Common Share $ (.25) -
================ =============
Weighted Average Number of Shares Outstanding 14,889,600 8,746,437
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
-4-
<PAGE>
SYNERGY BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---------------- ----------------
Net Sales $6,078,917 $3,959,511
Cost of Sales 5,755,648 3,567,259
---------------- ----------------
Gross Profit 323,269 392,252
Selling General and Administrative Expense 930,181 863,895
Depreciation and Amortization 157,252 5,869
---------------- ----------------
Operating Income (Loss): (764,164) (477,512)
---------------- ----------------
Other Income (Expense):
Miscellaneous Income (Expense) (348) 5
Interest Income 6 22,537
Interest Expense (29,817) (52,648)
---------------- ----------------
Total Other Income (Expense) (30,159) (30,106)
---------------- ----------------
Income (Loss) Before Income Tax and Minority Interest (794,323) (507,618)
Minority interest & dividends on preferred stock of subsidiary 31,705 -
---------------- ----------------
Net Income (Loss) (762,618) (507,618)
---------------- ----------------
Income (Loss) Applicable to Common Stock $ (762,618) $ (507,618)
---------------- ----------------
Basic Earnings (Loss) Per Common Share $ (.05) $ (.05)
---------------- ----------------
Net Income (Loss) Per Common Share $ (.05) $ (.05)
---------------- ----------------
Weighted Average Number of Shares Outstanding 15,417,031 9,692,062
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
-5-
<PAGE>
SYNEGY BANDS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
---------------- ----------------
Cash Flows From Operating Activities:
Net Income (Loss) $(3,676,776) $ 34,573
Adjustments to Reconcile Net Income (Loss) - -
From Continuing Operations to Net Cash
Flows From Continuing Operating Activities:
Depreciation and Amortization 479,328 17,607
Non-Cash Expenses 1,905,149 745,965
Changes in Operating Assets and Liabilities:
Minority Interest &Dividends on preferred stock subsidiary (155,201) -
Accounts Receivable 96,328 (553,705)
Inventory 179,712 (907,519)
Other Current Assets (575,548) (1,031,214)
Other Assets - (699,133)
Accounts Payable & Accrued Expenses (208,372) (828,343)
Income Taxes Payable (1,739) (3,612)
---------------- ----------------
Net Cash Flows (used in) operating activities (1,957,119) (3,225,381)
Cash Flows From Investing Activities:
Purchase of Furniture and Equipment (50,630) (33,250)
Purchase of Security Deposit (71,136) -
Proceeds from Stockholder note receivable 30,000 -
---------------- ----------------
Net Cash Flows (used in)
in Investing activities (91,766) (33,250)
Cash Flows From Financing Activities:
Net Borrowing (Payments) on Notes Payable 278,522 -
Proceeds from Issuance of Common Stock 861,545 2,002,062
Long Term Debt - 1,375,000
---------------- ----------------
Net Cash Flows Provided by Financing Activities 1,140,067 3,377,062
---------------- ----------------
Net Increase (Decrease) in Cash (908,818) 118,431
Cash - Beginning of Period 1,156,032 325,699
---------------- ----------------
Cash - End of Period $ 247,214 $ 444,130
================ ================
</TABLE>
See Accompanying Notes To Consolidated Financial Statements
-6-
<PAGE>
SYNERGY BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
---------- ---------
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 58,949 $151,226
Income Taxes Paid $ 17,072 -
Supplemental Disclosure of Non-Cash Operating,
Investing and Financing Activities:
Stock issued in exchange for notes receivable $192,129 -
Stock issued in exchange for prepaid expenses $419,968 -
Stock issued in exchange for accounts payable $253,616 -
---------- ---------
Total Non-Cash Operating, Investing and
Financing Activities $865,713 -
========== =========
See Accompanying Notes to Consolidated Financial Statements
-7-
<PAGE>
SYNERGY BRANDS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Synergy Brands, Inc. (Synergy), (formerly Krantor Corporation) and its
subsidiaries have developed and operate Internet platform operations
and Internet-based businesses designed to sell a variety of products,
including health and beauty aids and premium handmade cigars, directly
to consumers (business to consumer) and to business (business to
business). A summary of the related organizations and operations is
provided below.
In September 1996, Synergy formed a wholly-owned subsidiary, New Era
Foods, Inc. (NEF), which represented manufacturers, retailers and
wholesalers in connection with distribution of frozen seafood, grocery
and general merchandise products.
In October 1997, NEF formed a subsidiary, Premium Cigar Wrappers, Inc.
(PCW), for the purpose of producing premium cigar wrappers in the
Dominican Republic. NEF owns 66% of the common stock and approximately
22% of the preferred stock of PCW (see note 6).
In October 1998, NEF formed a wholly-owned subsidiary, PHS Group, Inc.
(PHS), which is a wholesale distributor of premium beauty salon
products and such subsidiary was later transferred to BB (see note 7).
In January 1999, Synergy formed a wholly-owned subsidiary, Sybr.com,
Inc. (Sybr), which is engaged in the development of Internet-based
business to consumer and business to business opportunities focused on
beauty, personal care, cigars and other consumer products through its
subsidiaries, BB and NetCigar.com, Inc.
In May 1999, Sybr formed a wholly-owned subsidiary, NetCigar.com, Inc.
(NetCigar), which is engaged in the development of Internet-based
business to consumer opportunities focused on cigars and related
products.
In June 1999, Sybr formed a wholly-owned subsidiary, BeautyBuys.com,
Inc. (BB), which is engaged in the development of Internet-based
business to consumer and business to business opportunities focused on
beauty, personal care and other consumer products.
In April 2000, Synergy formed a wholly-owned subsidiary, DealByNet.com,
Inc., to engage in Internet-based business activities designed to
create an integrated supply chain from manufactures of a variety of
products to business customers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Synergy,
its wholly-owned subsidiaries, its majority-owned subsidiary and BB
(collectively, the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes revenue at the time merchandise is shipped to
the customer. The Company issues credits to the customer for any
returned items at the time the returned products are received.
CASH AND CASH EQUIVALENTS
The Company considers time deposits with maturities of three months or
less when purchased to be components of cash.
-8-
<PAGE>
MARKETABLE SECURITIES
Management determines and appropriate classification of its investments
in debt and equity securities at the time of purchase and re-evaluates
such determination at each balance sheet date. No securities were
outstanding at September 30, 2000.
INVENTORY
Inventory is stated at the lower of cost or market. The Company uses
the first-in, first-out (FIFO) cost method of valuing its inventory.
All tobacco inventory is included in current assets in conformity with
standard industry practice, not withstanding the fact that significant
quantities of inventory may be carried for several years for purposes
of the curing process.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. The Company places its cash and
cash equivalents with financial institutions it believes to be of high
credit quality. The concentration of credit risk with respect to
receivables is mitigated by the credit worthiness of the Company's
major customers. The Company maintains an allowance for losses based
upon the expected collectibility of all receivables. Fair value
approximates carry value for all financial instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated
useful lives of the assets, ranging from 3 to 10 years. Leasehold
improvements are amortized over the shorter of the lease term or their
estimated useful lives.
Maintenance and repairs of a routine nature are charged to operations
as incurred. Betterments and major renewals that substantially extend
the useful life of an existing asset are capitalized and depreciated
over the asset's estimated useful life. Upon retirement or sale of an
asset, the cost of the asset and the related accumulated depreciation
or amortization are removed from the accounts and any resulting gain or
loss is credited or charged to income.
TRADE NAMES
Trade names consist of the "Proset" and "Gran Reserve" trade names
acquired in November 1999, which are being amortized over their
expected useful lives not to exceed 5 years.
LONG-LIVED ASSETS
Long-lived assets and intangible assets are reviewed for impairment
whenever events or changes in circumstances indicate the carrying value
may not be recoverable. Impairment is measured by comparing the
carrying value of the long-lived assets to the estimated undiscounted
future cash flows expected to result from use of the assets and their
ultimate disposition. In instances where impairment is determined to
exist, the Company will write down the asset to its fair value based on
the present value of estimated future cash flows.
PREFERRED STOCK OF SUBSIDIARY
Changes in preferred stock of the subsidiary are accounted for as
equity transactions and thus no gain or loss is recognized. Upon each
new issuance of the subsidiary's preferred stock, the Company will
evaluate whether or not its investment has been impaired and adjust
accordingly.
ADVERTISING
The Company expenses advertising and promotional costs as incurred.
Advertising expense for the nine months ended September 30, 2000 was
$328,681.
-9-
<PAGE>
INCOME TAXES
The Company uses the asset and liability method of computing deferred
income taxes. In the event differences between the financial reporting
bases and the tax bases of an enterprise's assets and liabilities
result in deferred tax assets, an evaluation of the probability of
being able to realize the future benefits indicated by such assets is
required. A valuation allowance is provided for a portion or all of the
deferred tax assets when it is more likely than not that such portion,
or all of such deferred tax assets, will not be realized.
EARNINGS PER SHARE
The Company calculates earnings per share pursuant to Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). SFAS 128 requires dual presentation of basic and diluted earnings
per share (EPS) on the face of the statement of income for all entities
with complex capital structures, and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Basic EPS calculations
are based on the weighted-average number of common shares outstanding
during the period, while diluted EPS calculations are based on the
weighted-average of common shares and dilutive common share equivalents
outstanding during each period.
MANAGEMENT ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses during the reporting period. Actual results may
vary from managements estimates.
STOCK-BASED COMPENSATION PLANS
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), encourages, but does not require,
companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to continue
to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "
Accounting for Stock Issued to Employees" (APB 25) and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market value of the
Company's stock at the date of the grant over the amount the employees
or non-employees must pay to acquire the stock.
2. COLLATERAL SECURITY
At September 30, 2000, the Company had a $474,811 security deposit with
a major supplier, which serves as collateral for credit purchases made
by the Company from the supplier.
3. PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2000 consisted of the
following:
Office equipment $ 95,496
Machinery and equipment 48,825
Furniture and fixtures 234,413
Leasehold improvements 416,048
----------
Less accumulated depreciation and amortization (126,571)
----------
$668,211
4. INVENTORY
Inventory as of September 30, 2000 consisted of the following:
Salon finished goods $ 702,822
Tobacco raw materials 495,534
Tobacco finished goods 490,504
---------
$1,688,860
==========
-10-
<PAGE>
5. LINE OF CREDIT AND LONG-TERM DEBT
Revolving line-of-credit with a finance company, with
interest at prime plus 2%; collateralized by accounts
receivable and corporate guarantees. $428,522
Unsecured note payable to minority stockholder,
with interest at 7.5% payable semi-annually beginning
June 1, 2000 through maturity on November 23, 2002. $465,000
--------
6. MINORITY INTERESTS $893,522
========
PCW was incorporated in October 1997 with 7,750 shares of authorized
$.001 par value common stock. At December 31, 1998, PCW had 1,000
shares of common stock outstanding, which were issued at par value. The
Company owns 66% of the common stock and an outside investor owns the
minority interest. For financial reporting purposes, the assets,
liabilities, results of operations and cash flows for PCW are included
in the Company's consolidated financial statements and the outside
investor's interest is reflected in the preferred stock of subsidiary.
PCW had 2,250 shares of authorized $.001 par value preferred stock
issued and outstanding at December 31, 1998. PCW issued 1,750 shares of
preferred stock at inception to two unrelated individuals at $60 per
share, and 500 shares to the Company for a 22% minority interest in the
preferred stock. The holders of PCW preferred stock are entitled to
receive cumulative dividends at the rate of $14 per share before any
dividends on the common stock are paid. Included in preferred stock of
subsidiary is $73,500 of preferred stock dividends payable at September
30, 2000. The Company's portion of the dividend has been eliminated in
consolidation. In the event of dissolution of PCW, the holders of the
referred shares are entitled to receive $60 per share together with all
accumulated dividends, before any amounts can be distributed to the
common stockholders. The shares are convertible only at the option of
PCW at $120 per share.
BB was formed in June 1999 and in November 1999 was authorized to isuue
50,000,000 shares of $.001 par value common stock, of which 49,100,000
shares are Class A common stock and 900,000 shares are Class B common
stock. At September 30, 2000, BB had 9,000,000 shares of Class A common
stock and 900,000 shares of Class B common stock outstanding. The
Company owns all of the Class A common stock and the Class B common
stock is owned by the minority interest (see Note 7). For financial
reporting purposes, the assets, liabilities, results of operations and
cash flows of BB are included in the Company's consolidated financial
statements, and the outside investor's interest in BB is reflected in
minority interest liability.
7. STOCKHOLDERS' EQUITY
In 1994, Synergy adopted the 1994 Services and Consulting Compensation
Plan (the Plan). Under the Plan, as amended, 8,400,000 shares of common
stock have been reserved for issuance. Since the inception of the Plan,
Synergy has issued 7,681,813 shares for payment of services to
employees and professional service providers such as legal, marketing,
promotional and investment consultants. Common stock issued in
connection with the Plan was valued at the fair value of the common
stock at the date of issuance at an amount equal to the service
provider's invoice amount. Under the Plan, Synergy granted options to
selected employees and professional service providers. In November
1999, Synergy entered into a stock purchase agreement with Sinclair
Broadcast Group, Inc. (Nasdaq symbol SBGI) ("SBG") whereby SBG
purchased 2,200,000 shares of Synergy's restricted $.001 par value
common stock for $4,400,000. The purchase price consists of $1,400,000
cash, a credit for a minimum of $2,000,000 of radio advertising and a
credit for a minimum of $1,000,000 of certain in-kind services, as
defined.
In November 1999, BB entered into a stock purchase agreement with SBG,
whereby SBG purchased 900,000 shares of $.001 par value Class B common
stock in BB for $765,000 cash. The Class B common shares constitute 50%
of the voting power of the common stock issued and outstanding. At
September 30, 2000 Sybr owned 9,000,000 shares of Class A common stock
and SBG owned 900,000 shares of Class B common stock.
-11-
<PAGE>
Simultaneously with the purchase of the Class B shares, BB and SBG
entered into a Class A Common Stock Option Agreement providing of a
grant by BB to SBG of the right to purchase 8,100,000 shares of its
Class A common stock. In consideration for the grant, SBG agreed to
provide $50,000,000 of radio and/or television advertising and
promotional support, as defined, to be used from November 1999 through
December 31, 2004. The Company may not use more than $10,000,000 of
such advertising in any one calendar year and may carryover any unused
advertising time from all previous calendar years through December 31,
2005. SBG may terminate its obligation to carryover any unused
advertising time after December 31, 2001, by providing 90 days prior
written notice to BB. As further consideration for the grant, SBG also
agreed to provide $18,623,535 in certain in-kind services, as defined,
at request of BB.
In November 1999, BB acquired all of the outstanding $.001 par value
common stock of PHS from NEF for an 8% convertible subordinated note
payable of $750,000. Simultaneously with the transaction, $600,000 of
PHS's convertible subordinated debentures were converted to Synergy
common stock.
The Company has also reserved 100,000 shares for a stock option plan
(Option Plan) for non-employee, independent directors, which entitles
each non-employee, independent director an option to purchase 10,000
shares of the Company's stock immediately upon election or re-election
of the Board of Directors. Options granted under the Option Plan will
be at the fair market value on the date of grant, immediately
exercisable, and have a term of ten years.
The following is a summary of such stock option transactions for the
nine months ended September 30, 2000 in accordance with the Plan and
other restricted stock option agreements:
Weighted
Average
Number of exercise
Shares price
------------ ----------
Outstanding at December 31, 1999 4,565,600 $ .60
Granted 655,000 2.90
Exercised (544,980) .89
Outstanding at September 30, 2000 4,685,620 1.65
========
Option price .25- 4.00
========
Available for grant:
December 31, 1999 -
========
September 30, 2000 -
========
The Company applies APB 25 in accounting for its stock options.
Compensation costs related to options and charged to operations were
$212,650 in the nine months ended September 30, 2000. Had compensation
costs for the stock options been determined based on the fair value at
the grant date consistent with the method of SFAS 123, the Company's
net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
2000
Net income (loss):
As reported $ (3,676,776)
==========
Pro forma $ (4,349,662)
==========
Net income (loss) per common share:
As reported $ (.25)
==========
Pro forma $ (.29)
==========
-12-
<PAGE>
The weighted-average contractual life of options outstanding at
September 30, 2000 was approximately 4 years. The fair value of each
option grant is estimated using the Black-Shoales option-pricing model
with the following weighted-average assumptions used:
2000
-----------
Dividend yield 0%
Expected volatility 0%
Risk-free rated of return 6.17-6.74%
Expected life 1 to 5 years
8. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases office and warehouse space in Wilmerding,
Pennsylvania, Syosset, New York, and Miami, Florida under operating
leases expiring in July 2002, April 2001, and January 2001,
respectively. The Company is also leasing vehicles under operating
leases expiring in 2004. Rent expense for nine months ended September
30, 2000 was $92,731. Future minimum lease payments under
non-cancelable operating leases as of September 30, 2000.
Year ending December 31,
2000 30,732
2001 88,386
2002 57,208
2003 22,871
2004 553
---------
199,750
==========
SERVICE AGREEMENT
BB's inventory is maintained in a public warehouse in South Kearny, New
Jersey. The Company is required to make rental payments based on 4% of
the Company's sales of inventory stored in the warehouse. The agreement
expires in October 2018 and may be cancelled by either party with a 90
day written notice under certain circumstances, as defined.
DISTRIBUTION AGREEMENTS
In December 1997, NEF entered into a 25-year exclusive worldwide
distribution agreement with a Dominican Republic corporation (DR) for
the sale and distribution of premium handmade cigars manufactured in
the Dominican Republic. There is an option to extend the term of the
distribution agreement up to an additional 25 years.
LITIGATION
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or cash
flows of the Company.
GUARANTEE
In March 1998, The Company guaranteed a $1,000,000 line-of-credit
facility to a Dominican cigar manufacturer, which is owned by a PCW
stockholder. The purpose of the line-of-credit is to provide financing
to the cigar manufacture to which PCW will supply cigar wrappers.
-13-
<PAGE>
9. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company offers a broad range of Internet access services and
related products to businesses and consumers throughout the United
States and Canada. All of the Company's identifiable assets and results
of operations are located in the United States. Management evaluates
the various segments of the Company based on the types of products
being distributed which were, as of September 30, 2000 as shown below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Grocery,
Beauty Health &
Products Beauty B2B B2C Total
Revenue
1999 $ 2,188,219 7,186,473 523,568 721,296 10,619,556
2000 2,097,532 - 11,612,607 987,726 14,697,865
Net earnings
1999 $ 70,569 516,202 29,932 (582,130) 34,573
2000 (968,965) - 104,863 (2,812,674) (3,676,776)
Identifiable assets
1999 $1,012,267 6,413,655 453,849 2,199,986 10,079,757
2000 3,538,348 - 1,485,981 1,993,786 7,018,115
Interest expense
1999 $ 53,851 97,375 - - 151,226
2000 32,922 - 10,299 26,448 69,669
Depreciation and Amortization
1999 $ - 17,607 - - 17,607
2000 379,116 - 750 99,462 479,328
</TABLE>
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company and its consolidated subsidiaries have developed Internet
properties that strategically partner with off-line and on-line
companies to capture e-commerce markets within the Internet arena.
Synergy Brands's Internet strategy includes the internal development
and operation of subsidiaries as well as taking positions in other
Internet companies that have demonstrated synergies with its own core
businesses. The strategy also fosters opportunities for synergistic
business relationships among the Internet companies within its
portfolio. Additionally, management will focus the Company's resources
on creating a diversified network of Internet businesses that would be
potentially attractive IPO or M&A candidates.
Synergy Brands launched two Internet subsidiaries in 1999:
BeautyBuys.com Inc. and Netcigar.com, Inc., each of which has B2C
operations. DealByNet.com, the Company's third e-commerce venture, was
launched in late 2000. The distribution expertise of each entity's
management and the facilities they currently operate also create an
opportunity to offer order fulfillment services to other e-commerce
ventures.
1. BEAUTYBUYS.COM
Synergy Brands and Sinclair Broadcast Group, Inc. (NASDAQ: SBGI)
jointly own BeautyBuys.com. The B2C e-commerce site - accessible via
www.BeautyBuys.com - is a virtual beauty department store consisting of
over 7,000 unique brands, including salon hair and skin care items,
designer fragrances and cosmetics and consumer health and beauty care
products.
Sinclair Broadcast Group (NASDAQ: SBGI), the largest independent TV
network in the United States, acquired a 50% voting interest in
BeautyBuys.com for up to $69.4 million in advertising, cash and in-kind
services. Advertising credits are valued at the best rates a cash
customer received for the aired spots in their time slots.
* Sinclair covers 62 stations in 40 markets reaching 80 million viewers
in the United States and Canada.
* Sinclair is the largest affiliate network for the FOX, WB and UPN
television networks in the United States.
* BeautyBuys.com handles approximately 125,000 monthly unique visitors,
with an average of 15 minutes stay per unique visitors. It is estimated
that over 60% of the traffic comes from TV advertising.
In addition to beauty and health items, BeautyBuys.com has added a wide
selection of gift products, including seasonal, holiday and special
occasion items that will provide customers the opportunity to purchase
unique gifts. Management believes its early entry into this market may
enable the Company to gain a significant share of the on-line gift
market before competitors have an opportunity to imitate their
programs.
In just one year of operation, BeautyBuys.com has been recognized as
one of the top Web sites of its kind by such publications as
FamilyCircle, Mademoiselle, Women's Wear Daily, Drug Store News and
Business 2.0 magazine. The Web site is continuously being improved to
provide photos of products, full product description and color shading
of makeup. Within BeautyBuys we also operate a turn key fulfillment
center that handles all of the order flow for BeautyBuys business. This
center also acts as a fulfillment arm for third party e-commence
vendors.
-15-
<PAGE>
2. DEALBYNET.COM
Synergy Brands launched its DealByNet.com B2B e-commerce Web site in
June 2000. DealByNet is believed to be the first Electronic Commerce
Network (ECN) that intends for manufacturers, supermarket chains, chain
drug stores and distributors to seamlessly integrate their product
needs within an e-commerce environment. DealByNet should allow the
manufactures of the major grocery and health and beauty aid products to
offer their promotional merchandise through DealByNet via a UCCnet
based system that is expected to handle all the logistical, financial
and merchandising details for the products offered on its system.
DealByNet is being developed to become an end-to-end solution ASP that
makes the grocery and health and beauty aids business as efficient as
the other ECN markets created in the brokerage business such as
Instinet and Island that utilize state-of-the-art SQL technology to
provide the necessary data for its vendors and customers to streamline
the market place via an efficient electronic network.
3. NETCIGAR.COM
The premium cigar market is estimated to be $1 billion in annual sales
according to RTDA. In 1999, Synergy Brands expanded its premium cigar
business by establishing NetCigar.com as a Web site for the sale of
premium cigars and luxury related products. In less then a year
NetCigar has built a site with;
* Strong male demographics for advertising and marketing purposes with
approximately 10,000 customers.
* Approximately 60% of all orders are repeat customers, an estimated
10% of unique visitors choose to purchase from Netcigar.com
* Netcigar.com receives about 1 million hits per month with about
25,000 unique visitors spending an average of 25 minutes per session.
* Netcigar.com fulfills orders from its own distribution center.
Average order exceeds $100.
* The mail order portion of the premium cigar industry accounts for 40%
of the $1 billion market, thereby creating an opportunity for efficient
e-commerce conversion for $400 million worth of orders.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Total sales were $6 million for the third quarter ended September
30, 2000, representing a 54% increase over the $4 million reported one
year earlier. Revenues for the nine-month period ended September 30,
2000 increased 38%, totaling $14.7 million compared to $10.6 million
reported in 1999. Pro forma net loss for the third quarter was
$137,547, or $0.01 per share, representing a 72% improvement over Pro
forma net loss of $507,618 or $0.05, during the third quarter of 1999.
For the nine-month period ended September 30, 2000, Pro forma net loss
was $808,438, or $0.05 per share, compared with a Pro forma profit of
$34,573 for the first nine months of 1999. We attribute this growth to
our dealbynet B2B operation. Pro forma figures exclude one time and
non-cash charges.
Additionally, third quarter Internet sales climbed by 494% to 5.4
million compared with $906,731 in 1999. Likewise, for the nine months
ended September 30, 2000, Internet sales rose to $12.6 million,
exceeding the $1.2 million reported for the first nine months of 1999
by a record 912%.
Overall, the Company reported a 762,618 loss or $.05 per share for the
third quarter as compared to $507,618 loss or $.05 per share for the
same period in 1999.
-16-
<PAGE>
The Company's operating divisions performed extremely well in the third
quarter by showing record results. Synergy currently operates through
four operating subsidiaries including dealbynet.com, the company's B2B
supply chain management business; PHS Group, the Company's chain
drugstore distribution business; BeautyBuys.com, the Company's B2C
fragrance and beauty Internet site, and NetCigar.com, representing the
Company's luxury products and premium cigar business.
Sales increase more than 20-fold for the Company's Dealbynet.com, Inc.
subsidiary in the nine months ended September 30, 2000 to $11.6 million
compared to the prior period. Operating profit represented 40% of the
Company's total operating margin and management expects dealbynet to
grow at a rate of more than 100% per year for the next three years.
PHS Group, Synergy Brands' fulfillment operation, has remained the
backbone of the Company's procurement power. PHS has maintained its
economies of scale to allow for efficient buying so that Beautybuys.com
can maintain above average operating margins. In addition, PHS also
contributed over 40% of the Company's operating margins as the B2C
platforms have expanded.
Synergy's Netcigar.com Web site reported more than five-fold growth for
the nine months ended September 30, 2000. Synergy plans a $3 million
advertising campaign for both of its B2C subsidiaries during the
upcoming holidays.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
9/30/2000 9/30/1999 9/30/2000 9/30/1999
-------------- ------------ ------------- ------------
Internet Sales $ 5,387,490 $ 906,731 $12,600,333 $ 1,244,864
Non-internet sales $ 691,427 $ 3,052,780 $ 2,097,532 $ 9,374,692
Total Sales $ 6,078,917 $ 3,959,511 $14,697,865 $ 10,619,556
Per share $ (.05) $ (.05) $ (.25) $ -
Net Profit (loss) $ (762,618)(a) $ (507,618) $(3,676,776)(b)$ 34,573
Weighted Average Shares $15,417,031 $ 9,692,062 $14,889,600 $ 8,746,437
</TABLE>
(a) Includes $625,071 of non cash charges and one time charges in
connection with the development of the Company's sites and marketing
and advertising for the branding of the e-commerce properties for the
three months ended September 30, 2000.
(b) Includes $2,868,000 of non cash and on time changes with the
development of the Company's sites and marketing for the branding of
the e-commerce properties for the nine months ended September 30, 2000.
Revenues by Operating Subsidiaries:
9 Months 9 Months 3 Months 3 Months
Ended Ended Ended Ended
9/30/00 9/30/99 9/30/00 9/30/99
------------ ----------- ----------- -----------
dealbynet $ 11,612,607 $ 523,568 $ 5,055,097 $ 523,568
PHS Group $ 2,097,532 $ 2,188,219 $ 691,427 $ 820,641
BeautyBuys.com $ 612,722 $ 643,702 $ 176,269 $ 309,121
Netcigar $ 375,004 $ 77,594 $ 156,124 $ 74,042
Total $ 14,697,865 $ 3,433,083 $ 6,078,917 $ 1,727,372
-17-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $1.2 million at September 30,
2000, a 7% increase from the second quarter of 2000.
The Company's Business to Business operation, DealByNet is expected to be
profitable in fiscal 2000. The Company's main operating subsidiaries,
BeautyBuys.com Inc. and SYBR.com are expected to incur losses in 2000. The
Company believes that it has sufficient working capital and resources to grow
and expand the businesses of its operating subsidiaries. However, there can be
no assurances that additional capital would not be required in the event the
Company's business grows beyond its operating budgets. PHS Group (DealByNet.com)
secured a line of credit from GE commercial services to finance up to 90% of its
accounts receivable at a rate of prime plus 2. As of Septmeber 30th, its balance
totaled $428,000. The Company believes that its line of credit should be able to
finance the needs of its Business to Business operations.
Synergy Brands, Inc. has executed a media deal with Premiere Radio
Networks, Inc. in which radio advertising is being exchanged for 500,000 shares
in Synergy Brands as part of $1 million radio advertising campaign. The Company
will utilize the radio time to broadcast commercials for Netcigar.com, featuring
the company's spokesman Bo Dietl. This deal further requires a $500,000 cash
commitment to be spent over a 15 month period.
Synergy Brands' Netcigar.com B2C subsidiary is one of the leading
e-commerces sites for premium cigars and luxury products. The commercials will
air nationally on some of the most listened to talk radio broadcasts in the
country, including Rush Limbaugh, Jim Rome, and the recently launched Fox Sports
Radio Network. Netcigar.com's advertisements will be aired during numerous
seasonal campaigns, beginning with the upcoming holiday period and continuing
throughout 2001.
The Premiere deal represents yet another step in our plan to develop
strategic partnerships with the largest and best media companies.
Premiere Radio Networks, Inc., a subsidiary of Clear Channel Communications
(NYSE: CCU), syndicates more than 60 radio programs, to more than 7,800 radio
affiliations and reaches over 180 million listeners weekly. Premiere is the
number one radio network in the country and features the following
personalities: Rush Limbaiugh, Dr. Laura Schlessinger, Jim Rome, Rick Dees,
Casey Kasem, Dr. Dean Edell, Bob (Kevoian) and Tom (Griswold), Phil Hendrie,
Leeza Gibbons, Michael Reagan, Mike Siegel, Dave Koz, Blair Garner, Lionel and
others. Premiere is based in Sherman Oaks, Calif., with eleven offices
nationwide.
The Company plans to continue to explore partnerships with media and
technology companies on a barter for equity basis. The Company believes that
this strategy allows its operating subsidiaries to brand and expand their
respective franchises without causing adverse ramifications on the Company's
working capital. In addition the Company plans to leverage its media assets to
acquire interests in related companies that would complement its expansion
strategy.
GE Capital Commercial Services, Inc., a wholly owned subsidiary of GE
Capital, the financial services arm of The General Electric Corporation (NYSE:
GE), is expected to facilitate expansion of B2B operations and finance up to 90%
of the B2B accounts receivables on a revolving secured line of credit. GE should
permit DealByNet to grow the B2B segment of its operations geometrically annual
rate from its current $15 million annual rate.
Selected Financial Date
-----------------------
September 30, 2000 December 31, 1999
------------------ -----------------
Working Capital 1,223,522 1,153,748
Long Term Debt 465,000 465,000
Shareholders Equity 2,984,664 3,191,162
-18-
<PAGE>
SEASONALITY
The Company expects lower sales volume for Dealbynet in the fourth quarter
due to the reduced number of selling days resulting from the concentration of
holidays in the quarter.
Sales of beauty care products and fragrances increase over traditional gift
giving holidays such as Christmas, Easter, Mother's Day, Father's Day, and
Valentine's Day.
Cigar and Luxury products sales also increase during holiday periods and
summer months, but also sales spurts occur during periods of special sporting
events.
INFLATION
The Company believes that inflation, under certain circumstances, could be
beneficial to the Company's Dealbynet business. When inflationary pressures
drive product cost up, the Company's customers sometimes purchase greater
quantities of product to expand their inventories to protect against further
pricing increases. This enables the Company to sell greater quantities of
products that are sensitive to inflationary pressures.
However, inflationary pressures frequently increase interest rates. Since
the Company is dependent on financing, any increase in interest rates will
increase the Company''s credit costs, thereby reducing its profits.
-19-
<PAGE>
FORWARD LOOKING INFORMATION AND CAUTIONARY STATEMENTS
Other than the factual matters set forth herein, the matters and items set
forth in this report are forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, the following:
1. INTERNET
The internet environment is new to business and is subject to
inherent risks as in any new developing business including rapidly
developing technology with which to attempt to keep pace and level of
acceptance and level of consumer knowledge regarding its use.
2. CASH FLOW.
The Company has experienced cash shortages which continue to
adversely affect its business. See "Liquidity and Capital Resources".
The Company requires additional working capital in order to maintain
and expand its business.
3. DEPENDENCE ON PUBLIC TRENDS.
The Company's business is subject to the effects of changing
customer preferences and the economy, both of which are difficult to
predict and over which the Company has no control. A change in either
consumer preferences or a down-turn in the economy may affect the
Company's business prospects.
4. POTENTIAL PRODUCT LIABILITY.
As a participant in the distribution chain between the
manufacturer and consumer, the Company would likely be named as a
defendant in any product liability action brought by a consumer. To
date, no claims have been asserted against the Company for product
liability; there can be no assurance, however, that such claims will
not arise in the future. Currently, the company does not carry product
liability insurance. In the event that any products liability claim is
not fully funded by insurance, and if the Company is unable to recover
damages from the manufacturer or supplier of the product that caused
such injury, the Company may be required to pay some or all of such
claim from its own funds. Any such payment could have a material
adverse impact on the Company.
5. RELIANCE ON COMMON CARRIERS.
The Company does not utilize its own trucks in its business and is
dependent, for shipping of product purchases, on common carriers in the
trucking industry. Although the Company uses several hundred common
carriers, the trucking industry is subject to strikes from time to
time, which could have material adverse affect on the Company's
operations if alternative modes of shipping are not then available.
Additionally the trucking industry is susceptible to various natural
disasters which can close transportation lanes in any given region of
the country. To the extent common carriers are prevented from or
delayed in utilizing local transportation lanes, the Company will
likely incur higher freight costs due to the limited availability of
trucks during any such period that transportation lanes are restricted.
-20-
<PAGE>
6. COMPETITION.
The Company is subject to intense competition in its promotional
grocery, and premium handmade cigars businesses. While these industries
may be highly fragmented, with no one distributor dominating the
industry, the Company is subject to competitive pressures from other
distributors based on price and service and product quality and origin.
7. LITIGATION.
The Company is subject to legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or cash
flows of the Company, but there can be no assurance as to this.
8. POSSIBLE LOSS OF NASDAQ SMALL CAP LISTING.
Synergy currently qualifies for trading on the Nasdaq Small Cap
system. Nasdaq has adopted, and the Commission has approved, certain
changes to its maintenance requirements which became effective as of
February 28, 1998, including the requirement that a stock listed in
such market have a bid price greater than or equal to $1.00. The bid
price per share for the Common Stock of Synergy has been below $1.00 in
the past and the Common Stock has remained on the Nasdaq Small Cap
System because Synergy has complied with the alternative criteria which
are now eliminated under the new rules. If the bid price dips below
$1.00 per share, the Common Stock could be delisted from the Nasdaq
Small Cap System and thereafter trading would be reported in the NASD's
OTC Bulletin Board or in the "pink sheets." In the event of delisting
from the Nasdaq Small Cap System, the Common Stock would become subject
to rules adopted by the Commission regulating broker-dealer practices
in connection with transactions in "penny stocks." The disclosure rules
applicable to penny stocks require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized list disclosure document prepared by the
Commission that provides information about penny stocks and the nature
and level of risks in the penny stock market. In addition, the
broker-dealer must identify its role, if any, as a market maker in the
particular stock, provide information with respect to market prices of
the Common Stock and the amount of compensation that the broker-dealer
will earn in the proposed transaction. The broker-dealer must also
provide the customer with certain other information and must make a
special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written
agreement to the transaction. Further, the rules require that following
the proposed transaction the broker-dealer provide the customer with
monthly account statements containing market information about the
prices of the securities. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules. If
the Common Stock became subject to the penny stock rules, many
broker-dealers may be unwilling to engage in transactions in the
Company's securities because of the added disclosure requirements,
thereby making it more difficult for purchasers of the Common Stock to
dispose of their shares. The Company's stock is presently and for much
of the last quarter has traded under a $1.00 bid and the Company has
received notice from NASDAQ of delisting if the trading level is not
brought back over $1.00 bid. The Company's common stock has previously
consistently remained at NASDAQ trading levels above $1.00 bid over the
past year and such historical stability combined with the Company
increasing business share in the market and its continuing
establishment as a viable force in the industries wherein it
participates gives the Company confidence that its subseptibilty to
market deficiencies is in a much lessened state then in years past and
that the Company will see its trading level for its common stock
increase to acceptable NASDAQ standards, but of this there can be no
assurance.
-21-
<PAGE>
9. RISKS OF BUSINESS DEVELOPMENT.
The Company has ventured into new lines of product and product
distribution (Cigars) in 1997, salon and HBA products in 1998 and
internet sales in 1999 and such product and product distribution lines
are expected to continue to constitute a material part of the Company's
revenue stream. With the addition of these new product and product
distribution lines the Company is hopeful of reaching and hopefully
exceeding prior historic levels of product sales. Because of the
newness of these lines of products to the Company, the Company's
operations in these areas should be considered subject to all of the
risks inherent in a new business enterprise, including the absence of a
appreciable operating history and the expense of new product
development. Various problems, expenses, complications and delays may
be encountered in connection with the development of the Company's new
products and methods of product distribution. These expenses must
either be paid out of the proceeds of future offerings or out of
generated revenues and Company profits. There can be no assurance as to
the continued availability of funds from either of these sources.
10. RAPIDLY CHANGING MARKET MAY IMPACT OPERATIONS.
The market for the Company's products is rapidly changing with
evolving industry standards and frequent new product introductions. The
Company's future success will depend in part upon its continued ability
to enhance its existing products and to introduce new products and
features to meet changing customer requirements and emerging industry
standards. The Company will have to develop and implement an
appropriate marketing strategy for each of its products. There can be
no assurance that the Company will successfully complete the
development of future products or that the Company's current or future
products will achieve market acceptance levels conducive to the
Company's fiscal needs. Any delay or failure of these products to
achieve market acceptance would adversely affect the Company's
business. In addition, there can be no assurance that the products or
technologies developed by others will not render the Company's products
or technologies non-competitive or obsolete.
Management believes actions presently being taken to revise the
Company's operating and financial requirements should provide the
opportunity for the Company to continue as a going concern. However,
Management cannot predict the outcome of future operations and no
adjustments have been made to offset the outcome of this uncertainty.
11. DEPENDENCE UPON ATTRACTING AND HOLDING KEY PERSONNEL.
The Company's future success depends in large part on the
continued service of its key technical, marketing, sales and management
personnel and on its ability to continue to attract, motivate and
retain highly qualified employees. Although the Company's key employees
have stock options, its key employees may voluntarily terminate their
employment with the Company at any time. Competition for such employees
is intense and the process of locating technical and management
personnel with the combination of skills and attributes required to
execute the Company's strategy is often lengthy. Accordingly, the loss
of the services of key personnel could have a material adverse effect
upon the Company's operating efforts and on its research and
development efforts. The Company does not have key person life
insurance covering its management personnel or other key employees.
-22-
<PAGE>
12. EXTENSIVE AND INCREASING REGULATION OF TOBACCO PRODUCTS AND
LITIGATION MAY IMPACT CIGAR INDUSTRY.
The tobacco industry in general has been subject to extensive
regulation at the federal, state and local levels. Recent trends have
increased regulation of the tobacco industry. Although regulation
initially focused on cigarette manufacturers, it has begun to have a
broader impact on the industry as a whole and may focus more directly
on cigars in the future. The recent increase in popularity of cigars
could lead to an increase in regulation of cigars. A variety of bills
relating to tobacco issues have been introduced in the U.S. Congress,
including bills that would (i) prohibit the advertising and promotion
of all tobacco products or restrict or eliminate the deductibility of
such advertising expense, (ii) increase labeling requirements on
tobacco products to include, among others things, addiction warnings
and lists of additives and toxins, (iii) shift control of tobacco
products and advertisements from the Federal Trade Commission (the
"FTC") to the Food and Drug Administration (the "FDA"), (iv) increase
tobacco excise taxes and (v) require tobacco companies to pay for
health care costs incurred by the federal government in connection with
tobacco related diseases. Future enactment of such proposals or similar
bills may have an adverse effect on the results of operations or
financial condition of the Company.
In addition, a majority of states restrict or prohibit smoking in
certain public places and restrict the sale of tobacco products to
minors. Local legislative and regulatory bodies also have increasingly
moved to curtail smoking by prohibiting smoking in certain buildings or
areas or by designating "smoking" areas. Further restrictions of a
similar nature could have an adverse effect on the Company's sales or
operations, such as banning counter access to or display of premium
handmade cigars, or decisions by retailers because of public pressure
to stop selling all tobacco products. Numerous proposals also have been
considered at the state and local level restricting smoking in certain
public areas, regulating point of sale placement and promotions and
requiring warning labels.
Increased cigar consumption and the publicity such increase has
received may increase the risk of additional regulation. The Company
cannot predict the ultimate content, timing or effect of any additional
regulation of tobacco products by any federal, state, local or
regulatory body, and there can be no assurance that any such
legislation or regulation would not have a material adverse effect on
the Company's business.
In addition numerous tobacco litigation has been commenced and may
in the future be instituted, all of which may adversely affect the
cigar consumption and sale and may pressure applicable government
entities to institute further and stricter legislation to restrict and
possibly prohibit cigar sale and consumption, any and all of which may
have an adverse affect on Company business.
13. RISKS RELATING TO MARKETING OF CIGARS.
The Company primarily will distribute premium handmade cigars
which are hand-rolled and use tobacco aged over one year. The Company
believes that there is an abundant supply of tobacco available through
its supplier in the Dominican Republic for the types of premium
handmade cigars the Company primarily will sell. However, there can be
no assurance that increases in demand would not adversely affect the
Company's ability to acquire higher priced premium handmade cigars.
While the cigar industry has experienced increasing demand for
cigars during the last several years, there can be no assurance that
the trend will continue. If the industry does not continue as the
Company anticipates or if the Company experiences a reduction in demand
for whatever reason, the Company's supplier may temporarily accumulate
excess inventory which could have an adverse effect on the Company's
business or results of operations.
-23-
<PAGE>
14. NO DIVIDENDS LIKELY.
No dividends have been paid on the Common Stock since inception,
nor, by reason of its current financial status and its contemplated
financial requirements, does Synergy contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future.
-24-
<PAGE>
Item 4-Submission of matters to vote of security holders.
(a) No matters were submitted to vote of shareholders for the third
quarter ended September 30, 2000.
Item 6- Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) There were no reports filed on 8-k for the relevant period.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Synergy Brands, Inc.
/s/ Mair Faibish
--------------------
/s/ Mair Faibish
Date: 11/06/00
/s/ Mair Faibish
--------------------------
By: /s/ Mair Faibish
Chief Executive Officer
Synergy Brands, Inc.
/s/ Mitchell Gerstein
--------------------
/s/ Mitchell Gerstein
Date: 11/06/00
/s/ Mitchell Gerstein
---------------------------
By: /s/ Mitchell Gerstein
Treasurer
