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 March 31, 2002.

    |_| Transition Report pursuant to Section 13 or 15(d) of The Exchange Act
                                     of 1934

                           Commission File No. 0-21079

                                PHLO CORPORATION
        (Exact name of small business issuer as specified in its charter)

          Delaware                                   11-3314168
 (State of or other jurisdiction          (IRS Employer Identification No.)
of incorporation or organization)

        13 Village Green
        Budd Lake, New Jersey                           07828
        (Address of Principal                         (Zip Code)
         Executive Offices)

       Registrant's telephone number, including area code: (212) 977-9171

        Securities registered pursuant to Section 12(b) of the Act: None.

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

                    Common Stock, par value $.0001 per share
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the 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 |X| No |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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|

Issuer's revenues for its most recent fiscal year were $1,288,512.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock as of July
12, 2002, was approximately $6,233,644.

The number of shares outstanding of the issuer's common stock as of July 12,
2002 was 43,557,106.
<PAGE>

                                TABLE OF CONTENTS

Item Number                                                                 Page

     PART I

1.   Business
2.   Properties
3.   Legal Proceedings
4.   Submission of Matters to a Vote of Security Holders

     PART II

5.   Market for the Registrant's Common Equity and Related
         Shareholder Matters
6.   Management's Discussion and Analysis of Financial
         Condition and Results of Operations
7.   Financial Statements and Footnotes

     PART III

8.   Directors and Executive Officers
9.   Executive Compensation
10.  Security Ownership of Certain Beneficial Owners and Management
11.  Certain Relationships and Related Transactions

     PART IV

12.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

     Signatures
<PAGE>

                                     PART I

Item 1. BUSINESS

General

Phlo Corporation, a Delaware corporation incorporated in December 1995, and its
subsidiaries (hereinafter collectively referred to as the "Company") is a
manufacturer of beverages and liquids containing patented and patent-pending
biotechnologies. The Company sells its products to distributors, who offer the
products for sale in high volume chain stores, such as supermarkets and drug and
convenience stores. The Company is positioned as a biotechnology company which
is using high volume distribution networks to commercialize its technology.
Central to the Company's strategic development plan is the development,
acquisition and/or exclusive licensing of proprietary technology, nutraceutical,
biotechnological and/or pharmaceutical in nature, which the Company initially
plans to convey to consumers through the use of liquid formulations and beverage
systems. The Company is focusing its technology acquisition efforts on those
technologies related to preventing or ameliorating cancer, reducing the effects
of aging, and enhancing cognition and personal performance.

The Company's "ZO - Vital Cell Defense" beverage line features fruit drinks,
lemonades, iced black teas and iced green teas and is offered in 16 ounce
bottles. "ZO - Vital Cell Defense" with its patent-pending Vitamin E
phosphate/phosphatidylcholine (VEP/PC) and sustained release micro-encapsulation
delivery technology is available in Cranberry Berry, Orange Carrot, Pink
Lemonade, Tropical Punch, Kiwi Strawberry, Raspberry Vanilla and Blackberry
Cherry, in addition to four flavors of iced black tea and four flavors of iced
green tea. The Company's green tea delivers a truly functional level (250 mg) of
powerful green tea catechins, including the super anti-oxidant, EGCg. Studies
show that a high daily intake of EGCg aids in the protection against cancer and
cardiovascular disease.

During the most recent six months, the Company completed the development of two
additional product lines. One product line consists of personal performance
preparations delivered through 1-ounce sprays (Spray Products) containing VEP/PC
and the Company's biologically active micro-particle delivery system. The Spray
Products create focus and mental alertness without the secondary depression
associated with the intake of stimulants as well as provide cellular membrane
repair and protection from toxicants. The Spray Products will be made available
initially in natural food chains and later in the major distribution segments of
chain and independent convenience stores, drug stores, mass merchandisers, and
supermarkets. Additionally, the Company has completed the development of two
types of proprietary oral rehydration solutions (ORS(s)) for sale initially to
institutional purchasers (including the U.S. military) and continues to improve
its biologically active delivery system as well as working on other types of
delivery systems for nutraceutical, biological, and pharmaceutical agents. One
type of the Company's ORS is directed to rehydration while the other type is
therapeutic in nature and treats diarrhea caused by diseases such as dysentery
and cholera. These diseases bring suffering and death to millions of people in
many parts of the world today. Both types of the Company's ORSs contain the
Company's proprietary, biologically active micro-particle delivery system, are
superior to the World Health Organization standard and meet the criteria
(related to electrolyte payload, carbohydrates and osmolality) which the Company
believes places its ORSs among the most effective in the world. The Company is
currently conducting discussions with major global companies related to the
distribution of the Company's products or joint ventures pertaining to the
Company's technology and products related thereto.
<PAGE>

Financing Activities

During the fiscal year ended March 31, 2002, the Company raised approximately
$530,000 in the private placement of equity.

Recent Developments

In May, 2001, Coca-Cola Hondo, Inc. and its affiliates (Coca-Cola Hondo)(which
signed an agreement with the Company in December 2000 to sell the Company's
products in the entire Coca-Cola Hondo distribution territory consisting of
Illinois, Wisconsin, Michigan, and parts of Indiana, Ohio, Pennsylvania and New
York) and Coca-Cola Enterprises (CCE), the master distributor on a global basis
of all of The Coca-Cola Company's beverage products, announced the acquisition
of Coca-Cola Hondo by CCE. On a short-term basis, the Coca-Cola Hondo
acquisition by CCE caused the full execution of the Company's launch of its ZO -
Vital Cell Defense beverage line to be delayed, and the Company's revenue was
significantly adversely affected as a result thereof. CCE requested that the
Company change the packaging of its beverages to plastic bottles to enable CCE
to sell the Company's beverages in all CCE distribution segments (including in
vending machines) and desired to re-launch the beverage line in the new plastic
bottles. On a longer-term basis, the Company does not believe that the
acquisition of Coca-Cola Hondo will have a detrimental effect on its sales, but
rather the Company believes that it will enable the Company to more rapidly
increase its beverage sales volumes in this area through distribution in more
market segments (including vending).

The Company is conducting discussions with CCE and its affiliates with regard to
a national distribution venture involving certain of the Company's products.

During the most recent six months, the Company completed the development of two
additional product lines. One product line consists of personal performance
preparations delivered through 1-ounce sprays (Spray Products) containing VEP/PC
and the Company's biologically active micro-particle delivery system. The Spray
Products create focus and mental alertness without the secondary depression
associated with the intake of stimulants as well as provide cellular membrane
repair and protection from toxicants. The Spray Products will be made available
initially in natural food chains and later in the major distribution segments of
chain and independent convenience stores, drug stores, mass merchandisers, and
supermarkets. Additionally, the Company has completed the development of two
types of proprietary oral rehydration solutions (ORS(s)) for sale initially to
institutional purchasers (including the U.S. military) and continues to improve
its biologically active delivery system as well as working on other types of
delivery systems for nutraceutical, biological, and pharmaceutical agents. One
type of the Company's ORS is directed to rehydration while the other type is
therapeutic in nature and treats diarrhea caused by diseases such as dysentery
and cholera. These diseases bring suffering and death to millions of people in
many parts of the world today. Both types of the Company's ORSs contain the
Company's proprietary, biologically active micro-particle delivery system, are
superior to the World Health Organization standard and meet the criteria related
to electrolyte payload, carbohydrates and osmolality) which the Company believes
places its ORSs among the most effective in the world. The Company is currently
conducting discussions with major global companies related to the distribution
of the Company's products or joint ventures pertaining to the Company's
technology and products related thereto.
<PAGE>

Stock Exchange Transaction

On October 22, 1998, the Company agreed to acquire the capital stock of a
beverage company, X-Treem Products Corporation (X-Treem), through an exchange of
stock with the shareholders of X-Treem (the Stock Exchange Transaction). On
April 2, 1999, the agreement was amended so as not to require the Company's
stock to be reverse-split, as initially intended. As a result, the additional
shares that would be issuable under the amended agreement could not be issued at
that time because the Company did not have a sufficient number of authorized
shares of stock to do so. During the year ended March 31, 2001, the Company
authorized an increase in the number of authorized shares sufficient to complete
the Stock Exchange Transaction, and in December 2000, the Company began issuing
stock in accordance with the Stock Exchange Transaction. There are still shares
of stock issuable pursuant to the Stock Exchange Transaction which are treated
in the financial statements as subscribed shares of stock.

Dissolution of Subsidiary

In November 2000, X-Treem was formally dissolved in accordance with the General
Corporation Law of the State of Delaware. For approximately two years prior
thereto, X-Treem has been inactive and had no revenues. As a result of the
dissolution, the Company's assets, liabilities and stockholders' deficiency no
longer reflect those of X-Treem. The effect was to reduce the Company's
liabilities by approximately $4,211,000, reduce the stockholders' deficiency by
approximately $3,951,000, and reduce the assets by approximately $260,000.

Product Overview

The Company's "ZO - Vital Cell Defense" beverage line features fruit drinks,
lemonades, iced black teas and iced green teas and is offered in 16 ounce
bottles. "ZO - Vital Cell Defense" with its patent-pending VEP/PC and sustained
release micro-encapsulation delivery technology is available in Cranberry Berry,
Orange Carrot, Pink Lemonade, Tropical Punch, Kiwi Strawberry, Raspberry Vanilla
and Blackberry Cherry, in addition to four flavors of iced black tea and four
flavors of iced green tea. The Company's green tea delivers a truly functional
level (250 mg) of powerful green tea catechins, including the super
anti-oxidant, EGCg. Studies show that a high daily intake of EGCg aids in the
protection against cancer and cardiovascular disease.

During the most recent six months, the Company completed the development of two
additional product lines. One product line consists of personal performance
preparations delivered through 1-ounce sprays (Spray Products) containing VEP/PC
and the Company's biologically active micro-particle delivery system. The Spray
Products create focus and mental alertness without the secondary depression
associated with the intake of stimulants as well as provide cellular membrane
repair and protection from toxicants. The Spray Products will be made available
initially in natural food chains and later in the major distribution segments of
chain and independent convenience stores, drug stores, mass merchandisers, and
supermarkets. Additionally, the Company has completed the development of two
types of proprietary oral rehydration solutions (ORS(s)) for sale initially to
institutional purchasers (including the U.S. military) and continues to improve
its biologically active delivery system as well as working on other types of
delivery systems for nutraceutical, biological, and pharmaceutical agents. One
type of the Company's ORS is directed to rehydration while the other type is
therapeutic in nature and treats diarrhea caused by diseases such as dysentery
and cholera. These diseases bring suffering and death to millions of people in
many parts of the world today. Both types of the Company's ORSs contain the
Company's proprietary, biologically active micro-particle delivery system, are
superior to the World Health Organization standard and meet the criteria related
to electrolyte payload, carbohydrates and osmolality) which the Company believes
places its ORSs among the most effective in the world. The Company is currently
conducting discussions with major global companies related to the distribution
of the Company's products or joint ventures pertaining to the Company's
technology and products related thereto.
<PAGE>

Marketing and Distribution

The Company sells its products to distributors, who offer the products for sale
in high volume chain stores, such as supermarkets and drug and convenience
stores. The Company is positioned as a biotechnology company which is using high
volume distribution networks to commercialize its technology.

Industry Overview/Competition

The Company's ZO - Vital Cell Defense line of beverages competes in the "New
Age" beverage category. The Company's line of ready to drink beverages competes
directly with such brands as Arizona, SoBe, Snapple and others, although the
Company believes that its ZO beverage line, with its proprietary
(patent-pending) composition and biologically active micro-particle delivery
technology, differentiates itself from these other major brands. The category of
"New Age" beverages is the fastest growing category in the beverage industry
today.

The Company operates in a highly competitive segment of the beverage industry.
The segment is dominated by competitors with greater resources than the
Company's. In addition the Company competes for limited retail shelf space for
its products. The Company cannot be certain that it can successfully compete for
sales to distributors or stores that purchase from larger, more established
companies that have greater financial, sales and technical resources. However,
the Company believes that its proprietary technology and its ability to
incorporate such technology in good-tasting beverages as well as in a number of
additional types of liquid formulations allows the Company to offer to its
distributors unique and varied products.

Manufacturing

The Company's products are manufactured at independent co-packers. The Company
believes that alternative sources of manufacturing exist in the event that the
production capabilities of the facility currently used by the Company become
insufficient or unavailable. However, there can be no assurances that
alternative sources would be able to meet the requirements of the Company, and
if the Company was unable to arrange for alternative co-packing in a timely
manner, such failure could have a material adverse effect on the Company's
business, operating results and financial condition.

The Company purchases juices, concentrates, flavors, nutrients, labels, caps,
bottles, boxes and other ingredients for its product line from independent
manufacturers. The products are delivered to an independent co-packer where the
Company's products are manufactured. Management believes that there are
alternatives to all of its suppliers in the event the Company is compelled to
purchase raw materials from other sources, although there can be no assurances
that alternative sources would become available in a timely manner, if which
case it could have a material adverse effect on the Company's business,
operating results and financial condition.

Trademarks

The Company has filed an application for registration in the United States for
the trademarks and brand name related to its product lines. The Company believes
that its trademarks and trade names are significant to the marketing and sale of
its products and that the inability to utilize the same could have a material
adverse effect on the Company's business, results of operations and financial
condition.
<PAGE>

Research and Development

The Company expended $0 for research and development costs in the fiscal year
ended March 31, 2002.

Management and Employees

As of March 31, 2002, the Company employed three (3) full-time employees.

The Company has experienced no work stoppages and considers its employee
relations to be satisfactory. The Company's employees are not represented by a
labor union.

Product Liability Insurance

The Company, like other manufacturers of products that are ingested, faces an
inherent risk of exposure to product liability claims if, among other things,
the use of its products results in injury. There can be no assurances that the
amount and scope of any product liability insurance coverage will be adequate to
protect the Company in the event that a product liability claim is successfully
asserted against the Company.

Government Regulation

The production, distribution and sale of the Company's products in the United
States are subject to the Federal Food, Drug and Cosmetic Act, the Occupational
Safety and Health Act, the Lanham Act, various environmental statutes, and
various other federal, state and local statutes regulating the production,
transportation, sale, safety, advertising, labeling and ingredients of such
products. Certain states and localities prohibit, or may in the future enact
legislation to prohibit, the sale of certain beverages unless a deposit or tax
is charged for containers.

Item 2. PROPERTIES.

The Company is in the process of relocating its executive offices and
negotiating a long-term office lease. It is currently leasing office space from
an employee on an informal, rent free basis pending execution of a long-term
lease.

Item 3. LEGAL PROCEEDINGS.

The Company and its subsidiaries are involved in a number of lawsuits related to
claims arising through the normal course of business, including claims which
have been reduced to judgments. The judgments and certain others claims have
been provided for and are reflected within the accompanying financial statements
as accrued expenses at March 31, 2002.

In addition to the claims referred to above, there are other lawsuits in which
the Company is involved, but is unable to predict the outcome, and there are
judgments and claims made against one of the Company's former subsidiaries,
X-Treem, which was formally dissolved in the prior fiscal year. In the opinion
of management, based on currently available facts, and the aggregate liability
currently provided for within the accompanying financial statements, the
ultimate resolution of such matters will not have a material adverse effect on
the Company's consolidated results of operations or financial position.

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

No matters were submitted to a vote of the holders of the Company's common stock
during its fiscal year ended March 31, 2002.
<PAGE>

                                     PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The common stock of the Company was first traded on the OTC Bulletin Board on
the effectiveness of the Company's Initial Public Offering on July 31, 1996,
under the symbol "PYMB". On April 20, 1999, the Company changed its trading
symbol to "PHLC" to reflect the change in the Company's name to Phlo
Corporation. The common stock of the Company is quoted and traded on the OTC
Bulletin Board.

The following table indicates the high and low bid prices for the common stock
of the Company for the period April 1, 2000 to March 31, 2002, based upon
information supplied by the NASDAQ system. Prices represent quotations between
dealers without adjustments for retail markups, markdowns or commissions, and
may not represent actual transactions.

There were no cash dividends declared on the common stock for the fiscal years
ended March 31, 2001 and 2002.

--------------------------------------------------------------------------------
                                  Common Stock
--------------------------------------------------------------------------------
                     Year Ended 3/31/01                 Year Ended 3/31/02
--------------------------------------------------------------------------------
Quarter             High              Low              High             Low
--------------------------------------------------------------------------------
First Quarter      $3.50            $2.12              $0.86            $0.40
--------------------------------------------------------------------------------
Second Quarter     $2.65            $1.09              $0.42            $0.09
--------------------------------------------------------------------------------
Third Quarter      $1.94            $0.69              $0.57            $0.17
--------------------------------------------------------------------------------
Fourth Quarter     $1.44            $0.62              $0.43            $0.16
--------------------------------------------------------------------------------

On March 28, 2002, the closing price of the Common Stock as reported on the OTC
Bulletin Board was $0.16. As of March 31, 2002, the Company had approximately
2,000 beneficial holders of record of its shares of Common Stock.

During the fiscal year ended March 31, 2002, the Company raised $530,000 in
equity, and issued or agreed to issue 1,729,761 shares of common stock and
warrants to purchase 1,175,000 shares of common stock in exchange for services,
each in reliance on various exemptions available under the Securities Act. For
more detail on the individual transactions, see Notes 9 and 10 of the Financial
Statements set forth in item 7 hereof.
<PAGE>

Item 6.

PHLO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------

SAFE HARBOR STATEMENT

The Company has made, and may continue to make, various forward-looking
statements with respect to its financial position, business strategy, and plans
and objectives of management. Such forward-looking statements are identified by
the use of forward-looking phrases such as "anticipates", "intends", "expects",
"plans", "believe", "estimates", or words or phrases of similar import. These
forward-looking statements are subject to numerous assumptions, risks, and
uncertainties, and the statements looking forward beyond 2001 are subject to
greater uncertainty because of the increased likelihood of changes in underlying
factors and assumptions. Actual results could differ materially from those
anticipated by the forward-looking statements.

The Company's forward-looking statements represent its judgment only on the
dates such statements are made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed, or unanticipated
events or circumstances.

OVERVIEW

The following discussion of the Company's financial condition as of March 31,
2002 and results of operations for the year ended March 31, 2002 and 2001
includes Phlo Corporation and its subsidiary (collectively, the "Company") and
should be read in conjunction with the consolidated financial statements and
notes appearing elsewhere in this Form 10-KSB.

RESULTS OF OPERATIONS

The Company's sales significantly increased to $1,288,512 for the Company's
fiscal year ended March 31, 2002, as compared to sales of $317,698 for the
fiscal year ended March 31, 2001. The selling, general and administrative
expenses for the fiscal year ended March 31, 2002 significantly decreased to
$1,560,549 from $2,778,172 for the fiscal year ended March 31, 2001. The
Company's operating loss substantially decreased to $1,092,331 from $2,894,469
for the Company's prior fiscal year.

The operating loss for the fiscal year resulted from the adverse impact on
revenue associated with the effect of CCE's purchase of Coca-Cola Hondo. This
purchase resulted in many of the Company's contacts among the top personnel of
Coca-Cola Hondo being replaced in addition to the delay in the full execution
and support of the launch of the Company's products as a result of the
acquisition transition process. In addition, CCE has requested that the Company
move to plastic packaging for its ZO - Vital Cell Defense line of beverages in
order that ZO - Vital Cell Defense can be distributed in all of CCE's
distribution segments, including its vending machines. The immediate effect of
this action was the delay of a CCE re-launch until new plastic molds were built
by the Company. However, the Company believes that the longer- term effect on
the Company is the potential for significantly higher sales volume. The
Company's development of new proprietary plastic packaging and labeling for its
beverage lines in order to take advantage of the availability of all segments of
distribution has delayed the Company's replacement of some of its most popular
beverage flavors while the Company completes the sale of the remaining finished
goods inventory in 16-ounce glass.

The Company has completed the design and initial sample production of a
completely new, proprietary plastic bottle for its beverage products. In
addition, the Company is formally introducing its Spray Products and ORS
products, domestically and internationally, during the summer and fall of 2002,
and expects these developments to have a significant positive effect on the
Company's sales and diversity of products and markets.
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During the fiscal year ended March 31, 2002, the Company reduced its working
capital deficit by $1,421,766 to $1,882,991. In addition, the Company's
Stockholders' Deficiency decreased from $3,107,115 to $1,638,669.

During the fiscal year ending March 31, 2003, the Company is taking further
steps to reduce or eliminate the Stockholders' Deficiency and to create a
positive working capital position. The Company believes it is more likely than
in prior years to raise substantial equity funds as a result of its expanded
distribution base, the prospects for national and global distribution of its
products and joint venture activities with major international entities, the
existence now of three product lines containing commercialized biotechnology,
the prospects for numerous additional products based on the Company's
biotechnology foundation, and significantly increased scientific and
commercialization capabilities. Finally, the Company has taken steps to convert
certain existing debts into equity and will continue to pursue these steps.

There can be no assurance that management's plans will be realized and
therefore, until the present conditions referred to above are either removed or
substantially improved, there is substantial doubt about the Company's ability
to continue as a going concern.

Impact of Inflation

The Company does not believe that inflation has had a material adverse effect on
sales or income during the past periods. Future increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.

<PAGE>

Item 7. FINANCIAL STATEMENTS AND FOOTNOTES

                        PHLO CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                   For the Years Ended March 31, 2002 and 2002

                        PHLO CORPORATION AND SUBSIDIARIES

                                    CONTENTS

                                                                        Page
                                                                       -------

INDEPENDENT AUDITORS' REPORT                                            F-1

CONSOLIDATED FINANCIAL STATEMENTS

  Balance Sheet                                                         F-2-3
  Statements of Operations                                              F-4
  Statements of Changes in Stockholders' Deficiency                     F-5
  Statements of Cash Flows                                              F-6-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              F-8-25

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Phlo Corporation and subsidiaries

We have audited the accompanying consolidated balance sheet of Phlo Corporation
("Phlo") and subsidiaries as of March 31, 2002, and the related consolidated
statements of operations, changes in stockholders' deficiency and cash flows for
the years ended March 31, 2002 and 2001. 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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Phlo Corporation and
subsidiaries as of March 31, 2002 and the results of their operations and their
cash flows for the years ended March 31, 2002 and 2001 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 discussed in Note 4 to the
financial statements, the Company incurred an operating loss of $1,092,331
during the year ended March 31, 2002, and, as of that date, the Company's
current liabilities exceeded its current assets by $1,882,991 and its total
liabilities exceeded its total assets by $1,638,669 and there are uncertain
conditions that the Company faces. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters also are described in Note 4. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


                                              /s/ Marcum & Kliegman LLP

New York, New York
July 15, 2002


                                      F-1
<PAGE>

                        PHLO CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                 March 31, 2002

                                     ASSETS

CURRENT ASSETS

Cash                                                     $ 93,799
Accounts Receivable                                        26,665
Inventory                                                  93,253
                                                         --------

       Total Current Assets                                             $213,717

PROPERTY AND EQUIPMENT, Net                                                7,518

OTHER ASSETS

Licensing Fee-net of accumulated amortization
of $36,000                                                24,000
Security and other deposits                               55,764
Due from related party                                   107,284
Deposit on bond                                           49,756
                                                        --------

      Total Other Assets                                                236,804
                                                                       --------

      TOTAL ASSETS                                                     $458,039
                                                                       ========

The accompanying notes are an integral part of these financial statements.


                                       F-2
<PAGE>

                        PHLO CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                 March 31, 2002

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

<TABLE>
<S>                                                   <C>                        <C>
CURRENT LIABILITIES
 Accounts payable                                     $   569,518
 Accrued expenses and taxes                               765,690
 Notes payable                                            761,500
                                                      -----------

       Total Current Liabilities                                                   2,096,708
                                                                                 -----------

       TOTAL LIABILITIES                                                           2,096,708

<CAPTION>

COMMITMENTS AND CONTINGENCIES
<S>                                                                              <C>
STOCKHOLDERS' DEFICIENCY Preferred stock, 15,000,000 authorized:
   Series A convertible stock, $0.0001 par value, 500,000 Shares
     authorized, issued and outstanding (liquidation preference $100,000)                 50
   Series B non-convertible stock, none issued and outstanding                            --
   Series C convertible stock, $0.0001 par value, 3,000,000 shares
     authorized, 1,369,891 shares outstanding (liquidation preference $13,699)           137
   Series C Convertible stock, 15,298 shares subscribed                                    1
   Common stock, $0.0001 par value, 250,000,000 shares authorized,
     43,557,106 shares issued and outstanding                                          4,355
   Common stock, $0.0001 par value, 15,533,929 shares subscribed                       1,553
   Additional paid-in capital                                                      8,000,778
   Unearned Compensation                                                             (45,000)
   Accumulated deficit                                                            (9,600,543)
                                                                                  -----------

       TOTAL STOCKHOLDERS' DEFICIENCY                                             (1,638,669)
                                                                                  -----------

       TOTAL LIABILITIES AND STOCKHOLDERS'
        DEFICIENCY                                                               $   458,039
                                                                                 ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       F-3
<PAGE>

                        PHLO CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

                  For the Years Ended March 31, 2002, and 2001

                                                       2002            2001
                                                  -------------    ------------
SALES                                             $   1,288,512    $    317,698

COST OF SALES                                           820,294         433,995
                                                  -------------    ------------

       GROSS PROFIT (LOSS)                              468,218        (116,297)

SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES                                             1,560,549       2,778,172
                                                  -------------    ------------

       OPERATING LOSS                                (1,092,331)     (2,894,469)
                                                  -------------    ------------

OTHER INCOME (EXPENSE)
 Interest expense                                      (178,275)       (407,039)
 Other Income                                           236,263
 Non-Recurring Gain on Dissolution of X-Treem                         3,950,981
                                                  -------------    ------------

       TOTAL OTHER INCOME                                57,988       3,543,942
                                                  -------------    ------------

       NET (LOSS) INCOME                          $  (1,034,343)   $    649,473
                                                  =============    ============

Average Number of Shares Outstanding                 52,935,852      41,335,335
                                                  =============    ============
Diluted Average Number of Shares Outstanding         52,935,852     157,865,335
                                                  =============    ============

Net (Loss)Income Per Share (Basic)                $        (.02)   $       0.02
                                                  =============    ============
Net (Loss)Income Per Share (Diluted)              $        (.02)   $       0.01
                                                  =============    ============

The accompanying notes are an integral part of these financial statements.


                                       F-4
<PAGE>

                        PHLO CORPORATION AND SUBSIDIARIES
         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
                                                                 Series A             Preferred C Stock             Series C
                                                              Preferred Stock             Subscribed             Preferred Stock
                                                           ----------------------------------------------------------------------
                                                            Shares      Amount        Shares       Amount       Shares     Amount
                                                           ----------------------------------------------------------------------
<S>                                                        <C>          <C>        <C>             <C>        <C>           <C>
Balance - March 31, 2000                                   500,000          50      1,592,909        159
                                                           ----------------------------------------------------------------------
Shares Issued and Subscribed - Recapitalization                                    (1,003,716)      (100)       767,596       76

Prior Years Private Placement offering and other sales                               (449,166)       (45)       449,426       45
Proceeds from Private Placement offering
Issuance of Shares of Stock for services rendered
Stock subscription issued for services rendered
Conversion of Bonds into Common Stock
Common Stock Subscription
Debt Converted to Equity

Beneficial Conversion Feature of Debt Issuance

Equity Effect of Transactions with Related Party
Issuances of Warrants for Services
Exercise of Warrants
Net Income
                                                           ----------------------------------------------------------------------
Balance - March 31, 2001                                   500,000     $    50        140,027      $  14      1,217,022     $121
                                                           ----------------------------------------------------------------------
Shares Issued and Subscribed - Recapitalization
Common Stock Subscription
Conversion of debt to common stock
Conversion of Debt to Warrants
Equity Effect of Transactions with Related Party
Exercise of Warrants
Forgiveness of payroll by officers
Issuance of common stock previously subscribed
Issuance of common stock for services
Issuance of preferred stock                                                                                      28,140        3
Issuance of preferred stock previously subscribed                                     (16,435)        (2)        16,435        2
Issuance of stock - X -treem recapitaliazation                                       (108,294)       (11)       108,294       11
Issuance of warrants for services
Net Loss

                                                           ----------------------------------------------------------------------
Balance - March 31, 2002                                   500,000          50         15,298          1      1,369,891      137
                                                           ======================================================================
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                       Common Stock
                                        Subscribed        Common Stock                                 Additional
                                       -------------------------------  Unearned          Paid-in     Accumulated
                                           Shares            Amount       Shares           Amount     Compensation       Capital
                                       -------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>       <C>                 <C>           <C>          <C>
Balance - March 31, 2000                 3,244,888             324     24,328,255          2,433                        3,802,662
                                       -------------------------------------------------------------------------------------------

Shares Issued and Subscribed -
Recapitalization                        10,076,791           1,009        332,324             33                             (822)

Prior Years Private Placement
offering and other sales                (1,968,728)           (197)     1,971,232            197

Proceeds from Private Placement
offering                                   127,926              13        108,333             11                          247,580

Issuance of Shares of Stock for
services rendered                                                       5,120,617            512                          613,963

Stock subscription issued for
services rendered                         (150,000)            (15)       125,000             12                               (3)

Conversion of Bonds into Common
Stock                                                                     414,635             41                           49,715

Common Stock Subscription                 (205,000)            (20)       205,000             20

Debt Converted to Equity                   454,545              45                                                         99,955

Beneficial Conversion Feature of
Debt Issuance                                                                                                              73,798

Equity Effect of Transactions with
Related Party                                                                                                             420,521

Issuance of Warrants for Services                                                                                         123,096

Exercise of Warrants                                                    2,619,019            262                           23,755

Net Income
                                       -------------------------------------------------------------------------------------------

Balance - March 31, 2001                11,580,422     $     1,159     35,224,415     $    3,521                      $ 5,454,220
                                       -------------------------------------------------------------------------------------------

Shares Issued and Subscribed -
Recapitalization                          (500,592)            (50)       500,592             50

Common Stock Subscription and
Sales                                    3,419,820             342        292,240             29                          539,602

Conversion of debt to common stock       1,392,396             138        485,068             49                          503,206

Conversion of Debt to Warrants                                                                                            538,158

Equity Effect of Transactions with
Related Party                                                                                                              99,016

Exercise of Warrants                                                    4,966,913            497                             (497)

Forgiveness of payroll by officers                                                                                        702,116

Issuance of common stock
previously subscribed                     (454,545)             46        454,545             46

Issuance of common stock for
services                                    96,428              10      1,633,333            163                           65,960

Issuance of preferred stock                                                                                                19,997

Issuance of preferred stock
previously subscribed

Issuance of stock - X-treem
recapitaliazation

Issuance of warrants for services                                                                        (45,000)          79,000

Net loss

                                       -------------------------------------------------------------------------------------------
Balance - March 31, 2002                15,533,929           1,553     43,557,106          4,355         (45,000)       8,000,778
                                       ===========================================================================================

<CAPTION>
                                          Deficit           Total
                                       ----------------------------
<S>                                    <C>              <C>
Balance - March 31, 2000                (9,215,673)      (5,410,045)
                                       ----------------------------

Shares Issued and Subscribed -
Recapitalization                                                196

Prior Years Private Placement
offering and other sales                                         --

Proceeds from Private Placement
offering                                                    247,604

Issuance of Shares of Stock for
services rendered                                           614,475

Stock subscription issued for
services rendered                                                (6)

Conversion of Bonds into Common
Stock                                                        49,756

Common Stock Subscription                                        --

Debt Converted to Equity                                    100,000

Beneficial Conversion Feature of
Debt Issuance                                                73,798

Equity Effect of Transactions with
Related Party                                               420,521

Issuance of Warrants for Services                           123,096

Exercise of Warrants                                         24,017

Net Income                                 649,473          649,473
                                       ----------------------------

Balance - March 31, 2001               ($8,566,200)     ($3,107,115)
                                       ----------------------------

Shares Issued and Subscribed -
Recapitalization                                                 --

Common Stock Subscription and
Sales                                                       539,973

Conversion of debt to common stock                          503,393

Conversion of Debt to Warrants                              538,158

Equity Effect of Transactions with
Related Party                                                99,016

Exercise of Warrants                                             --

Forgiveness of payroll by officers                          702,116

Issuance of common stock
previously subscribed                                            --

Issuance of common stock for
services                                                     66,133

Issuance of preferred stock                                  20,000

Issuance of preferred stock
previously subscribed                                            --

Issuance of stock - X-treem
recapitaliazation                                                --

Issuance of warrants for services                            34,000

Net loss                                (1,034,343)      (1,034,343)

                                       ----------------------------
Balance - March 31, 2002                (9,600,543)      (1,638,669)
                                       ============================
</TABLE>


                                       F-5
<PAGE>

                        PHLO CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                   For the Years Ended March 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                 2002           2001
                                                              -----------    -----------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net (loss) income                                            $(1,034,343)   $   649,473
                                                              -----------    -----------
  Adjustments to reconcile net (loss)income to net cash
   used in operating activities:
    Gain on dissolution of X-Treem                                     --     (3,950,981)
    Stock-based compensation                                      130,133        797,908
    Depreciation  and amortization                                 20,409         60,097
   Changes in operating assets and liabilities
    Accounts receivable                                           (26,665)        69,390
    Inventory                                                      29,965        211,408
    Other current assets                                           13,461             --
    Prepaid expenses                                              143,604       (143,604)
    Security deposit                                              (25,701)            --
    Accounts payable                                             (284,154)       164,533
    Accrued expenses and taxes                                    526,069        559,864
                                                              -----------    -----------

       TOTAL ADJUSTMENTS                                         (527,121)    (2,231,385)
                                                              -----------    -----------

       NET CASH USED IN OPERATING ACTIVITIES                     (507,222)    (1,581,912)
                                                              -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment                                   --         (2,886)
  Repayments from (advances to) related party                      27,167        (52,435)
                                                              -----------    -----------

       NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES    $    27,167   $   (55,321)
                                                              -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from long-term debt                                     140,000        947,500
 Proceeds from issuance of equity securities                      530,116        271,811
 Equity contribution - related party transactions                      --        420,521
 Repayment of debt                                               (104,000)       (40,000)
                                                              -----------    -----------

       NET CASH PROVIDED BY FINANCING ACTIVITIES              $   566,116    $ 1,599,832
                                                              -----------    -----------
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       F-6
<PAGE>

                        PHLO CORPORATION AND SUBSIDIARIES

                                CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued

                                     For the Years Ended March 31, 2002 and 2001
--------------------------------------------------------------------------------

                                                           2002           2001
                                                         --------        -------

       NET INCREASE (DECREASE) IN CASH                   $ 86,061      $(37,401)

CASH - Beginning                                            7,738         45,139
                                                         --------        -------

CASH - Ending                                            $ 93,799        $ 7,738
                                                         ========        =======

The accompanying notes are an integral part of these financial statements.

Supplemental Disclosures of Cash Flow Information:

                                                           2002            2001
                                                         --------        -------

Interest                                                 $ 2,136              --
                                                         --------        -------

Income Taxes                                             $     --        $    --
                                                         ========        =======

Non cash and financing activities:

During the year ended March 31, 2002, the Company converted $503,393 of debt and
accrued interest into 1,877,464 shares of common stock.

During the year ended March 31, 2002, the Company converted debt and accrued
interest in the amount of $538,518 into warrants.

During the year ended March 31, 2001, the Company converted $100,000 of debt
into 454,545 shares of common stock.

During the year ended March 31, 2001, the Company issued 414,635 shares, with a
fair value of $49,756, to a shareholder as a replacement for shares deposited as
a bond.

During the year ended March 31, 2001, the Company dissolved X-Treem and realized
a gain of $3,950,981. The Company wrote off assets totaling $260,000 and
liabilities totaling $4,210,981.

                                       F-7

<PAGE>

                        PHLO CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Company Activities

Phlo Corporation, a Delaware corporation incorporated in December 1995 and its
subsidiaries (hereinafter collectively referred to as the "Company") is a
manufacturer of beverages and liquids containing patented and patent-pending
biotechnologies. The Company sells its products to distributors, which offer the
products for sale in high volume chain stores, such as supermarkets and drug and
convenience stores.

As of March 31, 2002, there are 43,557,106 shares of common stock issued and
outstanding and 15,333,929 shares of common stock subscribed. In addition,
options and warrants to purchase 1,613,333 and 35,847,483 shares of common
stock, respectively, are also outstanding.

On October 22, 1998, the Company agreed to acquire the capital stock of a
beverage company, X-Treem Products Corporation, through an exchange of stock
with the shareholders of X-Treem (the "Stock Exchange Transaction"). In order to
complete the Stock Exchange Transaction with respect to those shareholders of
X-Treem who have elected to participate in the exchange transaction, the Company
is required to issue 10,031,296 additional shares of common stock (which are
included in the number of shares of common stock subscribed set forth above).

NOTE 2 - Summary of Significant Account Policies

Basis of Reporting

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries, collectively referred to as the "Company and subsidiaries".
All significant inter-company transactions and balances have been eliminated in
consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

Intangible Assets

Intangible assets consist of a licensing fee and is being amortized on a
straight-line basis over a five-year period. Amortization of this intangible
asset charged to operations for the years ended March 31, 2002 and March 31,
2001 amounted to $12,000 per year, respectively.

Inventories

Inventories are stated at the lower of cost or market. Costs, which include
purchases, freight and packaging, raw materials, packing fees and finished
products, are determined on the first-in, first-out basis. Non-saleable and
obsolete inventories have been recorded at cost, or net realizable value,
whichever is lower.

Advertising Expense

Advertising costs of $79,031 and $82,905 are expensed as incurred during the
years ended March 31, 2002 and 2001, respectively.

Slotting Fees

Slotting fees are paid to individual supermarkets and supermarket chains to
obtain initial shelf space for new products. Fees vary from store to store,
however, their payment does not guarantee that a company's product will be
carried for any definite period of time. The Company pays for such fees by
issuing a check, providing free goods or issuing credits for previously sold
goods. The cost of the slotting fees is valued at the amount of cash paid, or
the cost to the Company of the goods provided in exchange. The Company expenses
slotting fees when the obligation is incurred.

Property and Equipment

Property and equipment is stated at cost. Maintenance and repair costs are
charged to expense as incurred, costs of major additions and betterments are
capitalized. When property and equipment is sold or otherwise disposed of, the
cost and related accumulated depreciation are eliminated from the accounts and
any resulting gain or loss is reflected in income.
<PAGE>

Depreciation and Amortization

The cost of furniture and equipment is depreciated using the straight-line
method over five years.

Revenue Recognition

Revenue is recognized at the time products are shipped and title passes.

Research and Development

Research and development costs of $0 and $106,000 are expensed as incurred
during the year ended March 31, 2002 and 2001 respectively.

Income Taxes

Deferred income tax assets and liabilities are computed annually for differences
between the consolidated financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount expected
to be realized.

Fair Value of Financial Instruments

The financial instruments of the Company are reported in the consolidated
balance sheet at market or fair values, or at carrying amounts that approximate
fair values because of the short maturity of the instruments.

Impairment of Long-Lived Assets

Certain long-term assets of the Company are reviewed at least annually as to
whether their carrying value has become impaired, pursuant to guidance
established in Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations
(undiscounted and without interest charges). If impairment is deemed to exist,
the assets will be written down to fair value or projected discounted cash flows
from related operations. Management also re-evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives.

Stock Issued to Employees

The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation" on
April 1, 1996 for financial note disclosure purposes and will continue to apply
the intrinsic value method of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees" for financial reporting purposes.

Earnings (Loss) Per Share

The Company adopted the provision of SFAS No. 128, "Earnings Per Share". Basic
EPS is computed by dividing income (losses) available to common stockholders by
the weighted-average number of common shares outstanding for the period adjusted
retroactively to April 1, 1997 for the shares issued in the recapitalization and
shares of common stock which are presently issuable by the Company. Diluted
earnings per share includes the potential dilution that occurs if securities or
other contracts to issue common stock were exercised or converted into common
stock.
<PAGE>

                                                       2002             2001
                                                       ----             ----
Numerator:

Net (loss) income                                 $ (1,034,343)     $    649,473

Numerator for basic (loss)earnings
   Per share                                        (1,034,343)          649,473

Effect of dilutive securities,
   Interest on convertible notes:                           --                --
   Payable                                                                45,875
                                                  ------------      ------------

Numerator of diluted (loss) earnings
   Per share                                        (1,034,343)          695,348
                                                  ------------      ------------

Denominator:

Denominator for basic (loss)earnings
   per share
   weighted average outstanding shares              40,206,980        25,961,646

Shares which are currently
   Issuable                                         12,728,872        11,550,422
                                                  ------------      ------------

Denominator for basic (loss)earnings
   per share                                        52,935,852        37,512,068
                                                  ------------      ------------
Effect of dilutive securities:
   Options                                                  --         1,835,666
   Warrants                                                 --        39,571,560
   Convertible preferred stock                              --       135,704,500
   Convertible notes payable                                --         2,033,999
                                                  ------------      ------------
Dilutive potential common shares                            --       179,145,725
                                                  ------------      ------------
Denominator for dilutive (loss)earnings
   per share                                        52,935,852       216,688,193
                                                  ============      ============
Basic (loss) earnings per share                           (.02)              .02
                                                  ============      ============

Diluted (loss) earnings per share                         (.02)              .00
                                                  ============      ============

Reporting of Segments

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for fiscal years beginning after
December 15, 1997, with reclassification of earlier periods required for
comparative purposes. The Company has determined that under SFAS No. 131, it
operates in one segment of business and its customers and operations are within
the United States.
<PAGE>

Recent Accounting Developments

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which as
amended became effective for the Company beginning April 1, 2001 by the issuance
of SFAS No. 137. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. This Statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial condition and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative instrument depends on its intended use and the resulting
designation. The Company does not expect that this standard will have a material
impact on its financial statements.

In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use
of the purchase method of accounting for business combinations initiated after
June 30, 2001, and eliminates the pooling-of-interests method. SFAS No. 142
requires, among other things, the use of a non-amortization approach for SFAS
No. 142 requires the use of the purchase method of accounting for business
combinations initiated after June 30, 2001, and eliminates the
pooling-of-interests method. SFAS No. 142 requires, among other things, the use
of a non-amortization approach for purchased goodwill and certain intangibles.
Under a non-amortization approach, goodwill and certain intangibles will not be
amortized in earnings, but instead will reviewed for impairment at least
annually. The Company does not expect that these standards will have a material
impact on its financial statements

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which supercedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 144 retains the fundamental provisions of SFAS No. 121 but sets
forth new criteria for asset classification and broadens the scope of qualifying
discontinued operation. The Company does not expect that this standard will have
a material impact on its financial statements

NOTE 3 - Dissolution of Subsidiary

On November 13, 2000, X-Treem was formally dissolved in accordance with the
General Corporation Law of the State of Delaware. For approximately two years
prior thereto X-Treem had been inactive and had no revenues. As a result of the
dissolution, the Company's assets, liabilities and stockholders' deficiency no
longer reflect those of X-Treem. The effect was to reduce the Company's
liabilities by approximately $4,211,000, reduce the Stockholders' Deficiency by
approximately $3,951,000, and reduce the assets by approximately $260,000.

Pro Forma condensed consolidated financial information as if the dissolution
described above were consummated as of the beginning of the year ended March 31,
2001, is as follows:
<PAGE>

                                                     Pro Forma       Pro Forma
                                       Actual       Adjustments     Information
                                       ------       -----------     -----------
Year Ended March 31, 2001:

      Sales                        $     317,698             --    $    317,698
      Cost of sales                      433,995             --         433,995
                                   -------------                   ------------
         Gross margin                   (116,297)                      (116,298)
      Total operating expenses        (2,778,172)   $    40,000      (2,738,172)
                                   -------------    -----------    ------------
      Operating loss                  (2,894,469)        40,000      (2,854,469)
      Other income (expense):
         Interest expense               (407,039)        98,600        (308,439)
         Non-recurring gain
            on dissolution
            of X-Treem                 3,950,981     (3,950,981)             --
                                   -------------    -----------    ------------
      Income (loss) before
         Provision for income
         Taxes                           649,473     (3,812,381)     (3,162,908)
      Provision for income taxes              --             --              --
                                   -------------    -----------    ------------
      Net income (loss)            $     649,473    $(3,812,381)   $ (3,162,908)
                                   =============    ===========    ============
      Average number of shares
         outstanding                  37,542,068                     37,542,068
                                   =============                   ============
      Diluted average number of
         shares outstanding          216,688,193                     37,542,068
                                   =============                   ============
      Basic income (loss) per
         share                     $         .02                   $       (.08)
                                   =============                   ============
      Diluted income (loss) per
         share                     $         .00                   $       (.08)
                                   =============                   ============

NOTE 4 - Going Concern

As shown in the accompanying financial statements, the Company had an operating
loss of $1,092,331 for the fiscal year ended March 31, 2002. As of March 31,
2002, the Company's current liabilities still exceeded its current assets by
$1,882,991 and its total liabilities exceeded its total assets by $1,638,669. In
addition, the Company is delinquent in connection with various obligations
including trade payables, accrued payroll taxes, and notes payable. These
factors and uncertain conditions that the Company has faced in its day-to-day
operations create an uncertainty as to the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern. The
continuation of the Company as a going concern is dependent upon the success of
future financing and generating sufficient revenue through the expansion of its
product lines to generate future profits.

Management has taken actions and is implementing additional plans to strengthen
the Company's working capital position and generate sufficient cash to meet it's
operating needs through March 31, 2003 and beyond. During the fiscal year ending
March 31, 2003, the Company is taking further steps to reduce or eliminate the
Stockholders' Deficiency and to create a positive working capital position. The
Company believes it is more likely than in prior years to raise substantial
equity funds as a result of its expanded product lines and distribution base.

Finally, the Company is in the process of converting certain existing debts into
equity and will continue to pursue these steps. There can be no assurance that
management's plans will be realized and therefore, until the present conditions
referred to above are either removed or substantially improved, there is
substantial doubt about the Company's ability to continue as a going concern.
<PAGE>

NOTE 5 - Property and Equipment

Property and equipment consists of the following at March 31, 2002:

         Furniture and fixtures                               $36,118
         Less: Accumulated depreciation                        28,600
                                                              -------

                Net                                           $ 7,518
                                                              =======

Depreciation expense for the years ended March 31, 2002 and 2001 was $8,409 and
$8,097, respectively.

NOTE 6 - Inventories

Inventories are stated at the lower of cost (first-in, first-out basis), market
value or net realizable value whichever is lower and consist of the following at
March 31, 2002:

         Raw material                                         $ 7,566
         Finished goods                                        85,687
                                                              -------
              Total                                           $93,253
                                                              =======

During the year ended March 31, 2002 the Company wrote off and disposed of
$64,842 of non-saleable and obsolete inventory and charged such amount to cost
of sales.

During the year ended March 31, 2001 the Company wrote off, and disposed of
$115,786 of non-saleable and obsolete inventory and charged such amount to cost
of sales.

NOTE 7 - Income Taxes

A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:

                                                   2002         2001
                                                   ----         ----

U.S. Federal statutory tax rate                    34.0%        34.0%

Gain in dissolution of subsidiary (nontaxable)       .0%          --

Change in valuation allowance                     (34.0%)      (34.0%)
                                                   ----         ----
Provision for income taxes                          0.0%         0.0%
                                                   ====         ====

No provision has been made in the accompanying financial statements for income
tax expense as a result of the current operating loss and the net operating loss
("NOL") carryforwards.
<PAGE>

As of March 31, 2002, the Company estimated the available NOL carryforwards to
be approximately $5,477,000 and the Company's total deferred tax assets relating
to the carryforwards amounted to approximately $2,191,000 which expire though
March 31, 2022. The Company has a valuation allowance for the full assessment of
the deferred tax assets at March 31, 2002 as management does not believe it is
more likely than not that the valuation of the asset is recoverable.

Further, the Company has not filed any federal, state or local income or
franchise tax returns. Such failure may have a material adverse effect on the
amount of any net operating loss carryforwards and may subject the Company to
fines.

NOTE 8 - Stock Options

1996 Stock Option Plan

In March 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1996 Stock Option
Plan. The maximum number of shares of common stock with respect to which awards
may be granted pursuant to the 1996 Plan is initially 2,000,000 shares. No
options are outstanding under this plan.

               Options Granted Separate from the Stock Option Plan

In July 2001, the Company entered into an agreement with a former officer and
director pursuant to which options to purchase 825,000 shares of the Company's,
common stock were cancelled.

A summary of stock option activity is as follows:

                                                       Weighted Average
                                          Number        Exercise Price
                                        of Options       Common Stock
                                        ----------     ----------------

Balance - April 1, 2000                 3,208,333            $0.26
                                        ---------

Options granted                                --
Options exercised                          20,000             0.05
Options cancelled                         750,000             0.10
                                        ---------
Balance - March 31, 2001                2,438,333             0.33

Options granted                               --
Options exercised                             --
Options cancelled                         825,000             0.23

Balance - March 31, 2002                1,613,333             0.61
                                        =========

Exercisable at March 31, 2001           2,438,333             0.33
                                        =========
Exercisable at March 31, 2002           1,613,333             0.61
                                        =========

The options issued to officers, directors and employees expire in two (2) to
seven (7) years and may be exercised at anytime. The options issued to
consultants to purchase 200,000 shares of its common stock, at an exercise price
of $0.875, have a weighted average remaining contractual life of 5.25 years.
<PAGE>

NOTE 9 - Stockholders' Equity

                                 Preferred Stock

The Company has 15,000,000 shares of preferred stock, $0.0001 par value,
authorized.

                      Series A Convertible Preferred Stock

At March 31, 2002, the Company has 500,000 shares of Series A Convertible
Preferred Stock ("Series A Preferred") issued and outstanding. The Series A
Preferred holders are entitled to one vote per share on all matters presented to
the stockholders with certain exceptions as defined in the Certificate of
Designation. In addition, the Series A Preferred is convertible into one share
of common stock.

                    Series B Non-Convertible Preferred Stock

At March 31, 2002, none of Series B Non-Convertible Preferred Stock ("Series B
Preferred") was issued and outstanding. The Series B Preferred holders are
entitled to one vote per share on all matters presented to the stockholders with
certain exceptions as defined in the Certificate of Designation. In addition,
the Series B Preferred is subject to certain redemption and liquidation
provisions, as defined.

                      Series C Convertible Preferred Stock

As of March 31, 2002, 1,369,891 shares of Series C Preferred Stock were issued
and outstanding and 15,298 shares were subscribed in connection with a stock
exchange transaction conducted by Phlo Corporation and the shareholders of a
privately held beverage company (the Stock Exchange Transaction). Each holder of
the Series C Preferred Stock has the right to cast one vote for each share of
Common Stock into which his or its Series C Preferred Stock is convertible. No
dividends are currently payable with respect to Series C Preferred Stock. The
holders of Series C Preferred Stock have a liquidation preference of $0.01 per
shares plus all accrued but unpaid dividends, if any. Holders of the Series C
Preferred Stock have no redemption rights. Each share of Series C Preferred
Stock initially is convertible into 100 shares of Common Stock without the
payment of any additional consideration at any time after September 30, 2001.
However, the conversion rate is subject to adjustment in the case of certain
corporate transactions or events (not related to the market price of the Common
Stock).

In April 2001, 108,294.43 shares of Series C Preferred Stock were issued in
connection with the Stock Exchange Transaction.

In October 2001, in conjunction with the pledge of shares of stock related to a
Company financing, the Company issued 28,140 shares of Series C Preferred Stock
to a stockholder and officer.

In February 2002, the Company issued to three investors an aggregate of 16,435
shares of Series C Convertible Preferred Stock which were previously subscribed.

                                  Common Stock

As of March 31, 2002, 43,557,106 shares of common stock were issued and
outstanding.

In April 2001, 956,655 shares of common stock and 108,294 shares were issued in
connection with the Stock Exchange Transaction.

In April 2001, the Company sold 222,222 and 40,984 shares of common stock for
$100,000 and $25,000, respectively, all of which have been issued as of March
31, 2002.

In April and May 2001, three individuals elected to convert $237,500 of
principal and $31,999 of interest due on various Notes payable into common
shares. 30,523 shares of common stock were issued as of March 31, 2002 and
937,850 shares have yet to be issued.

In April 2001, the Company issued 456,063 shares of common stock to an
individual for previous services rendered related to equity financing.

In June 2001, the Company issued 300,000 shares of common stock for various
marketing services rendered and recognized $36,000 of expense.

In July 2001, the Company issued 877,270 shares of common stock to an individual
for services related to equity financings.

In October 2001, the Company issued 29,026 shares of common stock which had been
previously subscribed.

In October 2001, in consideration for $25,000, the Company sold 109,968 shares
of common stock, which have yet to be issued.
<PAGE>

In October 2001, the Company issued 454,545 shares of common stock in
conjunction with the conversion in a prior quarter of a convertible note in the
principal amount of $100,000, in accordance with the terms of the note.

In November 2001, the Company issued 4,575,684 shares of common stock in
conjunction with the exercise in the prior quarter of a warrant by a former
officer and director in accordance with the terms of the warrant on a cashless
basis.

In November 2001, the Company agreed to issue 96,428 shares of common stock in
consideration of $30,000 of services previously rendered, which have yet to be
issued.

In December 2001, in consideration of $190,000, the Company sold 1,816,667
shares of common stock, which have yet to be issued.

In February 2002, the Company issued 454,545 shares of common stock in
conjunction with the conversion in a prior quarter of a convertible note in the
principal amount of $100,000, in accordance with the terms of the note.

In February 2002, the Company issued 391,229 shares of common stock in
conjunction with the exercise of a warrant on a cashless basis.

In January-March, 2002, in consideration for $200,000, the Company sold
1,522,219 shares of common stock, which have yet to be issued.

                                    Warrants

In April and May 2001, in connection with the Stock Exchange Transaction, the
Company issued warrants to purchase 1,001,337 shares of common stock at an
exercise price of $0.50 and a warrant to purchase 21,643,246 shares of common
stock at an exercise price of $0.01 per share.

In April and May 2001, the Company issued warrants to purchase an aggregate of
300,000 shares of common stock at an exercise price of $0.50 per share for
services rendered and recognized $24,000 of expense.

In July 2001, the Company issued warrants to purchase shares of common stock to
individuals as follows:

125,000 shares at an exercise price of $0.50 per share to two individuals for
services rendered;

9,606,682 shares at an exercise price of $0.01 per share to an individual in
connection with the provision of equity financings

750,000 shares at an exercise price of $0.40 per share pursuant to an investment
banking agreement.

The following is a summary of warrant activity for the years ended March 31,
2002 and 2001:

         Outstanding - April 1, 2000:                     8,743,762

             Warrants issued                              2,199,512
             Warrants exercised                          (2,651,670)
                                                         ----------

         Outstanding - March 31, 2001:                    8,291,604

            Warrants issued                              33,426,265
            Warrants exercised                           (5,870,426)
                                                         ----------
         Outstanding - March 31, 2002                    35,847,443
                                                         ==========
<PAGE>

NOTE 10 - Debt

Debt as of March 31, 2002 consists of the following:

Note payable with interest at a rate of 14% per annum. The Note matured on
December 31, 1999, when principal and unpaid interest was due. The holder
obtained a summary judgment against the Company. The Company believes that the
holder engaged in intentional conduct which resulted in damage to the Company.
Therefore, the Company filed an action against the holder in federal court. The
judge in that case entered a decision in favor of the noteholder, and the
Company has appealed that decision. To secure repayment of the note, the Company
issued to a trustee of the holder 105,875 shares of common stock and 11,441
shares of Series C Convertible Preferred Stock. See Note 11. $250,000

Note payable with interest at a rate of 10%. The note matured on December 31,
2000, when principal and unpaid interest were due. In consideration of this loan
and two prior bridge loans, the Company agreed to issue shares of the Company's
common and convertible preferred stock to the holder representing approximately
200,000 shares of common stock on a fully converted basis. The holder has agreed
to extend the maturity date of the note to December 31, 2003. $104,000

Note payable in the original principal amount of $25,000 with interest at a rate
of 10% per annum. The Note matured on July 2, 1999, when principal and unpaid
interest was due. The note is currently in default, although partial payment has
been made subsequent to the maturity date. No action has been taken against the
Company to enforce the note. In connection with the note, the Company issued a
warrant to purchase 5,000 shares of common stock at an exercise price of $0.04
per share. $17,500

Note payable with interest accruing at a rate of 10%. Principal and interest
were due in February 2001. In conjunction with this financing, the Company
issued a warrant to purchase 200,000 shares of common stock at a exercise price
of $0.50 per share. The holder agreed to extend the maturity date of the note to
December 31, 2003. $100,000

Note payable with interest at a rate of 10% per annum. Principal and interest
were due in November 2000. In conjunction with this financing, the Company
issued a warrant to purchase 300,000 shares of common stock at a exercise price
of $0.50 per share. The Company, at its option, may pay the Note in common stock
or equivalent. The Company has notified the holder that it has elected to pay
the principal and interest due under the note by the issuance of 136,612 shares
of common stock. $150,000

Note payable with interest accruing at a rate of 10% per annum. Principal and
interest were due in June 2001. In conjunction with this financing, a warrant to
purchase 50,000 shares of common stock at an exercise price of $0.50 per share
is issuable to this holder. The noteholder has agreed to extend the maturity
date of the note and in connection therewith, the Company has agreed to issue a
warrant to purchase 25,000 shares of common stock at an exercise price of $0.50
per share. $50,000

Note payable in the original principal amount of $100,000, with an interest rate
of 10% per annum. Principal and interest were due in July 2001. $50,000 of the
loan was repaid in May, 2001. In conjunction with this financing, a warrant to
purchase 100,000 shares of common stock at an exercise price of $0.50 per share
is issuable to the holder. An additional warrant to purchase 12,500 shares of
the Common Stock at the same exercise price is issuable as a result of the
Company's exercising its option to extend to October 2001 the maturity date of
the note with respect to $50,000 of principal and all of the interest payable
pursuant to the note. The holder has agreed to extend the maturity date of the
note to September 30, 2002. $50,000

In April, 2001, the Company was loaned $40,000. A promissory note has not yet
been issued, as that amount was only a partial funding of the transaction. The
note will provide an interest rate of 10% and a term of 120 days. A warrant will
be issuable in conjunction with this financing, however, the amount of shares of
common stock purchasable pursuant to the warrant will be determined once the
full amount of the financing is established. $40,000

     Total Long-Term Debt                                       $  761,500

Less: Current Portion                                           $  761,500
                                                                ----------
Long-Term Debt, net of current portion                          $       --
                                                                ==========
<PAGE>

NOTE 11 - Commitments and Contingencies

                                 Loan Guarantee

Phlo Corporation is a guarantor of a loan obtained by an unrelated party in
connection with a purchase agreement. In addition, payments of the loan are
secured by the Company's assets. The total outstanding principal balance of the
loan at March 31, 2002 was approximately $65,000. The holder of the loan has
initiated legal action against the primary obligor and Phlo Corporation as
guarantor, claiming outstanding principal, interest and late fees in the
aggregate amount of approximately $105,000. The Company believes that it no
longer has any liability under the guaranty as a result of the actions or
inactions of the lender, including the lender's failure to mitigate its damages
by selling collateral pledged by the primary obligor at a time when the value of
such collateral exceeded all amounts due.

                                   Litigation

The Company is involved in litigation with a noteholder with respect to which an
appeal is pending in federal court. The noteholder obtained a summary judgment
against the Company in the amount of the principal and interest due under the
note. The Company appealed the decision and posted an appeal bond with respect
thereto. Additionally, the Company filed an action in federal court against the
noteholder. The U.S. District Court granted the defendants' motion for summary
judgment related to the pleading of the causes of action and has required the
Company to issue 391,229 shares of common stock to the holder related to
previously-issued cashless warrants. The Company believes that the federal court
had no jurisdiction to order the issuance of shares and that the order
compelling the issuance of shares was unlawful and contrary to applicable state
and federal law. Therefore, the Company has appealed the decision to the U.S.
Court of Appeals. The Company is unable to predict the outcome of the pending
litigation and, accordingly, no adjustments have been made related thereto in
the consolidated financial statements.

The Company is involved in litigation related to an agreement it entered into
for investment banking services. The Company executed a promissory note in the
principal amount of $500,000 which represented a bridge loan as part of an
agreement by an investment banking firm to provide at least $2.5 million in
financing. The financing did not occur. The bridge note holder sued for
equitable relief, claiming that it is due a warrant to purchase 1 million shares
of the Company's common stock. The Company disputes any obligation to issue such
a warrant. Pursuant to the terms of the note, the Company issued a warrant in
full payment of the principal and interest thereunder. The litigation is
entering the discovery phase. The Company will join additional parties in the
litigation or will bring a separate action in a more convenient forum against
the additional parties. Additionally, the Company will assert counterclaims, and
the Company anticipates that these counterclaims would far outweigh any award
related to the bridge note. However, the Company is unable to predict the
outcome of the pending litigation and, accordingly, no adjustments have been
made related thereto in the consolidated financial statements.

In August, 2001, the Company filed a lawsuit against a related party and his
affiliates asserting, among other things, breach of contract, breach of
fiduciary duty, and negligence, and seeking an accounting of financing activity,
the recovery of amounts due to the Company, and damages in the amount of $20
million. The defendants have filed motions but have not yet filed responsive
pleadings. The Company is unable to predict the outcome of the pending
litigation and, accordingly, no adjustments have been made related thereto in
the consolidated financial statements.

The Company is involved in litigation with a former officer and director of the
Company who did not remain with the Company after the Stock Exchange
Transaction. The former officer and director claimed, among other things, breach
of contract based on his allegation that he had exercised options to purchase
the Company's common stock but that the Company had not issued the common stock.
The U.S. District Court found that he had not properly exercised his options.
The former officer and director again attempted to exercise, then filed an order
to show cause why the Company should not be held in contempt for failing to
issue shares of stock, and the District Court again found that he had not
properly exercised his options. The Company believes that it has substantial
claims against the former officer and director, which it will pursue at the
appropriate time if it determines the prosecution of such claims to be in the
best interest of the Company and its shareholders.

                                  Payroll Taxes

The Company has not paid payroll taxes since the third quarter 1999 totaling
$206,866. The Company is in the process of filing all returns and has
accrued estimated penalties and interest of $30,183.

                                      Lease

The Company executed a lease in September 2001 with a term of five years,
providing for the payment of a fixed monthly rent. Subsequent to March 31, 2002,
the Company decided to relocate its offices to reduce overhead and therefore
terminated the lease. The landlord has not requested additional rent payments
from the Company as of the date of this filing and holds a security deposit in
the amount of $47,695. The Company is in the process of negotiating a new
long-term office lease. It is currently leasing office space from an employee on
an informal, rent-free basis pending execution of a long-term lease.

Rent expense for the years ended March 31, 2002 and 2001 was $149,633 and
$122,968, respectively.
<PAGE>

NOTE 12 - Economic Dependency

                                 Major Customers

The Company sells a substantial portion of its products to four customers.
During the year ended March 31, 2002, sales to these customers were $383,779,
$228,088, $220,745 and $172,755, or 29.8%, 17.7%, 17.1% and 13.4%, respectively,
for the year ended March 31, 2002. As of March 31, 2002, there were no amounts
due from these customers.

During the year ended March 31, 2001, sales to the top three customers were
$113,024, $70,256, and $40,642, or 36%, 20%, and 11%, respectively. As of March
31, 2001, there were no amounts due from these customers.

                                 Major Suppliers

The Company purchased a substantial portion, $159,012 or 20%, of its raw
materials from a one supplier for the year ended March 31, 2002. As of March 31,
2002, a balance of $159,012 is outstanding.

The Company purchased a substantial portion of its raw materials from a one
supplier for the year ended March 31, 2001.

NOTE 13 - Related Party Transactions

During the first two quarters of the fiscal year, an entity controlled by an
individual who provided consulting services to the Company purchased certain
products and services for the Company, and made payments of principal
outstanding under certain notes payable on behalf of the Company. During this
period, the Company also made advances to this entity. The Company was owed
$107,284 by this entity as of March 31, 2002.

Based on information which became available to the Company in the quarter ended
June 30, 2001, the Company has determined that expenses incurred and recorded by
it in the year ended March 31, 2001, pertaining to a related party are not owed.
The effect of this adjustment, which has been recorded as an other income item,
increased operating results by $131,043 in the period ended March 31, 2002.

NOTE 14 - Subsequent Events

A) Notes Payable

The following note was issued by the Company subsequent to March 31, 2002, in
conjunction with financing activities:

In July, 2002, an affiliate issued a revolving promissory note pursuant to which
an initial advance in the amount of $150,000 was made. Unpaid principal under
the note bears simple interest at the rate of ten percent (10%) per annum.
Additional advances of up to a maximum principal amount of $250,000 are
authorized at the option of the lender. Each advance is payable within 30 days.
Payment of the loan is secured by the affiliate's assets. Additionally,
repayment of the loan is guaranteed by two officers of the Company.

B) Equity

In April and May, 2002, in consideration of $24,500, the Company sold 300,000
shares of common stock, which have yet to be issued.

In April, 2002, the Company entered into an agreement to issue 31,746 shares of
common stock in exchange for $5,000 of services previously performed. The shares
have yet to be issued.
<PAGE>

                                    PART III

Item 8. DIRECTORS AND EXECUTIVE OFFICERS

Directors and Executive Officers

The names and ages of the directors, executive officers, significant employees,
and promoters of the Company are set forth below.

      Name                   Age      Position Held
      ----                   ---      -------------

James B. Hovis               52       President & CEO, Director

Anne P. Hovis                42       Executive Vice President, General
                                      Counsel, Secretary & Director

Allen G. Hoube', Jr.         41       Vice President, Production Operations

Background of Executive Officers and Directors

James B. Hovis, President, Chief Executive Officer and a Director. Mr. Hovis is
responsible for the overall management of the Company, including the product
development, sales, marketing, distribution, production and financial functions.
Additionally, Mr. Hovis directs the Company's acquisition and financing
activities. Previously, Mr. Hovis was the partner in charge of the corporate
practice at White, Blackburn & Conte, P.C., a Richmond, Virginia-based law firm.
Mr. Hovis has over 20 years of experience involving a wide range of corporate
activity, both as a principal and as a professional representative or advisor,
including all types of financings and refinancings (including debt and equity
private placements), mergers, acquisitions (including product acquisitions and
leveraged and management buyouts), divestitures, sales of assets or stock,
restructurings and reorganizations. Additionally, his professional background
has included a strong emphasis on developing business entities in a number of
different industries, and he has been published in his areas of expertise.
During the period from 1983 to the present, he has served on a number of boards
of developing companies. Mr. Hovis is a graduate of Davidson College and
received his J.D. degree from the T.C. Williams School of Law at the University
of Richmond. He is a member of the Virginia State Bar.

Anne P. Hovis, Executive Vice President, General Counsel, Secretary and a
Director. Mrs. Hovis is responsible for managing the day-to-day administration
of the Company and assists Messrs. Hovis in the overall management of the
Company. She is also responsible for the legal affairs of the Company, including
intellectual property protection, compliance with FDA regulations, securities
filings, compliance with applicable laws, and negotiation of agreements with
distributors and co-packers. Mrs. Hovis also assists Mr. Hovis in the Company's
transactional activities, including financings and acquisitions. Previously,
Mrs. Hovis was an attorney with Anderson, Hibey & Blair, a Washington, D.C.
based firm, where she specialized in corporate legal and international trade
policy matters. Prior to this, Mrs. Hovis was an attorney with Lane &
Mittendorf, where she participated in the firm's corporate transactional
(including stock and asset acquisitions and commercial lending facilities) and
international trade practices. Mrs. Hovis has a B.A. from New York University
and a J.D. degree from the Georgetown University Law Center. She is a member of
the District of Columbia Bar.

Allen G. (Skip) Hoube', Jr., Vice President of Production Operations. Mr. Hoube
is responsible for coordinating the production of the Company's beverage
products, including inventory and quality control, raw material and production
scheduling, and identification of new production facilities to accommodate
nationwide distribution. Previously, Mr. Hoube served as Director of Quality
Assurance for Premium Beverage Packers, Inc. Formerly, he was the Contract
Manufacturing Manager for Royal Crown Company, Inc. and the Director of
Operation for Tribev Corp. (a division of Royal Crown). He also served as
President and General Manager of RC Cola Canada Ltd. Mr. Hoube has a B.S. in
Biochemistry from Auburn University.
<PAGE>

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.

To the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company during the year ended March 31, 2001, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were satisfied.

ITEM 9. EXECUTIVE COMPENSATION.

The following table sets forth the compensation paid to the executive officers
for the fiscal year ending March 31, 2002.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                                 Long-Term Compensation
                                                                                                 ---------------------
                               Annual Compensation Awards                                         Awards     Payouts
                            -------------------------------                                      ---------   ---------
   (a)                       (b)         (c)                    (d)        (e)         (f)          (g)        (h)
                                                               Other               Securities
                                                               Annual  Restricted    Under-                  All Other
                                                               Compen-   Stock       lying         L/TIP      Compen-
Name and                                                       sation    Awards      Options/      Payouts    sation
Principal Position          Year         Salary      Bonus       ($)       ($)       SARa (#)       ($)       ($)
------------------------------------------------------------------------------------------------------------------------
<S>                         <C>         <C>          <C>       <C>       <C>         <C>           <C>        <C>
James B. Hovis
President and CEO           2001        $117,400      -0-        -0-       -0-        -0-            -0-       -0-

Anne P. Hovis               2001         $99,000      -0-        -0-       -0-        -0-            -0-       -0-
Exec. Vice President
General Counsel &
Secretary

Allen G. Hoube, Jr.
Vice President,
Production                  2001         $74,500      -0-        -0-       -0-        -0-            -0-       -0-
Operations
</TABLE>

Various officers and other executives have forgiven any unpaid accrued payroll
owed to them as of September 30, 2001. The Company has removed the payroll,
payroll taxes and other expenses totalling $702,166, associated with this
forgiveness, included in accrued expenses and taxes and recorded such amount as
a contribution to capital.

Compensation of Directors

The names of the directors of the Company as of March 31, 2002, are James B.
Hovis and Anne P. Hovis. Each director of the Company is entitled to receive
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors of the Company. No payments were made to directors during the year
ended March 31, 2002, for services provided as a director.

Stock Option Plans and Agreements

In March 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1996 Stock Plan
(hereinafter called the "1996 Plan"). The purpose of the 1996 Plan is to provide
an incentive and reward for those executive officers and other key employees in
a position to contribute substantially to the progress and success of the
Company, to closely align the interests of such employees with the interests of
stockholders of the Company by linking benefits to stock performance and to
retain the services of such employees, as well as to attract new key employees.
In furtherance of that purpose, the 1996 Plan authorizes the grant to executives
and other key employees of the Company and its subsidiaries of stock options,
restricted stock, deferred stock, bonus shares, performance awards, dividend
equivalent rights, limited stock appreciation rights and other stock-based
awards, or any combination thereof. The 1996 Plan is expected to provide
flexibility to the Company's compensation methods, after giving due
consideration to competitive conditions and the impact of federal tax laws.
<PAGE>

The maximum number of shares of Common Stock with respect to which awards may be
granted pursuant to the 1996 Plan is initially 2,000,000 shares. To date, no
options have been granted under the 1996 Plan. Shares issuable under the 1996
Plan may be either treasury shares or authorized but unissued shares. The number
of shares available for issuance will be subject to adjustment to prevent
dilution in the event of stock splits, stock dividends or other changes in the
capitalization of the Company.

The 1996 Plan will be administered by a committee consisting of not less than
two (2) members of the Board of Directors who are "disinterested" within the
meaning of Rule 16b-3 promulgated under the Exchange Act and "outside directors"
within the meaning of Section 162(m) of the Internal Revenue Code (including
persons who may be deemed outside directors by virtue of any transitional rule
which may be adopted by the Internal Revenue Service implementing such Section)
(the "Committee"). The Board will determine the persons to whom awards will be
granted, the type of award and, if applicable, the number of shares to be
covered by the award. During any calendar year, no person may be granted under
the 1996 Plan awards aggregating more than 100,000 shares (which number shall be
subject to adjustment to prevent dilution in the event of stock splits, stock
dividends or other changes in capitalization of the Company).

Types of Awards

Stock Options. Options granted under the 1996 Plan may be "incentive stock
options" ("Incentive Options") within the meaning of Section 422 of the Internal
Revenue Code or stock options which are not incentive stock options
("Non-Incentive Options" and, collectively with Incentive Options, hereinafter
referred to as "Options"). The persons to whom Options will be granted, the
number of shares subject to each Option granted, the prices at which Options may
be exercised (which shall not be less than the fair market value of shares of
common stock on the date of grant), whether an Option will be an Incentive
Option or a Non-Incentive Option, the time or times and the extent to which
Options may be exercised and all other terms and conditions of Options will be
determined by the Committee.

Each Incentive Option shall terminate no later than ten (10) years from the date
of grant, except as provided below with respect to Incentive Options granted to
10% Stockholders (as hereinafter defined). No Incentive Option may be granted at
any time after October 2006. Each Non-Incentive Option shall terminate not later
than fifteen (15) years from the date of grant. The exercise price at which the
shares may be purchased may not be less than the fair market value of shares of
common stock at the time the Option is granted, except as provided below with
respect to Incentive Options granted to 10% stockholders. Options granted to
executive officers may not be exercised at any time prior to six (6) months
after the date of grant.

The exercise price of an Incentive Option granted to a person possessing more
than 10% of the total combined voting power of all shares of stock of the
Company or a parent or subsidiary of the Company (a "10% Stockholder") shall in
no event be less than 110% of the fair market value of the shares of the common
stock at the time the Incentive Option is granted. The term of an incentive
Option granted to a 10% Stockholder shall not exceed five (5) years from the
date of grant.

The exercise price of the shares to be purchased pursuant to each Option shall
be paid (i) in full in cash, (ii) by delivery (i.e., surrender) of shares of the
Company's common stock owned by the optionee at the time of the exercise of the
Option, (iii) in installments, payable in cash, if permitted by the Committee or
(iv) any combination of the foregoing. The stock-for-stock payment method
permits an optionee to deliver one (1) or more shares of previously-owned common
stock of the Company in satisfaction of the exercise price of subsequent
Options. The optionee may use the shares obtained on each exercise to purchase a
larger number of shares on the next exercise. (The foregoing assumes an
appreciation in value of previously acquired shares). The result of the
stock-for-stock payment method is that the optionee can generally avoid
immediate tax liability with respect to any appreciation in the value of the
stock utilized to exercise the Option.

Shares received by an optionee upon exercise of a Non-Incentive Option may not
be sold or otherwise disposed of for a period determined by the Board of
Directors of the Company upon grant of the Option, which period shall be not
less than six (6) months nor more than three (3) years from the date of
acquisition of the shares (the "Restricted Period"), except that, during the
Restricted Period (i) the optionee may offer the shares to the Company and the
Company may, in its discretion, purchase up to all the shares offered at the
exercise price and (ii) if the optionee's employment terminates during the
Restricted Period (except in limited instances), the optionee, upon written
request of the Company, must offer to sell the shares to the Company at the
exercise price within seven (7) business days. The Restricted Period shall
terminate in the event of a Change in Control of the Company (as defined in the
1996 Plan), or at the discretion of the Board of Directors of the Company. After
the Restricted Period, an optionee wishing to sell must first offer such shares
to the Company at the fair market value.
<PAGE>

Limited Stock Appreciation Rights. The Committee is authorized, in connection
with any Option granted under the 1996 Plan, to grant to the holder of such
Option a limited stock appreciation right ("LSAR"), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference between the exercise price of the Option and the market
value of the common stock of the Company on the effective date of the Change in
Control. The LSAR may be granted in tandem with an Option or subsequent to grant
of the Option. The LSAR will only be exercisable to the extent that the related
Option is exercisable and will terminate if and when the Option is exercised.

Restricted and Deferred Stock. An award of restricted stock or deferred stock
may be granted under the 1996 Plan. Restricted stock is subject to restrictions
on transferability and other restrictions as may be imposed by the Committee at
the time of grant. In the event that the holder of restricted stock ceases to be
employed by the Company during the applicable restrictive period, restricted
stock that is at the time of cessation of employment subject to restrictions
shall be forfeited and reacquired by the Company. Except as otherwise provided
by the Committee at the time of grant, a holder of restricted stock shall have
all of the rights of a stockholder including, without limitation, the right to
vote restricted stock and the right to recover dividends thereon. An award of
deferred stock is an award that provides for the issuance of stock upon
expiration of a deferral period established by the Committee. Except as
otherwise determined by the Committee, upon termination of employment of the
recipient of the award during the applicable deferral period, all stock that is
at the time of the termination of employment subject to deferral shall be
forfeited. Until such time as the stock which is the subject of the award is
issued, the recipient of the award has no rights as a stockholder.

Dividend Equivalent Awards. A dividend equivalent gives the recipient the right
to receive cash or other property equal in value to the dividends that would be
paid if the recipient held a specified number of shares of common stock of the
Company. A dividend equivalent right may be granted as a component of another
award or as separate award.

Bonus Shares and other Share Based Awards. The 1996 Plan authorizes the
Committee to grant shares as a bonus, or to grant shares or other awards in lieu
of obligations of the Company to pay cash under other plans or compensatory
arrangements, upon such terms as shall be determined by the Committee. The 1996
Plan also authorizes the Committee to grant other forms of awards based upon,
payable in, or otherwise related, in whole or in part, to, common stock,
including, without limitation, convertible or exchangeable debentures or other
debt securities, other rights convertible or exchangeable into shares, purchase
rights for shares, awards contingent upon performance of the Company, and awards
valued by reference to the book value of shares of common stock or awards
determined by reference to the value of securities of, or the performance of,
specified subsidiaries.

ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of March 31, 2002, certain information with
respect to the beneficial ownership of common stock and preferred stock by each
person or entity known by the Company to be the beneficial owner of 5% or more
of such shares, each officer and director of the Company, and all officers and
directors of the Company as a group:

--------------------------------------------------------------------------------
Name and Address of
Beneficial Owner (1)
                                          Percentage               Percentage(%)
                           Shares of      (%) of       Shares of    of Total
                           Common Stock   Common       Preferred    Combined
                           Owned          Stock (2)    Stock         Vote(3)
--------------------------------------------------------------------------------
James B. Hovis             8,925,752(4)     20.49%     448,784(5)     29.80%
--------------------------------------------------------------------------------
Anne P. Hovis              8,883,402(6)     20.39%     459,207(7)     30.35%
--------------------------------------------------------------------------------
Edward J. Mathias (8)      7,750,451        17.79%     490,708.33     31.47%
--------------------------------------------------------------------------------
Joseph P. Nolan (9)        4,640,000        10.65%           0         2.57%
--------------------------------------------------------------------------------
Union Labor Life(10)       2,312,872         5.31%     236,543.49     14.38%
--------------------------------------------------------------------------------
Allen G. Hoube, Jr.          439,188         1.01%           0         0.24%
--------------------------------------------------------------------------------
All officers and
directors as a
group (three persons)      9,364,940        21.50%     463,784        30.87%
--------------------------------------------------------------------------------
<PAGE>

(1) The address of each Stockholder shown above except as otherwise indicated is
c/o Phlo Corporation, 13 Village Green, Budd Lake, New Jersey 07828.

(2) Based upon 43,557,106 shares of common stock outstanding as of March 31,
2002.

(3) Based on 43,557,106 shares of common stock and 1,369,891.92 shares of Series
C Preferred Stock outstanding as of March 31, 2002, and assuming a conversion
rate of 100 shares of common stock for each share of Series C Preferred Stock.
The percentages presented are based on conversion of all shares of Series C
Preferred Stock into shares of common stock.

(4) Includes 5,799,536 shares as to which Mr. Hovis has the sole voting power,
3,083,866 shares as to which he shares the power to dispose with his wife, Anne
P. Hovis, and 42,350 shares as to which Mr. Hovis has indirect beneficial
ownership as trustee under the Uniform Gift to Minors Act.

(5) Includes 287,485 shares of Series C Preferred Stock as to which Mr. Hovis
has the sole voting power, 156,722 shares as to which he shares the power to
dispose with his wife, Anne P. Hovis, and 4,577 shares as to which Mr. Hovis has
indirect beneficial ownership as trustee under the Uniform Gift to Minors Act.

(6) Includes 3,083,866 shares as to which Mrs. Hovis has sole voting power and
5,799,536 shares as to which she shares the power to dispose with her husband,
James B. Hovis.

(7) Includes 156,722 shares of Series C Preferred Stock as to which Mrs. Hovis
has sole voting power, 287,485 shares as to which she shares the power to
dispose with her husband, James B. Hovis, and 15,000 as to which Mrs. Hovis has
indirect beneficial ownership as trustee under the Uniform Gift to Minors Act.

(8) Mr. Mathias' address is c/o The Carlyle Group, 1001 Pennsylvania Avenue,
N.W., Washington, D.C. 20004-2505

(9) Includes 3,315,000 shares owned individually by Mr. Nolan and 1,325,000
shares owned by Mr. Nolan and his wife, Melissa Nolan, as joint tenants with
right of survivorship. Mr. Nolan's address is c/o The Longview Group, LLC, 503
N. Walnut Road, Suite 300, Kennett Square, PA 19348. All of the shares listed
are the subject of a lawsuit initiated by the Company. The Company has alleged,
among other things, fraudulent inducement of the issuance of such shares and
failure of consideration therefor, and, as a result, believes that the issuance
of such shares is invalid. The Company believes that it has taken all necessary
and appropriate steps to prevent the illegal sale of such shares into the public
market.

(10) The address of The Union Labor Life Insurance Company is 111 Massachusetts
Avenue, N.W., Washington, D.C. 20001.

ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

James B. Hovis and Anne P. Hovis are husband and wife.

ITEM 12. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

a)(1) Financial Statements.

The following financial statements are included in Part II, Item 7:

Index to Consolidated Financial Statements

Report of Independent Auditors                                      F-1

Consolidated Balance Sheet as of March 31, 2002                     F-2

Consolidated Statements of Operations for the years ended
 March 31, 2002 and 2001                                            F-3

Consolidated Statements of Stockholders' Equity for the
years ended March 31, 2002 and 2001                            F-4  F-5

Consolidated Statements of Cash Flows for the years
 ended March 31, 2002 and 2001                                 F-6  F-7

              Notes to Consolidated Financial Statements F-8 - F-18
<PAGE>

(a) (2) Exhibits

A list and description of exhibits filed as part of this Form 10-KSB is provided
in the attached Exhibit Index.

Item 27. Exhibits.

3.01*       Certificate of Incorporation of the Company.

3.02*       Amendment of Certificate of Incorporation.

3.03****    Certificate of Amendment of Certificate of Incorporation.

3.04*       By-Laws of the Company.

3.05*       Form of Certificate of Designation of Series A Preferred Stock.

3.06*       Form of Certificate of Designation of Series B Preferred Stock.

4.01*       Specimen Certificate for shares of Common Stock.

4.04*       Form of Underwriter's Unit Purchase Option.

10.02*      1996 Stock Plan.

10.07*      Employment Agreement by and between the Company and Robert J. Sipper
            dated April 4, 1996.

10.12**     Amendment No. 1 to Employment Agreement by and between the Company
            and Robert J. Sipper dated February 3, 1997.

10.21***    Asset Purchase Agreement by and between Company and The Brooklyn
            Brewery Corporation dated May 18, 1998.

10.22***    Agreement to Purchase and Market Brand Name and Recipes by and
            between Leroux Creek Food Corporation and the Company dated June 30,
            1998.

10.23****   License Agreement between X-Treem Products Corporation and the
            Company dated December 1, 1998.

10.24****   Security Agreement between X-Treem Products Corporation and the
            Company dated December 1, 1998.

10.25****   Promissory Note, dated December 1, 1998, made by the Company in the
            amount of $100,000.

10.26****   Letter by Company, dated December 23, 1998, exercising Option.

10.27****   Promissory Note, dated December 23, 1999, made by the Company in the
            amount of $300,000.

10.28****   Bill of Sale dated December 1, 1998.
<PAGE>

* Incorporated by reference to Registrant's Registration Statement on Form SB-2,
and amendments thereto, Registration No. 333-3458 declared effective on July 30,
1996.

** Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1997 (File No. 0-21079).

*** Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1998 (File No. 0-21079).

**** Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended March 31, 1999 (File No. 0-21079).

(b) Reports on Form 8-K.

                                      None.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this 15th day of July, 2002.

                                Phlo Corporation

                                 By:  /s/ James B. Hovis
                                      ------------------------------------
                                      James B. Hovis
                                      President & Chief Executive Officer

In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates

indicated

Signature                        Title                                Date
---------                        -----                                ----

/s/  James B. Hovis          President & CEO                     July 15, 2002
----------------------
James B. Hovis

/s/  Anne P. Hovis          Exec. Vice President, General        July 15, 2002
----------------------      Counsel & Secretary
Anne P. Hovis