UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C. 20549
                                    ---------
                               Amendment No. 1 to
                                   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, 1999              Commission File Number  0-21079

                                PHLO CORPORATION
             (Exact name of registrant as specified in its charter)

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

            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 each of the issuer's classes of common
                   stock, as of June 30, 1999 was 16,958,305.


<PAGE>


PHLO CORPORATION AND SUBSIDIARIES
(FORMERLY PERRY'S MAJESTIC BEER, INC.)

INDEX
------------------------------------------------------------------------------


                                                                    Page to Page
Item 1.  Financial Statements

   Consolidated Balance Sheet as of June 30, 1999
   [Unaudited] .........................................................   1-2

   Consolidated Statements of Operations for the three months
   ended June 30, 1999 and 1998 [Unaudited] ............................    3

   Consolidated Statement of Cash Flows [Unaudited] ....................   4-5

   Notes to Consolidated Financial Statements [Unaudited] ..............   6-22

Item 2.  Managements' Discussion and Analysis of the Financial
         Condition and Results of Operations ...........................  23-24

Signature ..............................................................    25



<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                                          CONSOLIDATED BALANCE SHEET [Unaudited]

                                                         June 30, 1999
--------------------------------------------------------------------------------



                                     ASSETS

                                                                1999
                                                             ----------

CURRENT ASSETS
 Cash                                                        $   50,556
 Accounts receivable, net                                       173,351
 Inventory                                                      263,176
 Note receivable                                                 46,665
 Other current assets                                                --
                                                             ----------


       Total Current Assets                                     533,748
                                                             ----------


PROPERTY AND EQUIPMENT, Net                                      19,871
                                                             ----------


OTHER ASSETS
 Goodwill - net of accumulated amortization of $30,000          430,000
 Security deposits                                               30,063
                                                             ----------


       Total Other Assets                                       460,063
                                                             ----------


       TOTAL ASSETS                                          $1,013,682
                                                             ==========



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

                                                                               1


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                                          CONSOLIDATED BALANCE SHEET [Unaudited]

                                                         June 30, 1999
--------------------------------------------------------------------------------

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY


<TABLE>
<CAPTION>
                                                                          1999
                                                                      -----------
<S>                                                                   <C>
CURRENT LIABILITIES
 Accounts payable                                                     $ 1,317,776
 Accrued expenses and taxes                                             2,059,946
 Current portion of long-term debt                                      1,144,000
                                                                      -----------

       Total Current Liabilities                                        4,521,722

OTHER LIABILITIES
 Long-term debt, less current portion                                     150,000
                                                                      -----------

       TOTAL LIABILITIES                                                4,671,722

STOCKHOLDERS' DEFICIENCY Preferred stock, 15,000,000 authorized:
   Series A convertible stock, $0.0001 par value, 500,000 shares
    issued and outstanding (liquidation preferences $100,000)                  50
   Preferred stock, no par value, 20,000 shares Series A
    convertible preferred stock authorized, 2,247 shares issued
    and outstanding                                                            --
   Series B  non-convertible  stock,  none  issued and  outstanding            --
   Series C  convertible stock, $0.0001 par value, 3,000,000
    shares authorized, 469,457 subscribed                                      47
 Common stock, $0.0001 par value, 25,000,000 shares and
  60,000 authorized, 11,707,248 outstanding                                 1,170
 Common stock, $0.0001 par value, 4,281,600 shares subscribed                 428
 Additional paid in capital                                             3,437,510
 Accumulated deficit                                                   (7,097,245)
                                                                      -----------

       TOTAL STOCKHOLDERS' DEFICIENCY                                  (3,658,040)
                                                                      -----------

       TOTAL LIABILITIES AND STOCKHOLDERS'
        DEFICIENCY                                                    $ 1,013,682
                                                                      ===========
</TABLE>


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

                                                                               2


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                               CONSOLIDATED STATEMENTS OF OPERATIONS [Unaudited]

                              For the Three Months Ended June 30, 1999, and 1998
--------------------------------------------------------------------------------

                                                      1999               1998
                                                  ------------     ------------

SALES                                             $    461,709     $    435,509

COST OF SALES                                          299,903          344,826
                                                  ------------     ------------

       GROSS PROFIT                                    161,806           90,683

SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES                                              841,822          630,076
                                                  ------------     ------------

       OPERATING LOSS                                 (680,016)        (539,393)
                                                  ------------     ------------

OTHER INCOME (EXPENSES)
 Interest expense                                      (33,135)         (23,075)
 Loss on abandoned assets                                   --          (80,500)
                                                  ------------     ------------

       TOTAL OTHER EXPENSES                            (33,135)        (103,575)
                                                  ------------     ------------

       NET LOSS                                   $   (713,151)    $   (642,968)
                                                  ============     ============

Weighted Average Common Shares Outstanding          14,645,456       11,306,452
                                                  ============     ============

Net Loss Per Share (Basic and Diluted)            $      (0.05)    $      (0.06)
                                                  ============     ============


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

                                                                               3


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                               CONSOLIDATED STATEMENTS OF CASH FLOWS [Unaudited]

                               For the Three Months Ended June 30, 1999 and 1998
--------------------------------------------------------------------------------

                                                        1999           1998
                                                    -----------     -----------
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                           $  (713,151)    $  (642,968)
                                                    -----------     -----------
  Adjustments to reconcile net loss to net cash
   used in operating activities:
    Depreciation and amortization                        15,843          (3,206)
    Loss on disposal of equipment                            --          80,500
    Decrease (increase) in accounts receivable         (173,351)        (83,228)
    Decrease (increase) in inventory                   (263,176)          8,804
    Decrease (increase) in other current assets          33,804         105,000
    Increase in security deposits                            --             375
    Increase in accounts payable                         25,607         207,293
    Increase in accrued expenses and taxes              178,170          77,349
    Increase (decrease) in current portion of
      long term debt                                    354,000              --
                                                    -----------     -----------

       TOTAL ADJUSTMENTS                                170,897         392,887
                                                    -----------     -----------

       NET CASH (USED) GENERATED FROM OPERATIONS       (542,254)       (250,081)
                                                    -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of capital stock                 580,020         227,524
                                                    -----------     -----------

       NET CASH PROVIDED BY FINANCING
         ACTIVITIES                                 $   580,020     $   227,524
                                                    ===========     ===========


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


                                                                               4


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                    CONSOLIDATED STATEMENTS OF CASH FLOWS [Unaudited], Continued

                               For the Three Months Ended June 30, 1999 and 1998
--------------------------------------------------------------------------------

                                                 1999            1998
                                               -------         --------

       NET CHANGES IN CASH                     $37,766         $(22,557)

CASH - Beginning                                12,790          (22,557)
                                               -------          -------
CASH - Ending                                  $50,556         $(22,557)
                                               =======         ========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Non-cash investing and financing activities:

     On December  7, 1998,  the Company  issued  8,000,000  shares of its common
     stock  in  exchange  for  68% of  the  equity  interest  in  X-Treem.  This
     transaction was treated as a recapitalization.

     On June 30, 1998, a stockholder of X-Treem exchanged $1,477,524 of debt for
     warrant to purchase 873 shares of X-Treem  common stock.  This exchange was
     treated as a contribution to capital.


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


                                                                               5


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 1 - Basis of Presentation

     On October 22, 1998, Phlo  Corporation  (formerly known as Perry's Majestic
     Beer,  Inc.),  a Delaware  corporation,  ("Phlo")  entered into a letter of
     intent to  acquire  a minimum  of 80% of the  capital  stock of a  beverage
     company,  X-Treem Products Corporation  ("X-Treem") through the exchange of
     up to 93% of the issued and outstanding shares of Phlo's common stock, (the
     "Letter Agreement").  On December 7, 1998, Phlo acquired  approximately 68%
     interest in  X-Treem's  common stock in exchange  for  8,000,000  shares of
     Phlo's common stock (the "stock exchange transaction").  The stock exchange
     transaction was treated as a recapitalization for accounting purposes since
     Phlo was deemed a public shell. The historical  financial  statements prior
     to  December  7, 1998 were  those of  X-Treem.  On June 10,  1999,  Perry's
     Majestic Beer, Inc. changed its name to Phlo Corporation (the "Company").

     On April 2, 1999 the  directors  of the  Company  voted to amend the Letter
     Agreement  by agreeing  not to  reverse-split  Phlo's  stock,  as initially
     intended,  and as a result, changed the rate at which Phlo exchanged shares
     with the  X-Treem  shareholders  from  372.29  to 1 to  4,490.30  to 1. The
     majority of the additional  shares that would be issuable under the amended
     agreement  could not be issued because Phlo did not have enough  authorized
     shares to do so. Based on the amended exchange rate, Phlo would be required
     to  issue a total of  156,877,611  common  shares  to  acquire  100% of the
     outstanding  X-Treem capital stock and warrants from X-Treem  shareholders.
     As of March 31, 2000,  29,214 shares of X-treem capital stock  representing
     97.72% of the total outstanding  shares have been exchanged for Phlo shares
     which have been issued out of authorized shares, or are yet to be issued.

     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  of Phlo common  stock in exchange  for  tendering  their  common
     shares.  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  shares  prior to the  amendment  to the Letter
     Agreement.  These share issuances were intended as a partial issuance until
     there were more  authorized  shares to  satisfy  the total  exchange.  When
     sufficient  shares are  authorized and the exchange  completed,  all former
     X-Treem shareholders who participated in the exchange transaction will have
     received Phlo shares on a pro rata basis.

     In addition,  subsequent to balance  sheet date, as disclosed  above and in
     Note 11, the Company has issued  additional  shares of common  stock which,
     after taking into  consideration  the total  outstanding stock warrants and
     options,  would, if such warrants and options were fully  exercised,  cause
     the overall  outstanding  shares of common  stock to exceed the  25,000,000
     shares of common stock the Company  presently has  authorized.  As of March
     31,  2000  there  are  currently   24,328,255   common  shares  issued  and
     outstanding.


                                                                               6


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 1 - Basis of Presentation, continued

     In  addition,  options and  warrants to purchase  2,438,333  and  6,342,092
     shares of common stock are also outstanding (respectively).

     On December 22, 1999 the Company  notified their transfer  agent,  American
     Stock  Transfer & Trust Company,  that no  outstanding  shares of preferred
     stock,  including  both the Series A and C have been  validly  issued.  The
     Company is in the process of amending its Certificate of  Incorporation  to
     confer on the Board of Directors  blank check  authority to create  classes
     and series of Preferred Stock without further  shareholder  vote. Once this
     has been accomplished,  the Company intends to replace the old Series A and
     C certificates with replacement shares of preferred stock which are validly
     issued.

     The Company is required by both Delaware and U. S.  Securities  law, and is
     therefore  presently  taking the necessary  steps, to authorize  additional
     shares of common stock so the Company can satisfy its  requirements to meet
     commitments to issue stock and have the ability to accommodate  current and
     future stock issues.

NOTE 2 - Organization and Nature of Business

     Phlo was formed in December 1995 and is located in New York, New York. Phlo
     has  completed  its  transformation  from a  microbrew  beer  company  to a
     technology company,  which is using the high-volume  chain-store segment of
     the non-alcoholic beverage industry to commercialize its technology.

     X-Treem, a Delaware corporation, was formed on April 11, 1997, was formerly
     engaged in  producing  and  marketing  new-age  beverage  lines,  including
     primarily  the McCoy's line of fruit drinks,  lemonades and  ready-to-drink
     iced  teas.   X-Treem  acquired  raw  materials,   intellectual   property,
     distribution  contracts  and  assumed  certain  liabilities  of a  beverage
     company as part of its formation.


NOTE 3 - Summary of Significant Accounting Policies

     Basis of Reporting

     The  accompanying  audited  financial  statements  have  been  prepared  in
     accordance with generally accepted accounting principles.


                                                                               7


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 3 - Summary of Significant Accounting Policies, continued

     Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
     and its subsidiaries, X-Treem, 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  period.  Actual  results  could  differ  from those
     estimates.

     Goodwill

     Goodwill  in  connection   with   acquisitions  is  being  amortized  on  a
     straight-line  basis over a fifteen-year  period.  Amortization of goodwill
     charged to operations  for the three months ended June 30, 1999 amounted to
     $10,000.

     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.  Inventory at
     June 30, 1999 was $263,176.

     Advertising Expense

     Advertising costs are expensed as incurred during the period.

     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.


                                                                               8


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 3 - Summary of Significant Accounting Policies, continued

     Depreciation and Amortization

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

     Revenue Recognition

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

     Income Taxes

     Deferred  income tax assets  and  liabilities  are  computed  annually  for
     differences  between the consolidated  financial statement 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  sheets 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
     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 Statement of Financial  Accounting  Standards  ("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.


                                                                               9


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 3 - Summary of Significant Accounting Policies, continued

     Net (Loss) Per Share

     The Company  adopted the  provision of SFAS No. 128,  "Earnings per Share".
     SFAS No. 128  eliminates  the  presentation  of primary and fully  dilutive
     earnings per share ("EPS") and requires  presentation  of basic and diluted
     EPS. 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  for  the  shares  issued  in the
     recapitalization.  Diluted EPS is based on the  weighted-average  number of
     shares of common stock and common stock equivalents  outstanding during the
     year.  Common stock  equivalents have been excluded from the calculation of
     diluted EPS for 1999 and 1998, as such inclusion is anti-dilutive.

     Comprehensive Income

     In 1997,  the FASB issued the Statement of Financial  Accounting  Standards
     No.  130,  "Reporting   Comprehensive   Income"  ("SFAS  No.  130"),  which
     establishes  standards for reporting and display of  comprehensive  income,
     its components and accumulated balances. Comprehensive income is defined to
     include all changes in equity,  except those resulting from  investments by
     owners and distributions to owners.  Among other disclosures,  SFAS No. 130
     requires  that all items that are required to be  recognized  under current
     accounting standards as components of comprehensive income be reported in a
     financial  statement that is displayed  with the same  preeminence as other
     financial statements.  The Company adopted this standard in fiscal 1999 and
     the  implementation  of  this  standard  did not  have  any  impact  on its
     financial statements.

     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  customer and
     operations are within the United States.

     Accounting Developments

     In March 1998, the Accounting Standards Executive Committee of the American
     Institute  of  Certified  Public   Accountants  ("ASEC  of  AICPA")  issued
     Statement  of  Position  ("SOP")  No.  98-1,  "Accounting  for the Costs of
     Computer  Software  Developed or Obtained for Internal Use".  Effective for
     fiscal years  beginning after December 15, 1998, SOP No. 98-1 requires that
     certain costs of computer  software  developed or obtained for internal use
     be continued  capitalized and amortized over the useful life of the related
     software.  The Company does not expect that the  adoption of this  standard
     will have a material impact on its financial statements.


                                                                              10


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 3 - Summary of Significant Accounting Policies, continued

     In April 1998,  the ASEC of AICPA  issued SOP No. 98-5,  "Reporting  on the
     Costs of Start-up  Activities".  Effective for fiscal years beginning after
     December 15, 1998.  SOP 98-5 requires the costs of start-up  activities and
     organization costs to be expensed as incurred.  The Company does not expect
     that the  adoption  of this  standard  will have a  material  impact on its
     financial statements.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
     Instruments and Hedging  Activities",  effective for fiscal years beginning
     after June 15, 1999, which has been deferred to June 30, 2000 by publishing
     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 the  adoption of this  standard  will have a
     material impact on its financial statements.

NOTE 4 - Going Concern

     As shown in the accompanying  financial statements,  the Company incurred a
     net loss of $713,151  during the three months  ended June 30,  1999.  As of
     June 30,  1999,  the  Company's  current  liabilities  exceeded its current
     assets by $3,987,974, and its total liabilities exceeds its total assets by
     $3,658,040.  These factors,  as well as the uncertain  conditions  that the
     Company faces 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, generating
     sufficient revenue through the expansion of its beverage lines,  and/or the
     sublicensing  of its  exclusively  licensed  technologies  in exchange  for
     sub-licensing fees and royalties.

     Management  has  taken  action  and  is  formulating  additional  plans  to
     strengthen the Company's  working capital position and generate  sufficient
     cash to meet its operating  needs  through June 30, 2000 and beyond.  Among
     the actions taken, the Company anticipates  generating more revenue through
     the expansion of its McCoy's  beverage  line,  raising of additional  funds
     through  private  placement  offerings of its securities and utilization of
     public securities  markets and generating  licensing fees. No assurance can
     be made that the management will be successful in achieving its plan.


                                                                              11


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 5 - Property and Equipment

     Property and equipment consists of the following at June 30, 1999:

                                                  1999
                                                ---------

     Furniture and fixtures                     $  30,000
     Less: Accumulated depreciation               (10,129)
                                                ---------

            Net                                 $  19,871
                                                =========


     Depreciation expense for the three months ended June 30, 1999 was $5,843.

NOTE 6 - Income Taxes

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

     Differences  between income tax benefits  computed at the Federal statutory
     rate  (34%)  and  reported  income  taxes  for 1999 and 1998 are  primarily
     attributable  to the valuation  allowance  for the NOL and other  permanent
     differences.

     As of June 30, 1999, the Company  estimated the available NOL carryforwards
     to be approximately  $7,213,000 and the Company's total deferred tax assets
     relating to the  carryforwards  amounted to approximately  $2,885,000.  The
     Company has a valuation  allowance for the full  assessment of the deferred
     tax  assets at June 30,  1999 as  management  does not  believe  it is more
     likely than not that the valuation of the asset is recoverable.

     Further,  the Company is not  current in the  filings of Federal,  state or
     local income or franchise  tax  returns.  This may have a material  adverse
     effect  on the  amount  of any net  operating  loss  carryforwards  and may
     subject the Company to fines.

NOTE 7 - 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.


                                                                              12


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 7 - Stock Options, continued

        Options Granted Separate from the Stock Option Plan

        In connection with the initial public  offering,  the Company granted to
        its  underwriter  in July 1996 an option to  purchase  58,333  shares of
        common  stock  at a  purchase  price  of  $7.20  per  share  exercisable
        commencing July 1997 and expiring July 2001.

        During the year ended March 31,  1998,  the  Company  granted a total of
        1,350,000  options to purchase common stock with an exercise price equal
        to fair market value at time of issuance to certain officers,  directors
        and  employees.   In  addition,   the  Company  issued  options  to  two
        consultants  to  purchase  100,000  shares of its common  stock each for
        services rendered during the year ended March 31, 1998. Accordingly, the
        Company recorded compensation expense of $46,000 for options issued.

        In July  1998,  in  connection  with the  acquisition  of  Leroux  Creek
        applesauce  brand,  the Company  granted  options to purchase of 750,000
        shares of its common stock to Leroux Creek and a former  stockholder  of
        Leroux  Creek with an exercise  price of $0.10 per share.  None of these
        options were issued and the Company has been relieved from such issuance
        by agreement of all parties in June 1999 (see Note 11).

        In  December  1998,  the Company  issued a combined  total of options to
        purchase  850,000 shares of its common stock to two officers in exchange
        for the return of 450,000  shares of common  stock from these  officers.
        These  options  have  exercise  price of $0.05 per  share and  expire in
        December 2003 (See Note 8).

        A summary of stock option activity is as follows:

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

     Balance - April 1, 1997                           58,333         $7.20

     Options granted                                1,550,000          0.46
     Options exercised                                     --
     Options cancelled                                     --
                                                    ---------

     Balance - March 31, 1998                       1,608,333          0.48

     Option granted                                 1,600,000          0.75
     Option cancelled                                      --
     Option exercised                                      --
                                                    ---------

     Balance - March 31, 1999                       3,208,333         $0.57

     Balance - June 30, 1999                        3,208,333         $0.57
                                                    =========


                                                                              13


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 7 - Stock Options, continued

     Options Granted Separate from the Stock Option Plan,  continued

     The options issued to officers,  directors and employees expire in five (5)
     to ten (10) 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 7.25
     years.

     Pro forma  information  regarding  net  income  and  earnings  per share is
     required  by SFAS  123,  and has  been  determined  as if the  Company  had
     accounted  for its stock  options  under the fair value method of SFAS 123.
     The weighted-average fair value of options granted was $0.21 per share. The
     fair  market  value for these  options was  estimated  at the date of grant
     using   a   Black-Scholes   option-pricing   model   with   the   following
     weighted-average assumptions for the three months ended June 30, 1999:

                                     ASSUMPTIONS
     ---------------------------------------------------------------------------

     Risk-free rate                                                  4.43%
     Dividend yield                                                     --
     Volatility factor of the expected market price                  1.517
     Average life                                                  5 Years

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
     estimating  the  fair  value  of  traded  options,  which  have no  vesting
     restrictions  and are fully  transferable.  In addition,  option  valuation
     models require that input of highly  subjective  assumptions  including the
     expected stock price  volatility.  Because the Company's stock options have
     characteristics  significantly  different from those of traded options, and
     because changes in the subjective input  assumptions can materially  affect
     the fair value estimated,  in management's  opinion, the existing models do
     not necessarily  provide a reliable single measure of the fair value of its
     stock options.

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
     options is amortized to expense over the vesting period of the options. The
     Company's pro forma information for the three months ended June 30, 1999 is
     as follows:

      Net Loss - As reported                                          $(713,151)
      Net Loss - Pro forma                                             (693,151)

      Pro forma net loss per share:
                    - Basic                                              $(0.05)
                    - Diluted                                            $(0.05)


                                                                              14


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 8 - Stockholders' Equity

     Common Stock

     Phlo has 25,000,000  authorized common shares,  $0.0001 par value, of which
     3,783,335 shares were issued and outstanding at March 31, 1998.

     On December 1, 1998, two officers of the Company returned 450,000 shares of
     the common  stock in exchange  for options to  purchase  850,000  shares of
     common  stock (see Note 7).  These  returned  shares were treated as having
     been retired.

     On December 7, 1998,  Phlo issued  8,000,000  shares of its common stock to
     three shareholders of X-Treem pursuant to a stock exchange  transaction and
     obtained a 68% equity interest of X-Treem (see Note 1).

     Exchange of Debt for Warrant by a Stockholder

     On June 30, 1998, a note payable  along with related  interest in the total
     amount of  $1,477,524  was exchanged  for a warrant by a  stockholder.  The
     holder of the  warrant is  entitled to purchase of 893 shares of the common
     stock of X-Treem at an  exercise  price of $0.50 per share.  In  connection
     with the stock exchange  transaction,  this warrant can be converted into a
     warrant to purchase shares of Phlo's common stock.

     Preferred Stock

     The Company has  15,000,000  shares of preferred  stock,  $0.001 par value,
     authorized.

     Series A Convertible Preferred Stock

     At June 30, 1999,  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 subject
     to certain conversion, redemption and liquidation provisions, as defined.

     Series B Non-Convertible Preferred Stock

     At June 30,  1999,  none of the 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.


                                                                              15


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 8 - Stockholders' Equity, continued

     Series C Convertible Preferred Stock

     At June 30, 1999, none of the Series C Convertible Preferred Stock ("Series
     C Preferred") was issued and outstanding and 469,457 shares were subscribed
     in connection with the private  placement  offering (see below) and private
     offerings  during  the  quarter,  April  1999 to June  1999.  The  Series C
     Preferred  is subject to certain  conversion,  redemption  and  liquidation
     provisions,  as defined. In addition,  each share of the Series C Preferred
     is convertible into 100 shares of the Company's common stock.

     The  Company  is  intending  on taking  the  necessary  steps to  authorize
     additional  shares of common  stock so the Company will have the ability to
     accommodate current and future stock issues.

     Private Placement Offering

     On March 30, 1999,  the Company  completed  the sale,  as part of a private
     placement  offering,  of  984,364  units  of  securities  for an  aggregate
     purchase  price of $0.46 per unit.  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  additional one (1) 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.  Of the total proceeds,  $430,894
     was received  prior to March 31, 1999 and the remaining  balance of $22,137
     was received  shortly  subsequent  to March 31, 1999.  As of June 30, 1999,
     such  common  stock,  Series C Preferred  and rights have not been  issued.
     Accordingly,  these  common stock and Series C Preferred  are  presented as
     shares subscribed but not yet issued on the accompanying balance sheet.


NOTE 9 - Long-Term Debt

     Long-term debt as of June 30, 1999 consists of the following:

                                                            1999
                                                         ----------
     Note payable  with  interest at 10% per annum.
     This note was  converted to equity in 1999.         $       --

     Term note payable with interest due monthly
     at a rate of 12% per annum. The note matured
     on March 31, 1998 when principal and unpaid
     interest was due. The note is currently in
     default. No action has been taken or threatened
     against the Company to enforce the note. The
     Company continues to accrue interest on this note.     600,000
                                                         ----------

          Balance (forward)                              $  600,000
                                                         ----------


                                                                              16


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 9 - Long-Term Debt, continued

                                                            1999
                                                         ----------

                    Balance (forward)                    $  600,000

     Term note payable with interest at a rate of 12%
     per annum. Principal and accrued interest are
     payable at the note's maturity date on
     February 12, 2001.  The Company continues to
     accrue interest on this note.                           50,000

     Note payable with principal plus an interest
     payment of $10,000 are payable at the note's
     maturity on June 27, 1997. The note provides for
     a penalty interest at a rate of $1,250 per week
     after maturity. The holder of the note has
     initiated an action to enforce the note. The
     Company continues to accrue interest on this note.     100,000

     Note payable with interest at a rate of 12% per
     annum. Principal and interest are payable at the
     note's maturity date on November 24, 2000. The
     Company continues to accrue interest on this note.     100,000

     Note payable with principal plus an interest
     payment of $5,000 were payable at the loan's
     maturity date on March 31, 1998. The parties
     agreed to convert this debt into equity, however,
     this conversion has not taken place to date, and
     therefore, the note is in default. The Company
     continues to accrue interest on this note. The
     holder has agreed informally to extend the date
     of maturity in order to consummate the
     conversion.                                             45,000

     Note payable with principal plus an interest
     payment of $5,000 was payable on the note's
     maturity date on March 30, 1998. The parties
     agreed to revise the terms of the note to provide
     for an increase in interest payable from $5,000
     to $10,000 and a maturity date of December 31,
     1998 The note is currently in default. No action
     has been taken or threatened against the Company
     to enforce the note. The Company continues to
     accrue interest on this note.                           45,000

     Term note payable was entered into. Simple interest
     accrues at an annual rate of 14% and is payable at
     the note's maturity date of August 30, 1999. The
     Company exercised its option to extend the maturity
     date of the note to December 31, 1999, in exchange
     for the issuance to the holder of warrants to
     purchase 200,000 shares of common stock at an
     exercise price of $0.20 per share.  Payment was not
     made on the date of maturity.  The Company believes
     that the holder engaged in intentional conduct
     which resulted in damage to the Company.  The holder
     filed a motion for summary judgment against the
     Company, and the Company answered and asserted its
     counterclaims.  On March 7, 2000, the summary
     judgment motion was granted, and the Company's
     claims were severed.  The Company is preparing to
     bring an action against the holder to assert its
     claims.                                                250,000

     Bridge loan payable in the principal amount of
     $104,000 with simple interest accruing at an annual
     rate of 10% which is payable at the note's maturity
     date of December 31, 2000. In consideration of this
     loan and two prior bridge loans, the Company has
     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
                                                         ----------

           Total Long-Term Debt                           1,294,000

     Less: Current Portion                                1,144,000
                                                         ----------

     Long-Term Debt, net of current portion              $  150,000
                                                         ==========


                                                                              17


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 10 - Commitments and Contingencies

     Employment Agreements

     The Company has one  employment  agreement with an executive of the Company
     that expires in the year 2001. The annual  commitments for compensation are
     approximately $150,000 each year.

     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. The total outstanding  balance of the loan
     at March 31, 1999 was approximately $65,000.

     Licensing Agreement

     On December 5, 1998,  the Company  entered into an agreement to exclusively
     license an advanced delivery  technology and the related trademarks for use
     in the  development,  manufacture,  marketing,  distribution  and  sale  of
     products  incorporating the delivery system in the United States and Canada
     for $70,000.  The Company paid $60,000 during the year ended March 31, 1999
     and additional  $10,000 was paid  subsequent to the year-end.  In addition,
     the  Company is  required  to pay  royalty  fee of 2.5% of net sales of the
     products, as defined.

     Litigation

     The  Company  is  involved  in  litigation  through  the  normal  course of
     business.  The Company  believes that the  resolution of these matters will
     not  have a  material  adverse  effect  on the  financial  position  of the
     Company.

     On February 12, 1999,  a judgment in the amount of  $1,064,616  was entered
     against  X-Treem.  Such  amount has been  accrued  and  included in accrued
     expenses at March 31, 1999.

     Related Party Transactions

     On December 1, 1998,  Phlo entered into a license  agreement  with X-Treem,
     whereby  X-Treem granted to Phlo the exclusive right and license to use the
     names and marks of the McCoy  products,  including  but not  limited to the
     right and  license to  manufacture  and sell such  products  (the "Name and
     Marks") for $100,000.  In addition,  X-Treem also granted to Phlo an option
     to  purchase  the Name and Marks for  $300,000.  The option  will expire on
     December  31,  2001.  On  December  23,  1998,  after  the  stock  exchange
     transaction as discussed in Note 1, Phlo exercised the option and issued to
     X-Treem a promissory note of $300,000 with interest at 10% per annum.  This
     exercise of the option was treated as a related party  transaction  and has
     been eliminated in the consolidation.


                                                                              18


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 10 - Commitments and Contingencies, continued

     Payroll Taxes

     The Company has unpaid  payroll taxes since the fourth  quarter  1997.  The
     Company is in the  process of filing all  unfilled  returns and has accrued
     estimated penalties and interest of $125,000.

     Late Filings

     Pror to this filing the Company had not filed certain  quarterly and annual
     reports with the Securities and Exchange  Commission.  Management  believes
     that the previously late filings will not have a material adverse effect on
     the financial position of the company

     Leases

     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 June 30,
     1999.


                   2000                      $120,250
                   2001                       120,250
                   2002                       120,250
                   2003                       120,250
                                             --------

                            Total            $481,000
                                             ========


     Rent  expense  for the three  months  ended June 30, 1999 was  $30,063.  In
     connection  with the above  lease,  a  refundable  security  deposit in the
     amount of $30,063 is being held by the landlord.

NOTE 11 - Subsequent Events

     Creation of Subsidiaries and Assignment of Assets

     The Company  incorporated Phlo Beverage  Products  Company,  a wholly owned
     subsidiary of the Company,  on July 16, 1999. On July 19, 1999, the Company
     assigned to Phlo  Beverage  Products  Company  all of its right,  title and
     interest in and to finished  goods,  furniture and fixtures,  raw materials
     inventory,  and all intellectual property,  related to the McCoy's beverage
     line.


                                                                              19


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 11 - Subsequent Event, continued

     Creation of Subsidiaries and Assignment of Assets, continued

     Thereafter,  the production and sale of McCoy's  beverages was conducted by
     Phlo Beverage Products Company.

     The Company  incorporated  Phlo System,  Inc., a wholly owned subsidiary of
     the Company,  on August 2, 1999. On August 4, 1999, the Company assigned to
     Phlo  System,  Inc. all of its right,  title and interest in the  exclusive
     license of the  advanced  delivery  technology  for use in all  liquids and
     certain   foods.   Phlo   System,   Inc.   will   conduct   the   Company's
     biotechnology-related activities.

     Notes Payable

     The following notes were issued by the Company subsequent to June 30, 1999,
     in conjunction with financing activities:


     In November and December 1999,  convertible  notes payable in the aggregate
     amount of $400,000  were entered into with simple  interest  accruing at an
     annual  rate of one  percentage  point  (1%)  above the  prime  rate and is
     payable  at the notes'  maturity  dates  which  begin in 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.


                                                                              20


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 11 - Subsequent Event, continued

     Notes Payable, continued

     In December 1999, two bridge loans in the aggregate amount of $100,000 were
     entered  into  with  simple  interest  accruing  at an  annual  rate of one
     percentage  point  (1%)  above the prime  rate and is payable at the notes'
     maturity  date of March 31, 2000. A payment  default  occurs under the note
     only in the event that the  Company  fails to pay an amount due as and when
     payable, with such failure continuing for a period of thirty days.

     Equity

     In October and November,  1999, in consideration  of $121,500,  the Company
     sold to seven investors units  aggregating  303,750 shares of Common Stock,
     of which 253,750 shares have been issued as of March 15, 2000.

     In March,  2000,  in  consideration  of $165,000,  the Company sold to five
     investors  an aggregate of 165,000  shares of Common  Stock,  none of which
     have been issued as of March 15, 2000.

     In connection with the Unit Offering commenced in the fourth fiscal quarter
     of 1999, the Company has agreed to issue a cashless  warrant  providing for
     the  purchase of 9,606,682  shares of Common Stock at an exercise  price of
     $0.01 per share in consideration  for providing bridge financing related to
     such offering and to issue a cashless warrant providing for the purchase of
     2,401,670  shares of Common  Stock at an exercise  price of $0.01 per share
     for investment  banking  services  related to such offering.  Such warrants
     have not been issued as of March 15, 2000.

     In August and November  1999,  the Company issued 511,435 and 30,000 shares
     of  Common  Stock to a  company  in  consideration  of  financial  services
     rendered.

     In September,  1999,  the Company issued 26,374 shares of Common Stock to a
     company in connection with advertising services rendered to the Company and
     36,550  shares  of  Common  Stock to a law firm in  connection  with  legal
     services rendered to the Company.


                                                                              21


<PAGE>


                                               PHLO CORPORATION AND SUBSIDIARIES
                                          (FORMERLY PERRY'S MAJESTIC BEER, INC.)

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [Unaudited]
--------------------------------------------------------------------------------

NOTE 11 - Subsequent Event, continued

     Equity, continued

     Between  August and  October,  1999,  the Company  issued an  aggregate  of
     125,000 shares of Common Stock to two of its distributors pursuant to sales
     incentive programs offered to such distributors by the Company.

     In December, 1999, the Company entered into an agreement with the providers
     of  advertising  and  marketing  services  pursuant  to which such  service
     providers  would earn warrants to purchase an aggregate of 50,000 shares of
     Common Stock at an exercise price of $0.10 per share in  consideration  for
     services rendered.  Pursuant to such agreement,  warrants providing for the
     purchase  of such shares vest and become  issuable  as the  performance  of
     certain tasks is accomplished.  In connection therewith, the Company issued
     two cashless  warrants in January,  2000,  each  providing for the purchase
     thereunder  of 8,333  shares of the Common  Stock at an  exercise  price of
     $0.10 per share.

     In October,  1999,  the Company  issued 20,000 shares of Common Stock to an
     individual in connection  with an agreement  providing for the rendering of
     investment banking services. Terms of this agreement were breached, and the
     Company  has filed  suit  seeking  damages  and the return of the shares of
     Common Stock to the Company.

     In March,  2000,  Phlo  System,  Inc.  entered  into an  exclusive  license
     agreement for all uses, worldwide, 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.


                                                                              22


<PAGE>


Item 2:

PHLO CORPORATION
(FORMERLY PERRY'S MAJESTIC BEER, INC.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS [Unaudited]
--------------------------------------------------------------------------------

For the three  months ended June 30, 1999  compared  with the three months ended
June 30, 1998.

The following  discussion of the  Company's  financial  condition as of June 30,
1999 and results of operations for the three months ended June 30, 1999 and 1998
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-QSB.

OVERVIEW

The Company  manufactures  and sells the McCoy's  beverages,  which  feature the
unique concept of  "microbrewed"  fruit drinks,  lemonades,  iced teas and green
teas as well as distinctive  flavors,  packaging and bottle. The McCoy's line of
all natural beverages  contains no  preservatives,  artificial colors or flavors
and is made from the highest quality natural ingredients.

The McCoy's  line is offered in 20 ounce  proprietary  glass  bottles in 12 pack
cases, and currently encompasses 17 flavors, as follows:

Iced Teas        Green Teas                Lemonades          Fruit Drinks
---------        ----------                ---------          ------------
Lemon            Lemon                     Pink               Blackberry Cherry
Diet Lemon       Diet Lemon                Old Fashioned      Kiwi Strawberry
Peach            Peach                                        Raspberry Vanilla
Raspberry        Raspberry                                    Tropical Punch
                 Ginger Vanilla
                 Ginger Mandarin Orange
                 Ginger Plum

McCoy's  Diet  Lemon  Iced  Tea and  Diet  Lemon  Green  Tea  contain  Aspartame
(NutraSweet), a low calorie sweetener. The lemonades and fruit drinks contain 5%
juice while the iced teas and green teas contain no fruit juice.

The Company will be  introducing  diet versions of the McCoy's iced teas,  green
teas, and certain of the fruit drinks.  The Company will also add new flavors to
those currently offered.

The Company has been actively  developing a proprietary  product base the result
of which would dramatically  increase the intrinsic value of the Company and its
valuation within the financial  community and financial markets.  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 and development 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 has exclusively  licensed a proprietary  (patent  pending)  advanced
delivery  technology for use in liquids and apple-based  products throughout the
United States and Canada.  Through the use of this technology,  the Company will
be able to deliver to the consumer in the most  effective and  consumer-friendly
manner  nutritional and/or  pharmaceutically  active agents through its beverage
products. The Company is currently developing the delivery system for use in all
of its beverages.


                                                                              23


<PAGE>


RESULTS OF OPERATIONS

The Company had a net loss of $713,151  for the three months ended June 30, 1999
as compared to a net loss of $642,968  for the three months ended June 30, 1998.
The loss from  operations  for the three months ended June 30, 1999 is primarily
due to the time  required to establish the two tier system of  distribution  and
$242,000  in charges  recorded  in  connection  with stock  issued for  services
pursuant to SFAS 123.

The net sales for the  Company  for the three  months  ended  June 30,  1999 was
$461,709 as compared to $435,509 for the three months ended June 30, 1998.

The Company had a gross  profit of $161,806 or 35% as compared to a gross profit
of  $90,683  or  20.8%  for the  three  months  ended  June 30,  1999 and  1998,
respectively. The increase in the gross profit is due to an improved promotional
program relating to the introduction of McCoy's.

The Company's selling,  general and administrative expenses for the three months
ended June 30,  1999 and 1998 were  $841,822  and  $630,076,  respectively.  The
former includes $242,000 associated with stock referred to above.

LIQUIDITY AND CAPITAL RESOURCES

The Company incurred a net loss for the year ended March 31, 1999 and the period
from April 1, 1999  through  June 30,  1999 equal to  $2,700,230  and  $713,151,
respectively.  In addition the Company has a working capital deficit at June 30,
1999 equal to $3,987,974.  Management has implemented  plans to raise additional
capital.  During the period from July 1999 to February  2000, the Company raised
approximately  $1,600,000  in equity and loan  transactions.  Additionally,  the
Company has implemented  plans to increase  beverage sales,  especially to chain
supermarkets  accounts.  By December 31, 1999,  the number of chain  supermarket
units that had authorized  carrying the McCoy's  beverages has increased  nearly
400% to 2057  stores  at  December  31,  1999.  Management  believes  it will be
successful in  implementing  steps  necessary to operate in the normal course of
business.  However there is no assurance of this,  and, if not  successful,  the
Company would no longer be able to operate as a going concern.

These factors, as well as the uncertain conditions that the Company faces 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,  generating sufficient revenue through the
expansion of its beverage  lines,  and/or the  sublicensing  of its  exclusively
licensed technologies in exchange for sub-licensing fees and royalties.

Management  has taken action and is formulating  additional  plans to strengthen
the Company's working capital position and generate  sufficient cash to meet its
operating needs through June 30, 2000 and beyond.  Among the actions taken,  the
Company anticipates generating more revenue through the expansion of its McCoy's
beverage line,  raising of additional funds through private placement  offerings
of its securities and  utilization of public  securities  markets and generating
licensing  fees. No assurance can be made that the management will be successful
in achieving its plan.


                                                                              24


<PAGE>


                                   Signatures

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

                                                     Phlo Corporation



May _____, 2000                        By: /s/ James B. Hovis
                                           -------------------------------------
                                           James B. Hovis
                                           President and Chief Executive Officer