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, 2001.

     [_]  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)

          475 Park Avenue South
                7th Floor
            New York, New York                            10016
          (Address of Principal                         (Zip Code)
           Executive Offices)

Registrant's telephone number, including area code: (212) 447-1322

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 $317,698.

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 June
29, 2001, was approximately $16,486,485.

The number of shares outstanding of the issuer's common stock as of June 29,
2001 was 36,481,078.


<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 containing patented and patent-pending
biotechnologies. The Company sells its beverages to distributors, who offer the
beverages for sale in high volume chain stores, such as supermarkets, and in
small retail outlets, such as delicatessens and convenience stores. The Company
is positioned as a biotechnology company which is using the high volume
distribution segment of the beverage industry to commercialize a portion of 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 beverage
systems. The Company is focusing its technology acquisition efforts on those
technologies related to preventing or ameliorating cancer, reducing the effects
of aging, assisting in weight loss, and enhancing sexual performance.

The Company's current beverage line has been sold under the McCoy's name and
includes ice teas, green teas, lemonade and fruit drinks. In October 2000, the
Company introduced its newest line of beverages, "ZO - Vital Cell Defense",
featuring its proprietary (patent-pending) composition with controlled-release
capability which is designed to protect cells from the oxidative stress of aging
and to stimulate cell repair. The launch of the Vital Cell Defense line marks
the successful commercialization of one of the Company's biotechnologies.


Stock Exchange Transaction

On October 22, 1998, the Company agreed to acquire the capital stock of a
beverage company, 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 Phlo'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 Phlo did not have
enough authorized shares 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.


<PAGE>


Financing Activities

In November 2000, the Company filed an Amended and Restated Certificate of
Incorporation which increased the number of authorized shares of common stock
from 25,000,000 to 250,000,000 and conferred on the board of directors blank
check authority to issue classes and series of stock without further shareholder
action.

During the fiscal year ended March 31, 2001, the Company raised approximately
$1,599,832 in the private placement of equity and debt.

Disolution 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 had been inactive and had no revenues. As a result of the
disolution, 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.


Recent Developments

In October 2000, the Company introduced its newest line of beverages, "ZO -
Vital Cell Defense", featuring its proprietary (patent-pending) composition,
Vitamin E Phosphate-Phosphatidylcholine ("Vitamin E Phosphate/PC"), with
controlled-release capability which is designed to protect cells from the
oxidative stress of aging and to stimulate cell repair. The launch of the Vital
Cell Defense line marks the successful commercialization of one of the Company's
biotechnologies. In December 2000, the Company signed a distribution agreement
with one of the largest independent Coca-Cola bottling and distribution
companies in the world, Coca-Cola Hondo, Inc. and its affiliates ("Coca-Cola
Hondo") to cover the entire Coca-Cola Hondo distribution territory consisting of
Illinois, Wisconsin, Michigan, and parts of Indiana, Ohio, Pennsylvania and New
York. In April 2001, the Company began shipping its beverages to Coca-Cola
Hondo, to enable Coca-Cola Hondo to make initial distributions of the Company's
beverages to its customer base. Sales in April to Coca-Cola Hondo approximated
$1,100,000.

In May 2001, Coca-Cola Hondo and Coca-Cola Enterprises ("CCE"), the master
distributor, on a global basis, of all of Coca-Cola, Company's beverage
products, announced the acquisition of Coca-Cola Hondo by CCE for a total
consideration of approximately $1.7 Billion. This transaction is anticipated to
close, and therefore become effective, in July or August 2001. On a short-term
basis, the Coca-Cola Hondo acquisition by CCE caused the Company's beverage
launch to be delayed within Illinois, most notably Chicago. On a longer-term
basis, the Company does not believe the acquisition of Coca-Cola Hondo by CCE
will have any detrimental effect on its sales to Coca-Cola Hondo, but rather the
Company believes that it will enable the Company to more rapidly increase its
beverage sales volumes in the Coca-Cola Hondo and adjacent CCE territories.


<PAGE>


Product Overview

The Company's "ZO - Vital Cell Defense" and McCoy's beverage line features fruit
drinks, lemonades, iced teas and green teas and is offered in 16 ounce
bottles."ZO - Vital Cell Defense" with its patent-pending Vitamin E Phosphate/PC
and sustained release delivery technology is available in eleven flavors:
Cranberry Berry, Orange Carrot, Pink Lemonade, Tropical Punch, Kiwi Strawberry,
Raspberry Vanilla and Blackberry Cherry, plus four flavors of iced tea. The
Company's McCoy's Green Tea line is the first and only new age beverage that
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. McCoy's
Green Teas also feature Vitamin C and Siberian ginseng for sustained energy and
concentration and are available in four flavors.


Marketing and Distribution

The Company's beverage products are offered through large supermarket chains,
other high volume chain stores, small retail outlets and delicatessens and
convenience stores. With the signing of a distribution agreement in December
2000 with Coca-Cola Hondo, and initial sales thereunder beginning in April 2001,
the Company has markedly expanded the base of accounts (i.e. supermarkets, other
chains, neighborhood grocery stores, delicatessens, and convenience stores) in
which its beverage products are offered. In fiscal year ending March 31, 2002,
the Company will continue to focus on expanding its sales within the existing
accounts served, add to these accounts and add new distributors. The Company
prices its ZO and McCoy's beverages to compete with other cold drinks on the
market.


Industry Overview/Competition

The Company's ZO and McCoy's 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 controlled-release capability 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 allows the Company to
offer to its distributors unique 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.


<PAGE>


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.


Management and Employees

As of March 31, 2001, the Company employed five (5) employees, all on a full
time basis.

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. The Company currently has product
liability insurance. There can be no assurances that the amount and scope of any
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 operates its executive offices at 475 Park Avenue South, 7th Floor,
New York, New York 10016 pursuant to a five (5) year lease dated as of March 15,
1999, providing for a monthly rent of $10,150.


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, 2001.

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. 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 the last quarter of its fiscal year ended March 31, 2001.


<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, 2001, 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, 2000 and 2001.


<PAGE>


--------------------------------------------------------------------------------
                                  Common Stock
--------------------------------------------------------------------------------
                     Year Ended 3/31/00                 Year Ended 3/31/01
--------------------------------------------------------------------------------
Quarter             High              Low              High             Low
--------------------------------------------------------------------------------
First Quarter      $1.00            $0.42              $3.50            $2.12
--------------------------------------------------------------------------------
Second Quarter     $2.00            $0.37              $2.65            $1.09
--------------------------------------------------------------------------------
Third Quarter      $1.37            $0.51              $1.94            $0.69
--------------------------------------------------------------------------------
Fourth Quarter     $4.00            $0.51              $1.44            $0.62
--------------------------------------------------------------------------------


On March 31, 2001, the closing price of the Common Stock as reported on the OTC
Bulletin Board was $0.75. As of March 31, 2001, the Company had approximately
1,933 beneficial holders of record of its shares of Common Stock.

During the fiscal year ended March 31, 2001, the Company raised $907,500 in debt
and $692,332 in equity, and issued or agreed to issue 1,005,243 shares of common
stock or warrants to purchase 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 2000 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,
2001 and results of operations for the year ended March 31, 2001 and 2000
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 10-K.


RESULTS OF OPERATIONS

The Company realized a net income of $649,473 for the year ended March 31,2001
as compared to a net loss of $2,831,579 for the year ended March 31, 2000.
During the same periods, sales decreased from $1,125,650 to $317,698 and the
operating loss increased from $2,505,653 to $2,894,419.

Net income for the year was due to a gain realized on the dissolution of X-Treem
in the amount of $3,950,981. See Item 1. Dissolution of Subsidiary. The decrease
in sales resulted from replacing all of the McCoy fruit beverages and black teas
to incorporate the technologies of the "ZO-Vital Cell Defense" beverage line. In
addition the Company replaced its former 20 oz. glass bottle container with 16
ounce bottles (which required significant changes to labels etc.). This action
was taken at the request of a major distributor (Coca-Cola Hondo) and to improve
the Company's gross profit margin related to the sale of proprietary beverage
products. As a result of these changes, the existing finished goods inventory
was depleted to levels insufficient to satisfy a significant portion of the
orders from the Company's distributors, and shortly after the end of the March
31, 2001 fiscal year, much of this inventory was liquidated at average prices
less than cost, necessitating lower of cost or market adjustments and thus
impacting the Company's gross margin.

The launch of the Vital Cell Defense line of beverages marks the successful
commercialization of one of the Company's biotechnologies and is expected to
lead to significantly higher future sales, and greater margins. The changes
described above were necessary to incorporate the ZO-Vital Cell Defense" into
the beverage lines. ZO was first produced in a limited volume production run in
October, 2000. Quick sales followed, as well as an exclusive distributorship
agreement with Coca-Cola Hondo covering the entire Coca-Cola Hondo distribution
territory consisting of Illinois, Wisconsin, Michigan, and parts of Indiana,
Ohio, Pennsylvania and New York. In April 2001, the Company began shipping its
beverages to Coca-Cola Hondo, to enable Coca-Cola Hondo to make initial
distributions of the Company's beverages to its customer base. Sales in April to
Coca-Cola Hondo approximated $1,100,000 and the gross margin approximated
$330,000 or 30%.


<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

Net income of $1,341,403 for the year ended March 31, 2001 assisted the Company
in reducing the Company's Stockholders' Deficiency from $5,410,045 to
$3,077,249. In addition during the year ended March 31, 2001, the Company
reduced its working capital deficit by approximately $2,210,000 to $3,104,615.

During the upcoming fiscal year ending March 31, 2002, the Company is taking
further steps to reduce or eliminate the Stockholders' Deficiency and to create
a positive working capital position. The Company projects a net income for the
quarter ended June 30, 2001, based on the strength of only one month (April
2001) of production of its "ZO" beverage line. In that production run the
Company produced approximately 187,000 cases of product and sold nearly 150,000
cases within ten (10) days of when it was produced. These sales were made to
Coca-Cola Hondo. Thereafter the "ZO" line was sold to some of the Company's
other distributors. Based on the taste and uniqueness of the ZO line, and the
large number of accounts serviced by the Company's existing distributors, the
Company anticipates being profitable in future quarters and overall for the
fiscal year ending March 31, 2002. Additionally, 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 existence of its first beverage containing
commercialized biotechnology ("ZO-Vital Cell Defense") and prospects for income
for the full fiscal year ending March 31, 2002. On June 11, 2001, the Company
signed a full service investment banking agreement with Sands Brothers & Co.,
Ltd. Sands Brothers will provide a full range of investment banking and
financial advisory services to the Company, including the immediate placement of
up to $5 million of is securities. Finally, the Company has taken steps to
convert certain existing debts into equity and will continue to pursue these
steps.


For the three reasons described above, the Company believes that it will be
profitable, create a positive working capital position and a positive
Shareholders' Equity. 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 upon 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, 2001 and 2000



                                               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, 2001, and the related consolidated
statements of operations, changes in stockholders' deficiency and cash flows for
the years ended March 31, 2001 and 2000. 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, 2001 and the results of their operations and their
cash flows for the years ended March 31, 2001 and 2000 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 $2,831,579
during the year ended March 31, 2001, and, as of that date, the Company's
current liabilities exceeded its current assets by $3,304,757 and its total
liabilities exceeded its total assets by $3,107,115 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 16, 2001



                                                                             F-1


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET

                                                                  March 31, 2001
--------------------------------------------------------------------------------

                                     ASSETS


CURRENT ASSETS
 Cash                                                    $  7,738
 Prepaid expense                                          143,604
 Inventory                                                123,218
                                                         --------

       Total Current Assets                                             $274,560


PROPERTY AND EQUIPMENT, Net                                               15,927



OTHER ASSETS
 Licensing Fee - net of accumulated amortization
     of $24,000                                            36,000
 Security deposit                                          30,063
 Due from related party                                    52,435
 Deposit on bond                                           49,756
 Other deferred charges                                    13,461
                                                         --------


       Total Other Assets                                                181,715
                                                                        --------


       TOTAL ASSETS                                                     $472,202
                                                                        ========



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


                                                                             F-2


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET

                                                                  March 31, 2001
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
<S>                                                                              <C>              <C>
                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY


CURRENT LIABILITIES
 Accounts payable                                                                $   856,172
 Accrued expenses and taxes                                                        1,043,145
 Note payable                                                                      1,680,000
                                                                                 -----------

       Total Current Liabilities                                                                    3,579,317

                                                                                                  -----------

       TOTAL LIABILITIES                                                                            3,579,317


COMMITMENTS AND CONTINGENCIES




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, 1,217,022 shares outstanding (liquidation preference $15,929)                            121
   Series C preferred convertible stock, 140,027 shares subscribed                                         14
   Common stock, $0.0001 par value, 250,000,000 shares authorized,
     35,224,415 shares issued and outstanding                                                           3,521
   Common stock, $0.0001 par value, 11,580,422 shares subscribed                                        1,159
   Additional paid-in capital                                                                       5,454,220
   Accumulated deficit                                                                             (8,566,200)
                                                                                                  -----------

       TOTAL STOCKHOLDERS' DEFICIENCY                                                              (3,107,115)
                                                                                                  -----------

       TOTAL LIABILITIES AND STOCKHOLDERS'
        DEFICIENCY                                                                                $   472,202
                                                                                                  ===========
</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, 2001, and 2000
--------------------------------------------------------------------------------


                                                      2001             2000
                                                  -------------    ------------
SALES                                             $     317,698    $  1,125,650

COST OF SALES                                           433,995         840,502
                                                  -------------    ------------

       GROSS (LOSS) PROFIT                             (116,297)        285,148

SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES                                             2,778,172       2,790,801
                                                  -------------    ------------

       OPERATING LOSS                                (2,894,469)     (2,505,653)
                                                  -------------    ------------

OTHER INCOME EXPENSES
 Interest expense                                      (407,039)       (325,926)
 Non-Recurring Gain on Dissolution of X-Treem         3,950,981              --
                                                  -------------    ------------

       TOTAL OTHER INCOME (EXPENSE)                   3,543,942        (325,926)
                                                  -------------    ------------

       NET INCOME (LOSS)                          $     649,473    $ (2,831,579)
                                                  =============    ============

Average Number of Shares Outstanding                 41,335,335      20,884,262
                                                  =============    ============
Diluted Average Number of Shares Outstanding        157,865,335      20,884,262
                                                  =============    ============

Net Income (Loss) Per Share (Basic)               $        0.02    $      (0.14)
                                                  =============    ============
Net Income  (Loss) Per Share (Diluted)            $        0.01    $      (0.14)
                                                  =============    ============


   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 C
                                                            Series A                Preferred Stock              Series C
                                                         Preferred Stock              Subscribed              Preferred Stock
                                                  ----------------------------------------------------------------------------------
                                                       Shares       Amount        Shares       Amount        Shares      Amount
                                                  ----------------------------------------------------------------------------------

<S>                                                    <C>          <C>           <C>          <C>        <C>           <C>
Balance - April 1, 1999                                500,000      $  50         212,623      $  21


Shares Issued and subscribed- Recapitalization                                  1,112,010        111

Proceeds from private placement
   offering                                                                       256,835         26

Issuance of Shares of Stock for
   services rendered                                                               11,441          1

Stock Subscriptions issued for
   Services rendered

Common stock subscriptions

Exchange by shareholder of debt
     for warrant

Net loss
                                                  ----------------------------------------------------------------------------------

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 offerings
    other sales                                                                  (449,166)       (45)       449,426         45
                                                  ----------------------------------------------------------------------------------
Balance - March 31, 2001                               500,000      $  50         140,027      $  14      1,217,022     $  121
                                                  ==================================================================================


<CAPTION>
                                             Common Stock
                                              Subscribed           Common Stock        Additional
                                      ------------------------------------------------   Paid-in      Accumulated
                                          Shares       Amount    Shares      Amount      Capital        Deficit         Total
                                      ----------------------------------------------------------------------------------------------

<S>                                     <C>          <C>       <C>          <C>       <C>            <C>             <C>
Balance - April 1, 1999                  1,968,728   $   197   11,333,335   $ 1,133     2,857,784    $ (6,384,094)   $(3,524,909)

Shares Issued and Subscribed-
   Recapitalization                        911,160        91    9,379,151       938        (1,140)                             0

Proceeds from private placement
   offering and other sales                                     2,760,535       276       682,198                        682,500

Issuance of Shares of Stock for
   services rendered                                              855,234        86        28,464                         28,551

Stock Subscriptions issued for
   Services rendered                       150,000        15                               17,985                         18,000

Common stock subscriptions                 215,000        21                              184,979                        185,000

Exchange by shareholder of debt
     for warrant                                                                           32,392                         32,392
Net loss                                                                                               (2,831,579)    (2,831,579)
                                       ---------------------------------------------------------------------------------------------
Balance - March 31, 2000                 3,244,888   $   324   24,328,255   $ 2,433   $ 3,802,662    $ (9,215,673)   $(5,410,045)
Shares issued and subscribed -
   Recapitalization                     10,076,791     1,009      332,324        33          (822)                           196
Common shares subscribed
   private placements                   (1,968,728)     (197)   1,971,232       197
Proceeds from private placement
   offerings                               127,926        13      108,333        11       247,580                        247,604
Issuance of stock for services
   rendered                                                     5,120,617       512       613,963                        614,475
Common stock subscription
   services                               (150,000)      (15)     125,000        12            (3)                            (6)
Deposit bond                                                      414,635        41        49,715                         49,756
Common stock subscription                 (205,000)      (20)     205,000        20
Debt converted into equity                 454,545        45                               99,955                        100,000
Beneficial conversion feature of
   Debt issuance                                                                           73,798                         73,798
Equity effect of transactions with
   Related party                                                                          420,521                        420,521
Issuance of warrants for services                                                         123,096                        123,096
Exercise of warrants                                            2,619,019       262        23,755                         24,017
Net income                                                                                                649,473        649,473
                                       ---------------------------------------------------------------------------------------------
Balance - March 31, 2001                11,580,422   $ 1,159   35,224,415   $ 3,521   $ 5,454,220    $ (8,566,200)   $(3,107,115)
                                       =============================================================================================
</TABLE>



                                                                             F-5


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                     For the Years Ended March 31, 2001 and 2000
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                                                                 2001           2000
                                                              -----------    -----------

<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)                                            $   649,473    $(2,831,579)
                                                              -----------    -----------
  Adjustments to reconcile net loss to net cash
   used in operating activities:
    Gain on dissolution of X-Treem                             (3,950,981)            --
    Stock-based compensation                                      797,908         78,944
    Depreciation  and amortization                                 60,097         99,808
     (Increase)decrease in accounts receivable                     69,390        (69,390)
     (Increase)decrease in inventory                              211,408       (334,626)
      Decrease in other current assets                                 --         22,137
      Increase in prepaid expenses                               (143,604)            --
      Increase in accounts payable                                164,533        626,388
      Increase in accrued expenses and taxes                      559,864        645,568
                                                              -----------    -----------

       TOTAL ADJUSTMENTS                                       (2,231,385)     1,068,829
                                                              -----------    -----------

       NET CASH USED IN OPERATING ACTIVITIES                   (1,581,912)    (1,762,750)
                                                              -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Cash received notes receivable                                       --         58,332
  Purchase of furniture and equipment                              (2,886)        (3,232)
  Advance to related party                                        (52,435)            --
                                                              -----------    -----------

       NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES    $   (55,321)   $    55,100
                                                              -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from long-term debt                                     947,500      1,051,400
 Proceeds from issuance of equity securities                      271,811        867,499
 Equity contribution - related party transactions                 420,521             --
 Repayment of debt                                                (40,000)      (178,900)
                                                              -----------    -----------

       NET CASH PROVIDED BY FINANCING ACTIVITIES              $ 1,599,832    $ 1,739,999
                                                              -----------    -----------
</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, 2001 and 2000
--------------------------------------------------------------------------------

                                                           2001           2000
                                                         --------        -------

       NET (DECREASE) INCREASE IN CASH                   $(37,401)       $32,349

CASH - Beginning                                           45,139         12,790
                                                         --------        -------

CASH - Ending                                            $  7,738        $45,139
                                                         ========        =======


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


Supplemental Dislosures of Cash Flow Information:

                                                          2001           2000
                                                      -----------    -----------


Interest                                                      -0-             --
                                                         --------        -------

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

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.

Non cash investing and financing activities:

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 $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
located in New York, New York, and its subsidiaries (hereinafter collectively
referred to as the "Company") is a manufacturer of beverages containing patented
and patent-pending biotechnologies. The Company sells its beverages to
distributors, who offer the beverages for sale in high volume chain stores, such
as supermarkets, and in small retail outlets, such as delicatessens and
convenience stores.

The Company's current beverage line has been sold under the McCoy's name and
includes ice teas, green teas, lemonade and fruit drinks. In October 2000, the
Company introduced its newest line of beverages, "ZO - Vital Cell Defense",
featuring its proprietary (patent-pending) composition with controlled-release
capability which is designed to protect cells from the oxidative stress of aging
and to stimulate cell repair. The launch of the Vital Cell Defense line marks
the successful commercialization of one of the Company's biotechnologies.

In July, 1999, the Company incorporated Phlo Beverage Products Company, a wholly
owned subsidiary, to conduct the business of producing and selling McCoy's
beverages. In August, 1999, the Company incorporated Phlo System, Inc., a wholly
owned subsidiary. In October, 2000, Advanced Bio-Delivery, LLC., a limited
liability company formed in June, 2000, became a wholly-owned subsidiary of the
Company. Hereafter, the Company will conduct its biotechnology-related
activities through Phlo System, Inc. and Advanced Bio-Delivery, LLC. In November
2000, X-Treem, a former subsidiary was formally dissolved. As a result, the
Company's assets, liabilities and stockholders' deficiency no longer reflect
those of X-Treem. The effect of this transaction was to reduce liabilities by
approximately $4,211,000, decrease the Company's Stockholders' Deficiency by
approximately $3,951,000, and reduce assets by approximately $260,000. See NOTE
3.

On October 22, 1998, the Company agreed to acquire the capital stock of a
beverage company, 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 Phlo'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 Phlo did not have
enough authorized shares 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.



                                                                             F-8
<PAGE>


As of March 31, 2001, 28,838 shares of X-Treem capital stock representing 96.47%
of the total outstanding shares were exchanged for Phlo shares which have been
issued out of authorized shares or are yet to be issued. 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 10,987,951 additional shares of common stock and 108,294 shares of
Series C Preferred Stock. As of June 30, 2001, the Company has issued 500,592
shares of common stock and 108,294 shares of Series C Preferred Stock in
accordance with the Stock Exchange Transaction.

On June 1, 1999, 281,866 shares of the Series C Convertible Preferred Stock (the
"Series C Preferred") were issued to X-Treem shareholders, along with 2,608,316
shares of Phlo common stock, in exchange for such X-Treem shareholders'
tendering their shares of X-Treem stock. In addition, 731,683 shares of Series C
Preferred and 6,770,835 shares of common stock were also issued to three
shareholders who had previously tendered their X-Treem shares at the outset of
the Stock Exchange Transaction. These share issuances were intended as a partial
issuance until there were sufficient authorized shares to complete the Stock
Exchange Transaction. When the Stock Exchange Transaction is completed, all
former X-Treem shareholders who participated in the Stock Exchange Transaction
will have received Phlo shares on a pro rata basis based on their ownership of
X-Treem stock.

As of March 31,2001, there are 35,244,415 common shares issued and outstanding
and 11,580,422 common shares subscribed. In addition, options and warrants to
purchase 2,438,333 and 8,921,604 shares of common stock are also outstanding,
respectively.

On December 22, 1999, the Company notified its transfer agent that its legal
counsel believed that no outstanding shares of preferred stock, including both
the Series A and C, had been validly issued, although the Company's prior
outside counsel had issued an opinion that all capital stock had been validly
issued and that the board of directors had authority to approve the issuance of
the classes and series of securities so issued. In November 2000, the Company
amended its Certificate of Incorporation to confer on the Board of Directors
blank check authority to create different classes and series of preferred stock
without further shareholder vote, and to enable the Company to issue all shares
that are subscribed.



                                                                             F-9


<PAGE>


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 goodwill
     charged to operations for the years ended March 31, 2001 and March 31, 2000
     amounted to $12,000 per year.


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 $82,905 and $296,761 are expensed as incurred during
     the years ended March 31, 2001 and 2000, respectively.



<PAGE>

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.

Furniture and Equipment

     Furniture 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 furniture 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.


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.



                                                                            F-10


<PAGE>


Research and Development

     Research and development costs of $106,193 and $0 are expensed as incurred
     during the year ended March 31, 2001.


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 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


<PAGE>


     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.


                                                    2001           2000
                                                    ----           ----

     Numerator:

     Net income (loss)                          $    649,473   ($ 2,831,579)

     Numerator for basic earnings (loss)
        Per share                                    649,473     (2,831,579)

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

     Numerator of diluted earnings (loss)
        Per share                                    695,348     (2,831,579)
                                                ------------   ------------

     Denominator:

     Denominator for basic earnings (loss)
        per share
        weighted average outstanding shares       25,961,646     20,884,262

     Shares which are currently
        Issuable                                  11,550,422             --
                                                ------------   ------------

     Denominator for basic earnings (loss)
        per share                                 37,542,068     20,884,262
                                                ------------   ------------
     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            179,146,125             --
                                                ------------   ------------
     Denominator for dilutive earnings (loss)
        per share                                216,688,193     20,884,262
                                                ============   ============
     Basic earnings (loss) per share                     .02           (.14)
                                                ============   ============

     Diluted earnings (loss) per share                   .00           (.14)
                                                ============   ============



                                                                            F-11


<PAGE>

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.

Recent Accounting Developments

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
     Instruments and Hedging Activities", which as amended is 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.

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 each of
     the two years in the period ended March 31, 2001, are as follows:

<TABLE>
<CAPTION>
                                                         Pro Forma       Pro Forma
                                            Actual      Adjustments     Information
                                            ------      -----------     -----------
<S>                                     <C>              <C>            <C>
     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)
                                        =============                   ============


     Year Ended March 31, 2000:

           Sales                        $   1,125,650             --    $  1,125,650
           Cost of sales                      840,502             --         840,502
                                        -------------                   ------------
              Gross margin                    285,148                        285,148
           Total operating expenses        (2,790,801)       171,491      (2,619,310)
                                        -------------    -----------    ------------
           Operating loss                  (2,505,653)       171,491      (2,334,162)
           Other expense:
              Interest expense               (325,926)       197,200        (128,726)
                                        -------------    -----------    ------------
           Net loss                     $  (2,831,579)       368,691    $ (2,462,888)
                                        =============                   ============
           Average number of shares
              outstanding                  20,884,262                     20,884,262
                                        =============                   ============
           Diluted average number of
              shares outstanding           20,884,262                     20,884,262
                                        =============                   ============
           Basic loss per
              share                     $        (.14)                  $       (.12)
                                        =============                   ============
           Diluted loss per
              share                     $        (.14)                  $       (.12)
                                        =============                   ============
</TABLE>

NOTE 4 - Going Concern

     As shown in the accompanying financial statements, the Company had an
     operating loss of $2,894,469 for the year ended March 31, 2001. As of March
     31, 2001, the Company's current liabilities still exceeded its current
     assets by $2,210,371 and its total liabilities exceeded its total assets by
     $3,077,249. 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 financings and
     generating sufficient revenue through the expansion of its beverage 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, 2002 and beyond.
     Included in these actions is the expansion of the distribution of the "ZO"
     beverage line by signing distribution agreements with Companies such as
     Coca-Cola Hondo Incorporated, Rochester Coca-Cola Bottling Corporation and
     Keystone Coca-Cola Bottling Corporation.

     On June 11, 2001, the Company engaged an investment banking firm, Sands
     Brothers & Co. Ltd. ("Sands"), to act as the exclusive financial advisor to
     the Company for a three year period. This representation will include
     assistance in raising capital for the Company. The agreement requires the
     Company to pay Sands a quarterly retainer in the amount of $12,000, which
     can be paid in warrants to purchase shares of the Company's common stock.
     In addition, the Company issued Sands a warrant to purchase 750,000 shares
     of common stock at an exercise price of $.40 as an inducement for Sands to
     enter into the agreement.

     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 upon there is substantial doubt about the
     Company's ability to continue as a going concern.


                                                                            F-12

<PAGE>


NOTE 5 - Property and Equipment

     Property and equipment consists of the following at March 31, 2001:

          Furniture and fixtures                               $36,118
          Less: Accumulated depreciation                        20,191
                                                               -------

                 Net                                           $15,927
                                                               =======


     Depreciation expense for the years ended March 31, 2001 and 2000 was
     $8,097 and $7,808, 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, 2001:

          Raw material                                        $ 62,568
          Finished goods                                        60,560
                                                              --------
               Total                                          $123,218
                                                              ========

     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:

                                                        2001         2000
                                                        ----         ----

     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.

     Differences between income tax benefits computed at the Federal statutaory
     rate (34%) and reported income taxes for 2000 and 1999 are primarily
     attributable to the valuation allowance for the NOL and other permanent
     differences.

     The NOL carryforward from the year ended March 31, 2000 in the amount of
     approximately $10,616,000 has been reduced by $6,138,802 in connection with
     the X-Treem transaction, as discussed in Note 3. This reduction is for NOL
     carryforwards originated by the X-treem subsidiary that will not be able to
     be utilized by the Company as a result of this transaction. As of March 31,
     2001, the Company estimated the available NOL carryforwards to be
     approximately $ and the Company's total deferred tax assets relating to the
     carryforwards amounted to approximately $3,609,000 which expire though
     March 31, 2021. The Company has a valuation allowance for the full
     assessment of the deferred tax assets at March 31, 2001 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.



                                                                            F-13


<PAGE>


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 December, 1999, a former officer and director of the Company exercised
     options to purchase 20,000 shares of common stock at an exercise price of
     $0.05 per share.



                                                                            F-14


<PAGE>


     A summary of stock option activity is as follows:

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


     Balance - April 1, 1999                 3,208,333            $0.26
                                             ---------

     Options granted                                --
     Options exercised                          20,000             0.05
     Options cancelled                         750,000             0.10
                                             ---------
     Balance - March 31, 2000                2,438,333             0.33

     Balance - March 31, 2001                2,438,333             0.33
                                             =========

     Exercisable at March 31, 2000           2,438,333             0.33
                                             =========
     Exercisable at March 31, 2001           2,438,333             0.33
                                             =========

     The options issued to officers, directors and employees expire in three (3)
     to eight (8) 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 6.25
     years.

     In December, 1999, the Company issued to a former officer and director of
     the Company 20,000 shares of Common Stock as a result of such individual's
     exercise of his options to purchase such shares at an exercise price of
     $0.05 per share.



                                                                            F-15


<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, 2001, 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, 2001, 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, 2001, 1,217,022 shares of Series C Prefered Stock were
     issued and outstanding and 140,027 shares were subscribed in connection
     with private placement unit offerings and 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).


     Common Stock

     On November 9, 2000, the Company filed an Amended and Restated Certificate
     of Incorporation which increased the number of authorized shares of common
     stock from 25,000,000 to 250,000,000. At March 31, 2001, 35,224,415 common
     shares were issued and outstanding.


     In October and November, 1999, in consideration of $121,500, the Company
     sold an aggregate of 303,750 shares of Common Stock, all of which have been
     issued as of March 31, 2001.

     In March 2000, in consideration of $165,000, the Company sold an aggregate
     of 165,000 shares of Common Stock, all of which have been issued as of
     March 31, 2001.

     In April and May 2000, in consideration of $147,500, the Company sold to
     nine investors an aggregate of 108,332 shares of common stock.

     In February, 2001 in consideration of $27,604, the Company sold to two
     investors an aggregate of 12,926 shares of common stock, none of which have
     been issued as of the filing date.

     In March, 2001, in consideration of $72,500, the Company sold to two
     investors an aggregate of 115,000 shares common stock, none of which have
     been issued as of March 31, 2001.

     During the year ended March 31, 2001 the Company issued 414,635 shares of
     stock to a stockholder and officer of the Company, in replacement of
     414,635 shares of common stock used as collateral to post litigation bonds
     in legal actions related to Company and certain of its subsidiaries. (See
     Note 11) Since the litigation has not been resolved the Company has
     recorded the fair value of such shares issued as a litigation bond deposit.

     During the year ended March 31, 2001, the Company issued 5,120,617 shares
     of common stock with a total fair value of $614,475 to various individuals
     for consulting, advertising, marketing and professional services rendered
     to the Company during the period.

     During the year ended March 31, 2001, the Company issued 2,401,670 of
     common stock pursuant to exercise of warrant by an individual and realized
     total proceeds of $24,017.



                                                                            F-16


<PAGE>


     Warrants

1)   In March, 2000, the Company entered into an exclusive license agreement for
     all uses, worldwide, of a proprietary composition consisting of an ester
     (derivative) of Vitamin E combined with a delivery system. In connection
     with the execution of this license agreement, the Company issued the
     licensor of the technology, a warrant to purchase 200,000 shares of the
     common stock of the Company at an exercise price of $0.05 per share.

2)   The following is a summary of warrant activity for the years ended March
     31, 2001 and 2000:

     Outstanding - April 1, 1999:

         Warrants issued                              8,743,762
         Warrants exercised                                  --
                                                     ----------

     Outstanding - March 31, 2000:                    8,743,762

        Warrants issued                               2,199,512
        Warrants exercised                           (2,651,670)
                                                     ----------
     Outstanding - March 31, 2001                     8,291,604
                                                     ==========


     During the year ending March 31, 2001, the Company issued warrants to
     purchase shares of the Company's common stock for various reasons:

     Warrants to purchase 1,319,953 shares of common stock were issued to
     various individuals for advertising, financial, consulting services and in
     conjunction with the issuance of notes payable by the Company. The Company
     recorded total charges to operations of $173,596 related to issuance of
     such warrants.

     879,559 shares of Common Stock in repayment of principal due under a
     promissory note. The Company is involved in litigation with the note holder
     with repsect to this transaction. (See Note 11) The warrants have
     contractual lives varying from three to five years and Weighted average
     fair value of approximately $.11. All warrants are exercisable as of March
     31, 2001.



                                                                            F-17


<PAGE>


     Unit Offerings

1)   On March 30, 1999, the Company completed the sale, as part of a private
     placement offering, of 984,364 units of securities for a purchase price of
     $0.46 per unit (the "Unit Offering"). Each unit consists of two shares of
     the common stock, par value $0.0001, 0.216 of a share of the Series C
     Preferred and the right to purchase one (1) additional share of the common
     stock and 0.108 of additional share of Series C Preferred. Total proceeds
     from the sale of these units amounted to $453,031. None of the rights to
     purchase additional shares of common stock and Series C Preferred Stock was
     exercised prior to the expiration of such rights. Of the total proceeds,
     $430,894 was received prior to March 31, 1999 and the remaining balance of
     $22,137 was received shortly after March 31, 1999. All of these shares of
     common stock and Series C Preferred Stock purchased pursuant to this
     offering were issued.

     In connection with the Unit Offering, the Company has agreed to issue a
     warrant providing for the purchase of 9,606,682 shares of Common Stock at
     an exercise price of $0.01 per share, which warrant has not been issued as
     of March 31, 2001. Additionally, the Company has issued in September, 1999,
     a warrant providing for the purchase of 2,401,670 shares of Common Stock at
     an exercise price of $0.01 per share, and that warrant was exercised in
     February 2001.

2)   In June 1999, in consideration for $500,000, the Company sold 2,312,872
     shares of Common Stock and 238,051.5 shares of Series C Preferred. All of
     the shares of Common Stock and shares of Series C Preferred have been
     issued as of March 31, 2001.

3)   In April and May, 1999, in consideration for $80,000, the Company sold
     units representing an aggregate of 173,913 shares of Common Stock and
     18,782 shares of Series C Preferred. All of the shares of Stock and no
     shares of the Series C Preferred issuable in connection with this
     transaction have been issued as of March 31, 2001.



                                                                            F-18


<PAGE>


NOTE 10 - Debt

     Debt as of March 31, 2001 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 has obtained a summary judgment
     against the Company. The Company believes that the holder
     engaged in intentional conduct which resulted in damage to
     the Company and has filed an action against the holder in
     federal court which is currently pending. In connection with
     the note, the Company issued warrants to the holder and
     another individual to purchase an aggregate of 500,000
     shares of common stock at an exercise price of $0.20 per
     share upon issuance of the note and warrants to the holder
     to purchase an aggregate of 200,000 shares of the common
     stock in connection with its option to extend the maturity
     date of the note to December 31, 1999. In addition, 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



                                                                            F-19

<PAGE>


     Note payable with interest at a rate of 10%. Principal and
     interest are payable at the note's maturity date of December
     31, 2000. 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.                                           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. The Company continues to accrue interest on this 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

     Convertible notes payable with interest accruing at a rate
     of one percentage point (1%) above the prime rate. Principal
     and interest are payable at the notes' maturity dates which
     fall within May 2001. After December 31, 1999, the
     principal under the notes is convertible, at the option of
     the holder, into shares of the Company's common stock at a
     conversion price of $0.22 per share. $200,000 of the debt was
     converted into 454,545 shares of Common Stock, subsequent
     to March 31, 2001.                                                 300,000

     Bridge notes with interest at a rate of one percentage point
     (1%) above the prime rate. The notes matured on March 31,
     2000, when principal and unpaid interest was due. The notes
     are currently in default. The Company and the holder agreed
     after March 31, 2001 to convert this debt into shares of
     common stock at a conversion price of $0.22 per share.             100,000

     In June, 2000, a Senior Subordinated Note in the principal
     amount of $500,000 was entered into with simple interest
     accruing at an annual rate of six percent (6%) and payable
     of the note's maturity date of December 22, 2000. Principal
     and interest are payable in securities at the option of the
     Company. In connection therewith, the Company agreed to
     issue to the holders of the notes warrants to purchase an
     aggregate of 1,000,000 shares of common stock at an exercise
     price of $0.50 per share.                                          500,000

     In August, 2000, a Note in the principal amount of $100,000
     was entered into with interest of 10% per annum, payable
     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.               100,000

     In September, 2000, a Note in the principal amount of
     $150,000 was entered into with interest of 10% per annum,
     payable 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 equivalents, and has elected to do so.                          150,000

     In September, 2000, a Note in the principal amount of
     $25,000 was entered into with interest of 10% per annum,
     payable February 2001. In conjunction with this financing,
     the Company issued a warrant to purchase 50,000 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 Equivalents and has elected to do so.                            25,000

     In November, 2000, the Company issued a note payable in the
     principal amount of $10,000 with an interest rate of 10% per
     annum and principal and accrued interest payable in May,
     2001. At the Company's option, the note is payable in common
     stock or equivalents valued at 80% of the average closing
     price of the Company's common stock in the public market
     during the period of 30 days immediately preceding the
     payment date. In conjunction with this financing, a warrant
     to purchase 20,000 shares of common stock at an exercise
     price of $.50 per share was issued to this holder.                  10,000

     In November, 2000, the Company issued a note payable in the
     principal amount of $12,500 with an interest rate of 10% per
     annum and principal and accrued interest payable in May
     2001. At the Company's option, the note is payable in common
     stock or equivalents valued at 80% of the average closing
     price of the Company's common stock in the public market
     during the period of 30 days immediately preceding the
     payment date. In conjunction with this financing, a warrant
     to purchase 25,000 shares of common stock is issuable to
     this holder.                                                        12,500

     In February, 2001 the Company issued a note payable in the
     principal amount of $40,000 with an interest rate of 10% per
     annum and principal and accrued interest payable in June
     2001. In conjunction with this financing, a warrant to
     purchase 40,000 shares of common stock is issuable to the
     holder. Prior to March 31, 2001, $29,000 of principal was
     paid.                                                               11,000

     In March, 2001, the Company issued a note payable in the
     principal amount of $60,000 with an interest rate of 10% per
     annum and principal and accrued interest payable in July
     2001. In conjunction with this financing, a warrant to
     purchase 60,000 shares of the common stock was issued to the
     holder. Prior to March 31, 2001, $10,000 of principal was
     paid.                                                               50,000

     In March, 2001, the Company issued a note payable in the
     principal amount of $50,000, with an interest rate of 10%
     per annum and principal and accrued interest payable 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.                      50,000

                                                                     ----------

          Total Long-Term Debt                                       $1,680,000

     Less: Current Portion                                           $1,680,000
                                                                     ----------
     Long-Term Debt, net of current portion                          $     --
                                                                     ==========



                                                                            F-20


<PAGE>


NOTE 11 - Commitments and Contingencies


     Loan Guarantee

     The Company is a guarantor of 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. Total outstanding balance of the loan at
     March 31, 2001 was approximately $65,000.

     Litigation

     The Company is involved in litigation with a noteholder which is pending in
     both federal and state courts. The noteholder filed a Motion for Summary
     Judgment in Lieu of Complaint in the state court with respect to a
     promissory note in the principal amount of $250,000, and the Company
     answered and asserted counterclaims. The judge in that case entered a
     judgment in favor of the noteholder and directed the Company to assert its
     claims in a separate action. That decision was appealed and a bond posted
     by the Company, and the appeal is pending. Additionally, the Company filed
     an action in federal court against the noteholder. The U.S. District Court
     recently granted the defendants' motion for summary judgment related to the
     pleading of the causes of action. The Company intends to move for
     reargument of that decision. The Company is unable to predict the outcome
     of the pending litigation and, accordingly, no adjustments have been made
     in the consolidated financial statements in response to these claims.

     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, given the failure of the investment
     banking firm to raise capital. Pursuant to the terms of the note, the
     Company issued a warrant in full payment of the principal and interest
     thereunder. The Company is challenging the action on the basis of
     jurisdiction. In the event it is not successful in asserting such defense,
     the Company will join additional parties in the litigation and assert
     counterclaims related to the damage incurred by the Company for the failure
     to complete the financing. The Company anticipates that these counterclaims
     would far outweigh any award related to the bridge note. Howver, the
     Company is unable to predict the outcome of the pending litigation and,
     accordingly, no adjustments have been made in the consolidated financial
     statements in response to these claims.

     Payroll Taxes

     The Company has not paid payroll taxes since the third quarter 1999
     totaling $430,266. The Company is in the process of filing all returns and
     has accrued estimated penalties and interest of $153,334.

     Lease

     The Company occupies its premises subject to a noncancelable lease
     agreement expiring in March 2004. The Company will pay a fixed monthly rent
     plus real estate taxes.

     Future minimum payments under an operating lease are as follows at March
     31, 2001.

         For the Year Ending
              March 31,                                    Amount
       -------------------------------------------------------------
             2002                                         121,805
             2003                                         121,805
             2004                                          30,450
                                                        ---------

       Total minimum lease payments                     $ 274,060
                                                        =========



     Rent expense for the years ended March 31, 2001 and 2000 was $122,968 and
     $94,772, respectively. In connection with the above lease, a refundable
     security deposit in the amount of $30,063 is being held by the landlord.



                                                                            F-21


<PAGE>


NOTE 12 - Economic Dependency

     Major Customers

     The Company sells a substantial portion of its products to three customers.
     During the year ended March 31, 2001, sales to these customers were
     $113,024, $70,256, and $40,642, or 36%, 20%, and 11%, respectively, for the
     year ended March 31, 2001. As of March 31, 2001, there were no amounts due
     from these customers.

     Major Suppliers

     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 year ended March 31, 2001, an entity controlled by an individual
     who provided consulting services to the Company purchased certain products
     and services on behalf of the Company totaling $127,532 and made advances
     to Company totalling $200,154. Such amounts were repaid through various
     equity transaction entered into by such related party. As of March 31,
     2001, the Company was due $52,435 from this entity.


NOTE 14 - Subsequent Events

A)   Notes Payable

     The following notes were issued by the Company subsequent to March 31,
     2001, in conjunction with financing activities:

     In April, 2001, the Company issued a note payable in the principal amount
     of $100,000, with an interest rate of 10% per annum and principal and
     accrued interest payable in July, 2001. The Company had the option to
     extend the maturity date to October, 2001. In conjunction with this
     financing, a warrant to purchase 100,000 shares of common stock at an
     exercise price of $.50 per share is issuable to the holder. $50,000 of this
     loan was repaid in May, 2001. Additionally, the Company has exercised its
     option to extend the maturity date with respect to $50,000 of the principal
     and all of the interest payable pursuant to the note. As a result, an
     additional warrant to purchase 12,500 shares of the common stock is
     issuable.

     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% per annum 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 such warrant will be determined once the full amount of the
     financing is established.

B)   Equity

     In April, 2001, in consideration of $100,000, the Company sold to an
     investor 222,222 shares of common stock, none of which have been issued as
     of July 16, 2001.

     In April, 2001, in consideration of $25,000, the Company sold to an
     investor 40,984 shares of common stock, none of which have been issued as
     of July 16, 2001.

     In July, 2001, the Company issued a warrant to purchase an aggregate of
     750,000 shares of common stock at an exercise price of $.40 per share
     pursuant to an investment banking agreement, as outlined in Note .

C)   Warrants

     In April and May 2001, in connection with the Stock Exchange Transaction,
     the Company issued warrants to purchase 1,001,337 common shares at $.50 per
     share and 21,643,246 common shares at $.01 per share.

                                                                            F-22


<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               51       President & CEO, Director

Anne P. Hovis                41       Executive Vice President, General
                                      Counsel, Secretary & Director

Allen G. Hoube', Jr.         40       Vice President, Production Operations

Gary Otterbach               41       Vice President, Sales

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.


<PAGE>


     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 Manger of RC Cola Canada Ltd. Mr. Hoube has a B.S. in
Biochemistry from Auburn University.

     Gary Otterbach, Vice President, Sales. Mr. Otterbach is responsible for
gaining distribution of the Company's beverages through national chain accounts.
Previously, Mr. Otterbach was the Chain Sales Manager of Coca-Cola Bottling
Compnay of New York, where he was responsible for managing the company's top
account group. Mr. Otterbach has extensive experience managing key accounts in
states from the Midwest to the East Coast for major beverage companies including
Canada Dry, Seven-Up and other Coca-Cola entitities. Mr. Otterbach has a B.S. in
Marketing and Management from Pierce College of Business.

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.


<PAGE>


ITEM 9. EXECUTIVE COMPENSATION.

     The following table sets forth the compensation paid to the executive
officers for the fiscal year ending March 31, 2001.

                           Summary Compensation Table



<TABLE>
<CAPTION>
                                                                                                 Long-Term Compenation
                                                                                                 ---------------------
                               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           2000        $159,000      -0-        -0-       -0-        -0-            -0-       -0-

Robert J. Sipper*           2000        $115,000      -0-        -0-       -0-        -0-            -0-       -0-

Anne P. Hovis               2000        $123,000      -0-        -0-       -0-        -0-            -0-       -0-
Exec. Vice President
General Counsel &
Secretary

Allen Hoube, VP
Production                  2000        $101,000      -0-        -0-       -0-        -0-            -0-       -0-
Operations
</TABLE>

*    ceased being an officer or employee during 2000.


Compensation of Directors

     The names of the directors of the Company as of March 31, 2001, 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, 2001, for services provided as a director.


Employment Contracts and Termination of Employment and Change-in-Control
Arrangements

     As of April 4, 1996, the Company entered into a five (5) year employment
agreement with Robert Sipper pursuant to which Mr. Sipper served as the
Company's President and Chief Executive Officer. The agreement, which was
amended in February, 1997, provides for Mr. Sipper to receive a salary of
$150,000 per annum. Pursuant to the Stock Exchange Transaction, which involved a
change in control of the Company, Mr. Sipper relinquished his positions as
President and CEO of the Company in December, 1998, and became the Company's
Chief Operating Officer. During the year 2000, Mr. Sipper ceased being an
officer or employee.

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.


<PAGE>


     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.

     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.


<PAGE>


     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, 2001, 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)     25.34%     448,784(5)     28.60%
--------------------------------------------------------------------------------
Anne P. Hovis              8,883,402(6)     25.22%     444,207(7)     33.97%
--------------------------------------------------------------------------------
Edward J. Mathias (8)      7,626,011        21.65%     475,254        35.14%
--------------------------------------------------------------------------------
Joseph P. Nolan (9)        4,890,000        13.88%           0         3.12%
--------------------------------------------------------------------------------
Stuart J. Yarbrough (10)   2,257,733         6.41%           0         1.44%
--------------------------------------------------------------------------------
Union Labor Life(11)       2,312,872         6.57%     236,543.49     16.55%
--------------------------------------------------------------------------------
Allen G. Hoube, Jr           439,188         1.25%           0         0.28%
--------------------------------------------------------------------------------
Gary Otterbach               165,481         0.47%           0         0.11%
--------------------------------------------------------------------------------
All officers and
directors as a
group (four persons)       9,530,421        27.06%     448,784        28.60%
--------------------------------------------------------------------------------


(1)  The address of each Stockholder shown above except as otherwise indicated
     is c/o Phlo Corporation, 475 Park Avenue South, 7th Floor, New York, New
     York 10016.

(2)  Based upon 35,224,423 shares of common stock outstanding as of March 31,
     2000.

(3)  Based on 35,224,423 shares of common stock and 1,217,022 shares of Series C
     Preferred Stock outstanding as of March 31, 2001, 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; however, shares of
     Series C Preferred Stock are not convertible until September 30, 2001.

(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 for his son under the Uniform Gift to
     Minors Act of the Commonwealth of Virginia.

(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 for his son under the
     Uniform Gift to Minors Act of the Commonwealth of Virginia.

(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 and 287,485 shares as to which she shares the power
     to dispose with her husband, James B. Hovis.

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

(9)  Mr. Nolan's address is c/o The Longview Group, LLC, 503 N. Walnut Road,
     Suite 300, Kennett Square, Pa 19348.

(10) Mr. Yarbrough's address is c/o CrossHill Financial Group, Inc., 1825 K
     Street, N.W. Washington, DC 20006.

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


<PAGE>


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, 2000                     F-2

         Consolidated Statements of Operations for the years ended
          March 31, 2000 and 1999                                            F-3

         Consolidated Statements of Stockholders' Equity for the
         years ended March 31, 2000 and 1999                            F-4  F-5

         Consolidated Statements of Cash Flows for the years
          ended March 31, 2000 and 1999                                 F-6  F-7

         Notes to Consolidated Financial Statements                   F-8 - F-18

(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.


<PAGE>


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.


*    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.


<PAGE>


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 18th day of March, 2000.

                                       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 16, 2001
----------------------
James B. Hovis





/s/  Anne P. Hovis          Exec. Vice President, General        August 18, 2000
----------------------      Counsel & Secretary
Anne P. Hovis