UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                   FORM 10-QSB

                Quarterly Report Pursuant to Section 13 or 15 (d)
                     Of the Securities Exchange Act of 1934

For the quarter ended June 30, 2001               Commission File Number 0-21079

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

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

         475 Park Avenue South
                   7th Floor
         New York, New York                               10016
   (Address of principal executive offices)             (Zip code)

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

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
     required to be filed by Section 13 of 15 (d) of the Securities and Exchange
     Act of 1934 during the preceding 12 months (or for such shorter period that
     the registrant was required to file such reports), and (2) has been subject
     to such filing requirements for the past 90 days.

                              Yes  _X_         No ___

     The number of shares outstanding of the issuer's common stock, as of August
17, 2001 is 37,622,228.


                                                                               1
<PAGE>


  PHLO CORPORATION AND SUBSIDIARIES

  INDEX
<TABLE>
<CAPTION>
                                                                          Page to Page
<S>                                                                          <C>
  Item 1.  Financial Statements

           Consolidated Balance Sheet as of June 30, 2001 (Unaudited)           1

           Consolidated Statements of Operations for the three months
           Ended June 30, 2001 and 2000 (Unaudited)                             2

           Consolidated Statement of Cash Flows (Unaudited)                     3

           Notes to Consolidated Financial Statements (Unaudited)             4 -10

  Item 2.  Managements' Discussion and Analysis of Financial
           Condition and Results of Operations

  Signature
</TABLE>


                                                                               2
<PAGE>


                        PHLO CORPORATION AND SUBSIDARIES
                     CONSOLIDATED BALANCE SHEET (Unaudited)
                                  June 30, 2001

                                     ASSETS

<TABLE>
<CAPTION>
CURRENT ASSETS
<S>                                                                              <C>
   Cash                                                                          $372,878
   Accounts receivable                                                             39,989
   Inventory                                                                      248,948
                                                                               ----------

              Total Current Assets                                                661,815

PROPERTY PLANT & EQUIPMENT                                                         20,996

OTHER ASSETS
   Licensing fee - Net of accumulated amortization of $27,000                      33,000
   Security deposits                                                               30,063
   Due from related party                                                         124,284
   Deposit on Bond                                                                 49,756
                                                                               ----------

                                                                                  237,103
                                                                               ----------
              Total Other Assets
                                                                                 $919,914
                                                                               ==========
TOTAL ASSETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                                                              $645,023
   Accrued Expenses and taxes                                                   1,268,096
   Current portion of long-term debt                                            1,478,500
                                                                               ----------

              Total Current Liabilities                                         3,391,619

COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS' DEFICIENCY
   Preferred stock 15,000,000 shares authorized:
   Series A convertible stock, $0.0001 par value, 500,000 shares                       50
   authorized, issued and outstanding (Liquidation preferences $100,000)
   Series B non-convertible stock, none issued and outstanding                          0
   Series C preferred convertible stock, $0.0001 par value 3,000,000 shares             0
   authorized, 1,325,316 shares outstanding (Liquidation preference $15,929)          132
   Series C preferred convertible stock, 31,733 shares subscribed                       3
   Common stock, $0.0001 par value, 250,000,000 shares authorized
    36,481,070 shares issued and outstanding                                        3,647
   Common stock, $0.0001 par value, 12,311,409 shares subscribed                    1,231
   Additional paid-in capital                                                   6,007,555
   Accumulated deficit                                                         -8,484,323
                                                                               ----------

              Total Stockholders' Deficiency                                   -2,471,705
                                                                               ----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                   $919,914
                                                                               ==========
</TABLE>


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


                                                                               3
<PAGE>

                        PHLO CORPORATION AND SUBSIDARIES
                CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
           For the Three Months Ended June 30, 2001, and June 30, 2000


                                                         2001           2000
                                                         ----           ----

SALES                                                 $1,180,445       $196,440

COST OF SALES                                            641,014        162,675
                                                -------------------------------

   GROSS PROFIT                                          539,431         33,765

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES             620,816        726,610
                                                -------------------------------

OPERATING (LOSS)                                         -81,385       -692,845

OTHER INCOME (EXPENSES):
  INTEREST (EXPENSE)                                     -74,546        -72,547
  Other Income                                           237,808             --
                                                -------------------------------
Total Other Income (Expenses)                            163,262        (72,547)

NET INCOME (LOSS)                                        $81,877      -$765,392
                                                ===============================

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING           48,534,561     20,884,282
                                                      ==========     ==========

DILUTED AVERAGE OF NUMBER OF SHARES OUTSTANDING      223,557,976     20,884,282
                                                     ===========     ==========

NET INCOME (LOSS) PER SHARE (BASIC)                        $0.00         -$0.04
                                                           =====         ======

NET INCOME (LOSS) PER SHARE (DILUTED)                      $0.00         -$0.04
                                                           =====         ======


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


                                                                               4
<PAGE>

                        PHLO CORPORATION AND SUBSIDARIES
                 CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)
           For the Three Months Ended June 30, 2001, and June 30, 2000


<TABLE>
<CAPTION>
                                                                               2001        2000
                                                                               ----        ----
<S>                                                                           <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income                                                                     $81,877   -$765,392

Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation                                                        60,000     12,770
Depreciation and amortization                                                   19,461     24,952
(Increase) decrease in accounts receivable                                     -39,989     53,382
(Increase) decrease in Inventory                                              -125,730    103,724
Decrease in other current assets                                               143,604    136,991
(Decrease) Increase in accounts payable                                       -275,149     53,726
Increase in accrued expenses and taxes payable                                 320,950
                                                                              -------------------

              TOTAL ADJUSTMENTS                                                103,147    385,545
                                                                              -------------------

NET CASH FLOW PROVIDED (USED) BY OPERATING ACTIVITIES                          185,024   -379,847

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets                                                        -8,069
Change in due from related party                                                27,212
                                                                              -------------------

NET CASH PROVIDED BY INVESTING ACTIVITIES                                       19,143          0

CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of debt                                                 140,000    499,000
Debt repayment                                                                -104,000
Proceeds from issuance of shares                                               124,973    147,489
                                                                              -------------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                      160,973    646,489
                                                                              -------------------

NET INCREASE IN CASH                                                          $365,140   $266,642

CASH - Beginning                                                                $7,738    $45,139

                                                                              -------------------
CASH - Ending                                                                 $372,878   $311,781
                                                                              ===================
</TABLE>


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


                                                                               5
<PAGE>


     Note 1. Basis of Presentation

     The  accompanying  unaudited  financial  statements  have been  prepared in
     accordance  with  generally  accepted  accounting  principles  for  interim
     financial  information.  Accordingly,  they  do  not  include  all  of  the
     information  and  footnotes  required  by  generally  accepted   accounting
     principles for complete financial statements. In the opinion of management,
     all  adjustments  (consisting  of  normal  recurring  accruals)  considered
     necessary in order to make the financial  statements  not  misleading  have
     been  included.  Results for the three  months  ended June 30, 2001 are not
     necessarily  indicative  of the results that may be expected for the fiscal
     year  ending  March  31,  2002.  For  further   information  refer  to  the
     consolidated  financial  statements and footnotes  thereto  included in the
     Phlo  Corporation and  Subsidiaries  (the "Company")  annual report on form
     10-KSB for the year ended March 31, 2001.

     Note 2.  Company Activities

     The Company,  a Delaware  corporation  incorporated  in December,  1995 and
     located in New York,  New York, 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  currently  sells two brands of beverages.  The Company's "ZO -
     Vital Cell Defense"  beverages,  which  include iced tea,  fruit drinks and
     lemonade,  feature  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
     ZO  -   Vital   Cell   Defense   beverage   line   marks   the   successful
     commercialization of one of the Company's biotechnologies. The Company also
     sells  five  flavors  of  McCoy's  green  teas,  the first and only new age
     beverage  that  delivers a truly  functional  level of  powerful  green tea
     catechins, including the super-antioxidant EGCg.

     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.  The Company conducts its  biotechnology-related
     activities through Phlo System, Inc., and Advanced Bio-Delivery, LLC.

     On October 22, 1998,  the Company  agreed to acquire the capital stock of a
     beverage  company,  X-Treem  Products  Corporation,  through an exchange of
     stock with the shareholders of X-Treem (the "Stock Exchange  Transaction").
     As of June 30, 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 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. During the
     quarter ended June 30, 2001,  the Company  issued  500,592 shares of common
     stock and 108,294 shares of Series C Preferred Stock in connection 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 a partial issuance of shares issuable  pursuant to the Stock
     Exchange Transaction, and when the Stock Exchange Transaction is completed,
     all of the  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. In November,  2000,  X-Treem was
     formally dissolved.


                                                                               6
<PAGE>


     On June 30, 2001,  there are  36,481,070  shares of common stock issued and
     outstanding, and 12,311,409 shares of common stock subscribed. In addition,
     options and warrants to purchase  2,438,333 and 31,236,187 shares of common
     stock are also outstanding, respectively.

     Note 3.  Going Concern

     As shown in the  accompanying  financial  statements,  the  Company  had an
     operating  loss of $81,385 for the quarter  ended June 30, 2001. As of June
     30, 2001 the  Company's  current  liabilities  still  exceeded  its current
     assets by $2,729,804 and its total liabilities exceeded its total assets by
     $2,471,702.  In addition,  the Company is  delinquent  in  connection  with
     various  obligations  including trade payables,  accrued payroll taxes, and
     notes payable.  These factors and uncertain conditions that the Company has
     faced  in  its  day-to-day  operations  create  an  uncertainty  as to  the
     Company's ability to continue as a going concern.  The financial statements
     do not include any  adjustments  that might be  necessary if the Company is
     unable to continue as a going concern. The continuation of the Company as a
     going  concern  is  dependent  upon the  success  of future  financing  and
     generating sufficient revenue through the expansion of its 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  June 30,  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.

     Note 4.  Inventories

     Inventories are stated at the lower of cost or market. Costs, which include
     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 less.

     Note 5.  Notes Payable

     Debt as of June 30, 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  to the  holder a warrant  to  purchase
     250,000  shares of common stock at an exercise price of
     $0.20 per share upon  issuance of the note and warrants
     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



                                                                               7
<PAGE>

     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 7).              250,000

     Note payable  with  interest at a rate of 10%. The Note
     matured on December 31, 2000, when principal and unpaid
     interest  were due. In  consideration  of this loan and
     two prior  bridge  loans,  the Company  agreed to issue
     shares  of  the   Company's   common  and   convertible
     preferred    stock   to   the    holder    representing
     approximately 200,000 shares of common stock on a fully
     converted  basis.  The  holder has agreed to extend the
     maturity date of the note to December 31, 2001.                     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  were due.  The Note is  currently in default,
     although  partial  payment has been made  subsequent to
     the maturity date. No action has been taken against the
     Company to enforce  the Note.  In  connection  with the
     note,  the Company  issued a warrant to purchase  5,000
     shares of common stock at an exercise price of $.04 per
     share.                                                               17,500

     Convertible  note payable with  interest  accruing at a
     rate of one percentage point (1%) above the prime rate.
     Principal  and  interest  were due in May  2001.  After
     December  31,  1999 the  principal  under  the note was
     convertible,  at the option of the holder,  into shares
     of the Company's  common stock at a conversion price of
     $0.22 per  share.  The  holder  has  indicated  that he
     intends  to  convert   the  note  into  shares  of  the
     Company's common stock.                                             100,000

     Notes payable with  interest  accruing at a rate of one
     percentage  point (1%) above the prime rate.  The Notes
     matured  on March 31,  2000 when  principal  and unpaid
     interest  were due.  The  Company and the holder of the
     Note have agreed to convert the  principal and interest
     due under the note into 454,545 shares of the Company's
     common stock.                                                       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%).  Principal  and  interest  were  due  on
     December 22, 2000, the maturity date and 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. (See Note 7)                                    500,000

     Note  payable with  interest  accruing at a rate of 10%
     per annum.  Principal and interest were due in February
     2001. In conjunction  with this financing,  the Company
     issued a warrant to purchase  200,000  shares of common
     stock at an  exercise  price of $.050  per  share.  The
     holder has agreed to extend  the  maturity  date of the
     note to March 2002.                                                 100,000

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

     Note  payable  in  the  original  principal  amount  of
     $60,000  with  interest  accruing  at a rate of 10% per
     annum. Principal and interest are payable in July 2001.
     In  conjunction  with  this  financing,  a  warrant  to
     purchase  60,000  shares of common stock at an exercise
     price of $0.50 per share was issued to the holder.  The
     holder received



                                                                               8
<PAGE>

     repayment  of  $10,000  prior to March 31,  2001 and an
     additional $33,000 during the period April through June
     30, 2001.                                                            17,000

     Note  payable with  interest  accruing at a rate of 10%
     per annum.  Principal  and interest are 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 was issued to the holder.  The
     holder of the note has  agreed to extend  the  maturity
     date  of the  note  and in  connection  therewith,  the
     Company  agreed to issue a warrant to  purchase  25,000
     shares of common  stock at an  exercise  price of $0.50
     per share.                                                           50,000

     Note  payable  in  the  original  principal  amount  of
     $100,000,  with an  interest  rate of 10% per annum and
     principal and interest payable in July 2001. $50,000 of
     the loan was repaid in May, 2001. In  conjunction  with
     this financing, a warrant to purchase 100,000 shares of
     common stock at an exercise price of $0.50 per share is
     issuable to the  holder.  The Company has the option to
     extend  the  maturity  date to October  2001,  which it
     exercised  with respect to the $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 at the same  exercise  price
     is issuable.                                                         50,000

     In April,  2001,  the  Company  was loaned  $40,000.  A
     promissory note has not yet been issued, as that amount
     was only a partial funding of the transaction. The note
     will provide an interest  rate of 10% and a term of 120
     days.  A warrant will be issuable in  conjunction  with
     this financing, however, the amount of shares of common
     stock  purchasable  pursuant  to the  warrant  will  be
     determined  once the full  amount of the  financing  is
     established.                                                         40,000
                                                                      ----------
     Total Current Debt Outstanding                                   $1,478,500
                                                                      ==========


     Note 6. Stockholders Equity

     a.   Common Stock

     In April 2001, the Company sold 222,222,  and 40,984 shares of common stock
     for $100,000 and $25,000, respectively. None of the shares have been issued
     as of the date of this filing.

     In April and May 2001,  three  individuals  elected to convert  $237,500 of
     principal  and $31,999 of interest due on various Notes payable into common
     shares.  968,373  shares of common stock are issuable in  conjunction  with
     these transactions.

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

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

     b.   Warrants

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

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


                                                                               9
<PAGE>

     Note 7.  Commitments and Contingencies

     Loan Guarantee

     The Company is a guarantor  of a loan  obtained  by an  unrelated  party in
     connection with a purchase  agreement.  In addition,  the Company's  assets
     secure the loan.  The amount  outstanding  on the loan at June 30, 2001 was
     approximately  $65,000.  Payment of the loan is secured by shares of common
     stock owned by the unrelated party.

     Litigation

     The Company is involved in  litigation  with a note holder which is pending
     in both  federal  and state  courts.  The note  holder  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 note holder and directed the Company to assert its
     claims in a separate  action.  That  decision  was  appealed and a bond was
     posted by the Company, and the appeal is pending. Additionally, the Company
     filed an action in federal court against the note holder. 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
     rearguments 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 represents 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  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.  However,  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.

     In  August,  2001,  the  Company  filed a lawsuit  against a related  party
     asserting,  among other  things,  breach of  contract,  breach of fiduciary
     duty, and negligence,  and seeking an accounting of financing activity.  No
     answer or  responsive  pleading  has been filed by the  defendant as of the
     date of this filing.

     Payroll Taxes

     The Company has not paid payroll  taxes since the third quarter of 1999 and
     currently  owes  $454,296.  The  Company  is in the  process  of filing all
     returns and has accrued estimated penalties and interest of $180,304. .

     Note 8.  Earnings (Loss) Per Share

     The  Company  has  adopted the  provisions  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,  and  subscribed  shares which are  issuable,  for the period.
     Diluted  earnings per share includes the potential  dilution that occurs if
     securities  or other  contracts  to



                                                                              10
<PAGE>

     issue common  stock were  exercised or  converted  into common  stock.  The
     impact of dilutive  securities  is not included  since the (loss) per share
     would be reduced and the results would be anti-dilutive.


<TABLE>
<CAPTION>
                                                                    2001            2000
                                                                    ----            ----
     Numerator:
<S>                                                               <C>             <C>
     Net loss (gain)                                              $(328,544)      $(765,392)
                                                                 ----------      ----------

     Numerator for basic and diluted loss (gain) per share        $(328,544)      $(765,392)
                                                                 ==========      ==========

     Denominator:

     Denominator for basic and diluted loss (gain) per share
     Weighted average outstanding shares                         36,223,152      20,884,262

     Shares currently issuable                                   12,311,409
                                                                 ----------
     Denominator for basic and diluted loss per (gain) share     48,534,561      20,884,262
                                                                 ==========      ==========


     Basic and diluted gain (loss) per share
                                                                      $(.01)         $(0.04)
                                                                     ======         =======
</TABLE>


     Note 9. Economic Dependency

     Major Customer

     The Company sells a substantial portion of its products to three customers.
     During  the  period  ended  June  30,  2001,  sale to these  customers  was
     $1,119,171,  and  represented  95% of total Company  sales.  As of June 30,
     2001, there was $39,989 receivable from these customers in aggregate.

     Major Supplier

     The Company  purchased a substantial  portion of its raw materials from one
     supplier for the quarter ended June 30, 2001.

     Note 10.  Related Party Transactions

     During  the  quarter  ended  June 30,  2001,  an  entity  controlled  by an
     individual  who  provided  consulting  services  to the  Company  purchased
     certain  products  and  services  for the  Company,  and  made  payment  of
     principal  outstanding  and certain notes payable on behalf of the Company.
     During this  quarter,  the Company also made  advances to this entity.  The
     Company was owed $124,284 by this entity as of June 30, 2001.

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

                                                                              11
<PAGE>


     Note 11. Recent Accounting Pronouncements

     In June 1998, the FASB issued Statement of Financial  accounting  Standards
     No. 133, "Accounting for Derivative Investments and Hedging Activities," or
     SFAS No. 133. This standard established  accounting and reporting standards
     for  derivatives and hedging  activities.  This standard as amended by SFAS
     No. 137, and SAFS No. 138 is effective  for all fiscal  quarters  beginning
     after June 15, 2000.  The adoption of this standard as of April 1, 2001 did
     not have any material impact on the Company's financial statements.

     In July 2001, the FASB Issued Statement of Financial  Accounting  Standards
     No.  141,  "Business  Combinations",  or SFAS No.  141,  and  Statement  of
     Financial  Accounting  Standards No. 142,  "Goodwill  and Other  Intangible
     Assets", or SFAS No. 142. The Company will adopt the provisions of SFAS No.
     141 which requires purchase accounting for business combinations  occurring
     after June 30, 2001.  The Company  intends to adopt the  provisions of SFAS
     142 as of April 1, 2002 and is in the process of determining  the potential
     impact  on  financial  results  which at this  time  does not  appear to be
     significant.

     Note 12.  Subsequent Events

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

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

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

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

Item 2.

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



                                                                              12
<PAGE>

(collectively,  the  "Company")  and  should  be read in  conjunction  with  the
consolidated financial statements and notes appearing elsewhere in this 10-K.

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.

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.

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.

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%.

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. 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



                                                                              13
<PAGE>

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.