**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 December 31, 2006 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
              
              (I.R.S.
                  Employerof
                  incorporation or organization)
              
              Identification
                  No.)6001-21
                  Argyle Forest Blvd.PMB
                  #117Jacksonville,
                  Florida
              
              32244-5705(Address
                  of principal executive offices)
              
              (Zip
                  code)





Registrant's
      telephone number, including area code: (973) 691-9012





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 February 16,
      2006, is 579,552,210.







**PHLO
                  CORPORATION AND SUBSIDIARIES****Quarterly
                  Report on Form 10-QSB for the****Quarterly
                  Period Ending December 31, 2006**Table
                  of Contents
  Page
                  to PagePART
                  I. FINANCIAL INFORMATIONItem
                  1.
              Financial
                  StatementsCondensed
                    Consolidated Balance Sheet as ofDecember
                    31, 2006 (Unaudited)
              3Condensed
                      Consolidated Statements of Operations for the three and nine
                      months ended
                      December 31, 2006 and 2005 (Unaudited)
              4Condensed
                      Consolidated Statements of Cash Flows for the nine months ended
                      December
                      31, 2006 and 2005 (Unaudited)
              5Notes
                    to Condensed Consolidated Financial Statements
                    (Unaudited)
              6Item
                  2.
              Managements'
                    Discussion and Analysis or Plan of Operation
              10Item
                  3.
              Controls
                  and Procedures
              12PART
                  II.
              OTHER
                  INFORMATION
              13Item
                  1.
              Legal
                  Proceedings
              13Item
                  2.
              Unregistered
                  Sale of Equity Securities and Use of Proceeds
              13Item
                  3.
              Exhibits
              13Signature
              
              14Certifications
              15







PHLO
                  CORPORATION AND SUBSIDARIESCONDENSED
                  CONSOLIDATED BALANCE SHEET (Unaudited)December
                  31, 2006ASSETSCURRENT
                  ASSETSCash
              
              $
              336,363Inventory
              
              
              83,651Accounts
                  Receivable
              
              
              3,338Total
                  Current Assets
              
              
              423,352PROPERTY
                  PLANT AND EQUIPMENT, Net
              
              
              5,594SECURITY
                  DEPOSITS
              
              
              4,898TOTAL
                  ASSETS
              
              $
              433,844LIABILITIES
                  AND DEFICIENCY IN STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              1,866,941Accrued
                  expenses and taxes
              
              
              3,026,448Notes
                  payable, current portion
              
              
              681,500Total
                  Current Liabilities
              
              
              5,574,889Total
                  liabilities
              
              
              5,574,889COMMITMENTS
                  AND CONTINGENCIES
              
              
              --DEFICIENCY
                  IN STOCKHOLDERS' EQUITY (Note C)Preferred
                  stock, 15,000,000 shares authorized:Series
                  A convertible stock, $0.0001 par value, 500,000 shares
              
              
              50authorized,
                  issued and outstanding (Liquidation preferences $100,000)Series
                  B non-convertible stock, 500,000 shares authorized,none
                  issued and outstanding
              
              
              --Series
                  C preferred convertible stock, $0.0001 par value 3,000,000authorized,
                  1,240,565 shares outstanding (Liquidation preference
                  $12,406)
              
              
              124Series
                  C preferred convertible stock, 15,298 shares subscribed
              
              
              1Common
                  stock, $0.0001 par value, 250,000,000 shares authorized574,552,210
                  shares issued and outstanding
              
              
              57,455Common
                  stock, $0.0001 par value, 14,131,654 shares subscribed
              
              
              1,414Additional
                  paid-in capital
              
              
              17,826,504Accumulated
                  deficit
              
              
              (23,026,593
              )Total
                  Deficiency in Stockholders' Equity
              
              
              (5,141,045
              )TOTAL
                LIABILITIES AND DEFICIENCY IN STOCKHOLDERS'
                EQUITY
              
              $
              433,844







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




3


PHLO
                  CORPORATION AND SUBSIDARIESCONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)For
                  the Three and Nine Months Ended December 31, 2006 and
                  2005
  Three
                  months ended December 31,
              
              
              Nine
                  months ended December 31,2006
              
              
              2005
              
              
              2006
              
              
              2005REVENUES
              
              $
              3,100
              
              $
              722
              
              $
              4,723
              
              $
              722COST
                  OF REVENUES
              
              
              3,045
              
              
              1,501
              
              
              3,213
              
              
              1,501GROSS
                  PROFIT
              
              
              55
              
              
              (779
              )
              
              1,510
              
              
              (779
              )OPERATING
                  COSTS AND EXPENSESGeneral
                  and Administrative
              
              
              299,785
              
              
              408,667
              
              
              1,009,345
              
              
              1,097,465Research
                  and development
              
              
              52,500
              
              
              --
              
              
              107,500
              
              
              24,144LOSS
                  FROM OPERATIONS
              
              
              (352,230
              )
              
              (409,446
              )
              
              (1,115,335
              )
              
              (1,122,388
              )OTHER
                  (EXPENSES)Other
                  Financing Cost
              
              
              (1,018,275
              )
              
              (475,504
              )
              
              (1,265,083
              )
              
              (805,124
              )Interest
                  expense, net
              
              
              (18,546
              )
              
              (19,544
              )
              
              (52,221
              )
              
              (59,316
              )TOTAL
                  OTHER (EXPENSES)
              
              
              (1,036,821
              )
              
              (495,048
              )
              
              (1,317,304
              )
              
              (864,440
              )LOSS
                  BEFORE INCOME TAXES
              
              
              (1,389,051
              )
              
              (904,494
              )
              
              (2,432,639
              )
              
              (1,986,828
              )INCOME
                  TAXES
              
              
              --
              
              
              --
              
              
              --
              
              
              --NET
                  LOSS
              
              $
              (1,389,051
              )
              $
              (904,494
              )
              $
              (2,432,639
              )
              $
              (1,986,828
              )WEIGHTED
                  AVERAGE COMMON SHARES OUTSTANDING
              
              
              541,068,322
              
              
              372,092,652
              
              
              469,226,024
              
              
              305,371,985NET
                  (LOSS) PER SHARE (BASIC AND DILUTED)
              
              $
              (0.00
              )
              $
              (0.00
              )
              $
              (0.01
              )
              $
              (0.01
              )







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




4


PHLO
                  CORPORATION AND SUBSIDARIESCONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)For
                  the Nine Months Ended December 31, 2006 and
                  2005
  2006
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (2,432,639
              )
              $
              (1,986,826
              )Adjustments
                    to reconcile net loss to netcash used in operating
                    activities:Common
                  stock reimbursement to shareholder
              
              
              1,195,083
              
              
              781,527Common
                    stock issued in exchange for otherfinancing expense
              
              
              --
              
              
              3,595Common
                  stock issued for services
              
              
              198,864
              
              
              118,000Warrants
                  issued for services
              
              
              7,922
              
              
              21,000Beneficial
                    conversion feature of notespayable
              
              
              70,000
              
              
              --Warrants
                  issued for financing expense
              
              
              --
              
              
              20,000Depreciation
                  and amortization
              
              
              1,849
              
              
              1,849Interest
                  paid in stock
              
              
              1,534
              
              
              --Changes
                  in operating assets and liabilities:Prepaid
                  expense
              
              
              --
              
              
              (94,292Inventory
              
              
              (83,651
              )
              
              3,438Accounts
                  receivable
              
              
              (2,071
              )
              
              (722Settlement
                  receivable
              
              
              55,000
              
              
              --Other
                  receivable
              
              
              6,964
              
              
              --Security
                  deposit
              
              
              (798
              )Accounts
                  payable
              
              
              350,808
              
              
              122,443Accrued
                  expenses and taxes
              
              
              128,698
              
              
              216,988NET
                    CASH USED IN OPERATINGACTIVITIES
              
              
              (502,437
              )
              
              (793,000CASH
                  FLOW FROM INVESTING ACTIVITIESPurchase
                  of equipment
              
              
              --
              
              
              --NET
                  CASH USED IN INVESTING ACTIVITIES
              
              
              --
              
              
              --CASH
                  FLOW FROM FINANCING ACTIVITIESProceeds
                  from notes payable
              
              
              455,000
              
              
              --Proceeds
                  from revolving credit line
              
              
              --
              
              
              140,000Proceeds
                    from sale and subscription of equitysecurities
              
              
              383,800
              
              
              653,000NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              838,800
              
              
              793,000NET
                  INCREASE IN CASH
              
              $
              336,363
              
              $
              --Cash
                  and cash equivalents, beginning of the period
              
              
              --
              
              
              --Cash
                  and cash equivalents, end of the period
              
              $
              336,363
              
              $
              --Supplemental
                  Disclosures of Cash Flow Information:Cash
                  paid during the period for interest
              
              $
              --
              
              $
              --Income
                  taxes paid
              
              $
              --
              
              $
              --Non-Cash
                Financing
                Activities:Notes
                payable
                settled in common stock
              
              $
              400,000
              
              $
              --Common
                stock issued
                in exchange for accrued interest and accrued liabilities
              
              
              --
              
              
              8,133Common
                stock issued
                in exchange for revolving credit line
              
              
              --
              
              
              87,578Common
                stock issued
                in exchange for other financing expense
              
              
              --
              
              
              3,595Subscription
                receivable on settlement
              
              
              --
              
              
              70,000





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




5





**PHLO
      CORPORATION AND SUBSIDARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(Unaudited)**





**NOTE
      A - SUMMARY OF ACCOUNTING POLICIES**





General





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information. Accordingly, they
      do
      not include all of the information and footnotes required by accounting
      principles generally accepted in the United States of America 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
      and nine months ended December 31, 2006 are not necessarily indicative of the
      results that may be expected for the fiscal year ending March 31, 2007. For
      further information refer to the consolidated financial statements and footnotes
      thereto included in the Phlo Corporation and Subsidiaries' annual report on
      Form
      10-KSB for the year ended March 31, 2006.





Business
      and Basis of Presentation





Phlo
      Corporation, a Delaware corporation incorporated in December 1995, and its
      affiliates (hereinafter collectively referred to as the "Company") is a
      manufacturer of beverages and liquids containing patented and patent-pending
      biotechnologies. The Company markets its products to institutional purchasers,
      such as colleges and universities and sports teams, and to distributors, which
      offer the products for sale in high volume chain stores, such as supermarkets
      and drug and convenience stores. Additionally, the Company develops liquids
      with
      patented or patent-pending payloads for the U.S. Military, agencies of the
      United Nations, and humanitarian organizations. The Company is positioned as
      a
      biotechnology company which is using high volume distribution networks to
      commercialize its technology. Central to the Company’s strategic development
      plan is the development, acquisition and/or exclusive licensing of proprietary
      technology, nutraceutical, biotechnological and/or pharmaceutical in nature,
      which the Company initially plans to convey to consumers through the use of
      liquid formulations and beverage systems. The Company is focusing its technology
      acquisition efforts on those technologies related to preventing or ameliorating
      cancer, reducing the effects of aging, and enhancing cognition and personal
      performance.  The
      Company is currently conducting discussions with major companies related to
      the
      distribution of the Company's products or joint ventures pertaining to the
      Company's technology and products related thereto.





The
      consolidated financial statements include the accounts of the Company and its
      majority owned subsidiaries and affiliates .





Stock-based
      Compensation





Prior
      to
      the January 1, 2006 adoption of the Financial Accounting Standards Board
      (“FASB”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), the
      Company accounted for stock-based compensation using the intrinsic value method
      prescribed in Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations. As
      permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS
      123”), stock-based compensation was included as a pro forma disclosure in the
      notes to the consolidated financial statements.





Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS 123R, using the modified-prospective transition method. Under this
      transition method, stock-based compensation expense is recognized in the
      consolidated financial statements for granted, modified, or settled stock
      options. Compensation expense recognized included the estimated expense for
      stock options granted on and subsequent to January 1, 2006, based on the grant
      date fair value estimated in accordance with the provisions of SFAS 123R, and
      the estimated expense for the portion vesting in the period for options granted
      prior to, but not vested as of January 1, 2006, based on the grant date fair
      value estimated in accordance with the original provisions of SFAS 123. Results
      for prior periods have not been restated, as provided for under the
      modified-prospective method.





The
      Company has no awards of stock-based employee compensation issued and
      outstanding at December 31, 2006 and 2005.




Reclassifications





Certain
      reclassifications have been made in prior period’s financial statements to
      conform to classifications used in the current period.




6


**PHLO
      CORPORATION AND SUBSIDARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(Unaudited)**





**NOTE
      A - SUMMARY OF ACCOUNTING POLICIES (Continued)**





New
      Accounting Pronouncements





In
      September 2006, the FASB issued SFAS 157, *Fair
      Value Measurements* ,
      which
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles (“GAAP”), and expands disclosures about
      fair value measurements. The Company will be required to adopt SFAS 157
      effective for the fiscal year beginning January 1, 2008. The requirements
      of SFAS 157 will be applied prospectively except for certain derivative
      instruments that would be adjusted through the opening balance of retained
      earnings in the period of adoption. The Company is currently evaluating the
      impact of the adoption of SFAS 157 on the Company’s consolidated financial
      statements and the management believes that the adoption of SFAS 157 will not
      have a significant impact on its consolidated results of operations or financial
      position.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans - an
      amendment of FASB Statements No. 87, 88, 106, and 132R* (‘SFAS
      158’).  SFAS 158 changes current practice by requiring employers to
      recognize the overfunded or underfunded positions of defined benefit
      postretirement plans, including pension plans, on the balance sheet.  The
      funded status is defined as the difference between the projected benefit
      obligation and the fair value of plan assets.  SFAS 158 also requires
      employers to recognize the change in funded status in other comprehensive income
      (a component of shareholders’ equity).  SFAS 158 does not change the
      requirements for the measurement and recognition of pension expense in the
      statement of income.  SFAS 158 is effective for fiscal years ending after
      December 15, 2006.  The Company does not anticipate any material impact to
      its financial condition or results of operations as a result of the adoption
      of
      SFAS 158.





In
      September 2006, the SEC issued Staff Accounting Bulletin 108, *Considering
      the Effects of Prior Year Misstatements When Quantifying Misstatements in
      Current Year Financial Statements* (‘SAB
      108’).  SAB 108 provides interpretive guidance on how the effects of the
      carryover or reversal of prior year financial statement misstatements should
      be
      considered in quantifying a current year misstatement.  SAB 108 is
      effective for financial statements covering the first fiscal year ending after
      November 15, 2006.  The Company does not anticipate any material impact to
      its financial condition or results of operations as a result of the adoption
      of
      SAB 108.




7


**PHLO
      CORPORATION AND SUBSIDARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(Unaudited)**





**NOTE
      B - NOTES PAYABLE AND REVOLVING CREDIT FACILITY**





In
      the
      quarter ended December 31, 2006, the Company issued promissory notes in the
      aggregate principal amount of $455,000, providing for an interest rate of 10%
      per annum (the “Notes”). The Notes provided for a first maturity date 15 days
      after the making of the Note and a second maturity date 180 days after the
      making of the Note for the repayment of outstanding principal and accrued but
      unpaid interest under each Note (the “Outstanding Balance”). Repayment of the
      Notes were personally guaranteed by two officers of the Company. Additionally,
      22,750,000 shares of Common Stock were pledged as collateral to secure repayment
      of all obligations of the Company under the Notes. As of December 31, 2006,
      the
      holders of Notes aggregating the principal amount of $400,000 demanded payment
      under the Notes on the first maturity date. The Company did not repay the
      Outstanding Balance under those Notes, and the holders subsequently foreclosed
      upon and took title to an aggregate of 20,000,000 shares of the Common Stock
      which had been pledged as collateral to secure all of the Company’s obligations
      thereunder pursuant to the terms of the Notes.





Subsequent
      to the quarter ended December 31, 2006, the holders of Notes aggregating the
      principal amount of $55,000 also demanded payment under the Notes on the first
      maturity dates. As the Company did not repay the principal and interest due
      thereunder, and the holders subsequently foreclosed upon and took title to
      2,750,000 shares of the Common Stock in full settlement of the Company’s
      obligations thereunder (See Note E - Subsequent Events).


In
      June,
      2002, the Company closed a revolving credit facility with a one-year term which
      provided for advances of up to a maximum principal amount of $250,000, at the
      option of the lender, at an interest rate of 10% per annum, with each advance
      payable within 30 days. At March 31, 2006, the Company had repaid in full the
      outstanding balance of principal and accrued interest.





During
      the term of the credit facility, the lender has exercised its rights provided
      by
      the loan documents to sell shares of Common Stock that were previously pledged
      as collateral for the repayment of advances pursuant to the credit facility.
      During the nine-month period ended December 31, 2006, the lender paid $6,964
      in
      excess proceeds from the liquid of stock to the Company.





Also
      during the quarter ended June 30, 2006, the lender exercised its rights under
      the terms of the credit facility to take title to 10,521,000 shares of Common
      Stock which had served as collateral under the facility but which were not
      liquidated. During the quarter ended June 30, 2006, the lender returned to
      the
      Company 7,500,000 shares of Common Stock that had served as collateral under
      the
      facility. The return of these shares reduced the number of the Company's
      outstanding shares of Common Stock.





**NOTE
      C - CAPITAL STOCK**





The
      Company has authorized 15,000,000 shares of preferred stock, with 500,000 shares
      designated as Series A convertible preferred stock with par value of $.0001
      per
      share; 500,000 shares designated as Series B non-convertible preferred stock
      with par value of $0.0001 per share; and 3,000,000 shares designated as Series
      C
      convertible preferred stock with par value of $.0001 per share. The Company
      also
      has authorized 250,000,000 shares of common stock with par value $0.0001 per
      share (the “Common Stock”).





Each
      share of Series C Preferred Stock initially was convertible into 100 shares
      of
      Common Stock without the payment of any additional consideration at any time
      after September 30, 2001. However, the conversion rate is subject to adjustment
      in the case of certain corporate transactions or events, including stock splits
      and combinations; certain dividends and distributions; reclassification,
      exchange or substitution of the Common Stock; reorganizations, mergers
      consolidations or sale of assets; and the sale of shares of Common Stock at
      a
      price that is less than the then-effective Series C Conversion Price. In the
      event of a sale of shares of Common Stock at a price that is less than the
      then-effective Series C Conversion Price, then, in each such event, an
      adjustment to such conversion price is made to allow the holder of the Series
      C
      Preferred Stock to convert into shares of Common Stock at a rate greater than
      the rate effective immediately preceding such issuance. Currently, as a result
      of the foregoing applicable adjustments, each share of Series C Preferred Stock
      is convertible into 490 shares of Common Stock.





During
      the fiscal year ended March 31, 2006, the Company’s Board of Director’s voted to
      amend the Company’s articles of incorporation to increase the number of
      authorized shares of Common Stock from 250,000,000 to 600,000,000. The board
      of
      directors’ vote shall be followed by shareholder approval of such increase by
      shareholders holding the majority of the shares entitled to vote on such matter
      through shareholder written consent and the issuance of an Information Statement
      to shareholders to inform them of the amendment to the Company’s articles of
      incorporation.





As
      of
      December 31, 2006, the Company has 500,000 shares of Series A convertible
      preferred stock, 1,240,565 shares of Series C convertible preferred stock,
      and
      574,552,210 shares of common stock issued and outstanding. The Company has
      no
      Series B non-convertible preferred stock issued and outstanding at December
      31,
      2006.





8


**PHLO
      CORPORATION AND SUBSIDARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(Unaudited)**





**NOTE
      C - CAPITAL STOCK (Continued)**





In
      the
      fiscal quarter ended June 30, 2006, in consideration of $55,500, the Company
      agreed to issue 2,493,332 shares of Common Stock (of which 1,993,332 shares
      were
      issued during the quarter ended June 30, 2006, and 500,000 shares were issued
      during the quarter ended September 30, 2006) and agreed to issue warrants to
      purchase 750,000 shares of Common Stock at an exercise price of $0.05 per share
      (all of which were issued as of September 30, 2006). Additionally, the Company
      agreed to issue 1, 284,444 shares of Common Stock to officers of the Company
      in
      connection with such financing and in consideration of guarantees and supplying
      of shares of stock as collateral which were used to satisfy obligations of
      the
      Company (of which 951,112 shares were issued during the quarter ended June
      30,
      2006, and 333,332 shares were issued during the quarter ended September 30,
      2006). The Company accounted for and charged to operation such shares in the
      amount of $33,396, which approximated the fair value of the Common Stock at
      the
      time the shares were issued.





In
      the
      fiscal quarter ended June 30, 2006, the Company issued a previously-subscribed
      warrant to purchase 1,250,000 shares of Common Stock at an exercise price of
      $0.03. The value of such warrant had been accounted for and charged to
      operations in the prior fiscal year.





In
      the
      quarter ended September 30, 2006, the Company issued 1,300,000 shares of Common
      Stock previously subscribed.





In
      the
      quarter ending September 30, 2006, the Company issued 30,252,110 shares of
      Common Stock to shareholders upon their conversion of 61,739 shares of Series
      C
      Convertible Preferred Stock.





In
      the
      quarter ended September 30, 2006, in consideration of $116,500, the Company
      issued 15,459,998 shares of Common Stock and warrants to purchase 4,289,166
      shares of Common Stock at exercise prices ranging from $0.03 to $0.05. The
      Company issued 1,000,000 shares of Common Stock and a warrant to purchase
      1,087,500 shares of stock at an exercise price of $0.03 for services rendered,
      and issued 10,500,000 shares of Common Stock pursuant to agreements involving,
      among other things, services rendered to the Company. The shares issued for
      services were valued at $103,150 and the warrants issued for services were
      valued at $7,921 using the Black-Scholes model with the following assumptions:
      (1) dividend yield of 0%; (2) expected volatility of 342%; (3) risk-free
      interest rate of 5%; and (4) expected life of two years. Additionally, the
      Company issued 22, 058,181 shares of Common Stock to officers of the Company
      in
      connection with such financings and in consideration of guarantees and supplying
      of shares of stock as collateral which were used to satisfy obligations of
      the
      Company. The Company accounted for and charged to operation such shares in
      the
      amount of $213,413, which approximated the fair value of the Common Stock at
      the
      time the shares were issued.





In
      the
      quarter ended December 31, 2006, in consideration of $211,800, the Company
      issued 29,119,433 shares of Common Stock and warrants to purchase 3,924,380
      shares of Common Stock at exercise prices ranging from $0.02 to $0.03. The
      Company issued 2,545,385 shares of Common Stock for services rendered, and
      issued 1,876,215 shares of Common Stock pursuant to agreements involving, among
      other things, services rendered to the Company. These shares issued for services
      were valued at $95,714. Additionally, the Company issued 43,806,298 shares
      of
      Common Stock to officers of the Company in connection with such financings
      and
      in consideration of guarantees and supplying of shares of stock as collateral
      which were used to satisfy obligations of the Company. The Company accounted
      for
      and charged to operation such shares in the amount of $948,275, which
      approximated the fair value of the Common Stock at the time the shares were
      issued.





**NOTE
      D - COMMITMENTS AND CONTINGENCIES**





Litigation





1)
      A Phlo
      affiliate is currently engaged in litigation with a contract research and
      development facility. Such affiliate terminated its agreement with the R&D
      facility, asserting that the facility had breached its agreement with the
      Company and committed fraud, and the Company demanded payment from the R&D
      facility as required by the agreement. Phlo is not a party to this litigation,
      was not a party to the contract at issue, and no claims have been made against
      Phlo. The Company insisted that an independent scientific lab perform an audit
      of the work allegedly performed by the R&D facility for the Company (for
      which the Company has rendered substantial consideration, including $225,000
      in
      cash). As a defensive measure, the R&D facility initiated legal action
      claiming wrongful termination. The Company has asserted as counterclaims breach
      of contract, fraud, and negligence. As Advanced Bio-Delivery, the operating
      entity involved in the litigation, has been dissolved by operation of the
      provisions of its operating agreement and is no longer conducting business,
      the
      Company did not continue to dedicate additional financial resources to the
      defense of the claims and the prosecution of its counterclaims.





Subsequent
      to December 31, 2006, a default judgment was entered in favor of the plaintiff
      in the amount of $248,807 in damages and $134,762 in attorney’s fees. The
      Company is determining whether an appeal should be filed, particularly as the
      judge held a hearing on damages without informing the Company of the date of
      such hearing. As of December 31, 2006, the Company had previously accrued and
      included in its liabilities the amount of approximately $250,000 for payments
      that could arguably be due pursuant to the contract with the R&D facility.





9





**PHLO
      CORPORATION AND SUBSIDARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(Unaudited)**





**NOTE
      D - COMMITMENTS AND CONTINGENCIES (Continued)**





Litigation
      (continued)





2)
      The
      Securities and Exchange Commission instituted public administrative and cease
      and desist proceedings against Phlo Corporation (“Phlo”), its President James B.
      Hovis, and its Executive Vice President, Anne P. Hovis, on April 21, 2005,
      alleging violations by Phlo Corporation related to certain transfer agent
      regulations and related to the late filing of its required periodic reports.
      The
      Company disputed the allegations and vigorously defended the SEC action.
      Additionally, the Company became completely current in its financial reporting
      prior to the issuance of an initial decision on this matter.





On
      February 17, 2006, an Initial Decision was rendered by the Administrative Law
      Judge (“ALJ”) in the matter. The ALJ determined that the registration Phlo’s
      public securities should not be revoked. He entered cease and desist orders
      with
      respect to Phlo and James Hovis against future violations of reporting
      requirements. With respect to alleged transfer agent violations, the ALJ revoked
      Phlo’s status as transfer agent and entered a cease and desist order against
      Phlo and Anne Hovis against future violations and barred Anne Hovis from future
      association with a transfer agent. The ALJ also assessed civil penalties against
      Phlo in the amount of $100,000, against James Hovis in the amount of $25,000,
      and against Anne Hovis in the amount of $50,000.





The
      Company has appealed the Initial Decision, which stays the sanctions imposed
      for
      the duration of the appeal. Among other things, the Company argued that the
      ALJ
      had no jurisdiction to impose a fine against James Hovis; that many of the
      ALJ’s
      findings of fact were wrong in light of the evidence presented; that fines
      against Anne Hovis and Phlo were unduly harsh in light of the evidence; and
      that
      the ALJ ignored the SEC’s burden of proof. All appeal briefs have been filed by
      both sides, and oral argument was presented to the Commission. While the Company
      can make no assurances with respect to the outcome of this matter, management
      believes the ultimate disposition of this matter will not have a material
      adverse effect on the Company's consolidated financial position or results
      of
      operation.





The
      Company is a party to certain other legal matters arising in the ordinary course
      of business. Management believes the ultimate disposition of these matters
      will
      not have a material adverse effect on the Company's financial position or
      results of operations.





**NOTE
      E - SUBSEQUENT EVENTS**





Equity





Subsequent
      to December 31, 2006, the holders of promissory notes in the aggregate principal
      amount of $55,000 demanded payment under the Notes on the First Maturity Date.
      As the Company did not repay the principal and interest due thereunder, the
      holders subsequently foreclosed upon and took title to 2,750,000 shares of
      the
      Common Stock (which had been pledged to secure all of the Company’s obligations
      under the note) in full settlement of the Company’s obligations thereunder (See
      Note B - Notes Payable and Revolving Credit Facility). In connection with this
      transaction and in consideration of personal guarantees and pledging of shares
      of stock as collateral in connection therewith, the Company issued 2,250,000
      shares of Common Stock to officers of the Company.





**Item
      2.**





**PHLO
      CORPORATION**


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





**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 2006 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.





10





**OVERVIEW**





The
      following discussion of the Company's financial condition as of December 31,
      2006 and results of operations for the three and nine months ended December
      31,
      2006 and 2005 includes Phlo Corporation and its affiliates (collectively, the
      “Company”) and should be read in conjunction with the condensed consolidated
      financial statements and notes appearing elsewhere in this 10-QSB.





**RECENT
      DEVELOPMENTS**





During
      the fiscal quarter ended December 31, 2006, the Company announced that it had
      produced a ready-to-drink version of AQUIS(TM) Rapid Response Rehydration
      products and had begun the shipment of such products for sale. Additionally,
      the
      Company has established distribution capabilities related to AQUIS(TM) in
      certain domestic and international markets in the elite athlete market segment,
      primarily in the areas of organized sports, team sales, sales at sporting
      events, and institutional sales.





During
      the fiscal quarter ended June 30, 2006, the Company announced that it had
      commenced online sales of its AQUIS(TM) Rapid Response Rehydration product
      through its website, and initial revenue has been generated therefrom in the
      three and nine month periods ended December 31, 2006. The AQUIS(TM) product
      line
      contains the Company’s MEDS (Micro-Encapsulation Delivery System)
      biologically-active delivery technology. This technology creates immediate
      absorption of the electrolyte payload into the bloodstream, beginning through
      the mucous membranes of the mouth.





During
      the latter part of the fiscal year ended March 31, 2006, the Company developed
      a
      new delivery system for its AQUIS(TM) beverages and a new method of producing
      such delivery system. Among other things, the Company significantly reduced
      the
      size of the vesicles contained in its delivery system as a result of its
      enhanced nano-technology. These nano-particles increase the effectiveness of
      AQUIS(TM) and substantially increase the speed of delivery of electrolytes.
      In
      addition, the Company’s VEP/PPC technology is now an integral part of its
      AQUIS(TM) beverages, which provides potent cell protection and repair in
      addition to rapid rehydration. This is particularly important to athletes,
      who
      sustain significant cell damage during strenuous physical exertion. To reflect
      the significant changes in its beverages, the Company has also completely
      changed the packaging of its new AQUIS(TM) beverage products.





During
      the fiscal year ended March 31, 2006, the Company’s Board of Director’s voted to
      amend the Company’s articles of incorporation to increase the number of
      authorized shares of Common Stock from 250,000,000 to 600,000,000. The board
      of
      directors’ vote shall be followed by shareholder approval of such increase by
      shareholders holding the majority of the shares entitled to vote on such matter
      through shareholder written consent and the issuance of an Information Statement
      to shareholders to inform them of the amendment to the Company’s articles of
      incorporation.





**RESULTS
      OF OPERATIONS**





The
      Company had revenue of $3,100 and $4,723, respectively, and cost of sales of
      $3,045 and $3,213, respectively, during the three and nine-month periods ended
      December 31, 2006, as compared with revenue of $722 and cost of sales of $1,501
      for both the three and nine-month periods ended December 31, 2005. The selling,
      general and administrative expenses for the three and nine month periods ended
      December 31, 2006 were $299,785 and $1,009,342, respectively, as compared to
      $408,667 and $1,097,465 for the comparable three and nine month periods during
      2005. The Company incurred research and development costs of $52,500 and
      $107,500, respectively, during the three and nine month periods ended December
      31, 2006, as compared with $0 and $24,144 for the comparable three and nine
      month periods during 2005.





The
      Company's loss from operations was $352,230 and $1,115,335, respectively, for
      the three and nine-month periods ended December 31, 2006, as compared with
      an
      operating loss of $409,446 and $1,122,388 for the comparable three and
      nine-month periods ended December 31, 2005.





The
      Company's proprietary biotechnology base (including its commercialization and
      manufacturing capabilities related thereto), the products generated therefrom,
      and the access to major markets as a result thereof represent the core of the
      Company's business plan, which emphasizes the building of major, long-term
      fundamental value. Although the process of executing this business plan requires
      significant time, the Company should be able to produce over the long term
      significantly greater positive operating results and greater shareholder value
      than would otherwise be possible.





**LIQUIDITY
      AND CAPITAL RESOURCES**





The
      Company's working capital deficit increased $519,713 during the nine-month
      period ended December 31, 2006, to $5,515,537. In addition, the Company's
      Stockholders' Deficiency increased from $4,975,610 to $5,141,045 during the
      same
      nine-month period.




11





During
      the fiscal year ending March 31, 2007 and beyond, the Company is taking steps
      to
      reduce or eliminate the Stockholders' Deficiency and to create a positive
      working capital position. The Company believes it is more likely than in prior
      years to raise substantial financing as a result of its prospects for national
      and global distribution of its products through joint venture undertakings
      with
      entities possessing marketings and distribution infrastructure and capabilities,
      the existence of products containing commercialized biotechnology, the prospects
      for numerous additional products based on the Company's biotechnology
      foundation, and significantly increased scientific and commercialization
      capabilities. Finally, the Company has taken steps to convert certain existing
      debt into equity and will continue to pursue these steps.





While
      the
      Company has raised sufficient capital to meet its operating requirements in
      the
      past, additional financing is required in order to meet such operating
      requirements in the future. The Company can give no assurances that the
      necessary funding will be completed or, if completed, on terms favorable to
      the
      Company.




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





The
      Company's independent certified public accountants have stated in their report
      included in the Company's March 31, 2006 Form 10-KSB, that the Company has
      incurred operating losses in the last two years, and that the Company is
      dependent upon management's ability to continue to finance the Company’s
      operations or develop profitable operations. These factors among others may
      raise 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.





**Off-Balance
      Sheet Arrangements**




The
      Company does not have any off-balance sheet arrangements.





**Item
      3.**





**CONTROLS
      AND PROCEDURES**





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed by the Company in the reports
      that the Company files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the Securities
      and
      Exchange Commission’s rules and forms. Disclosure controls and procedures
      include, without limitation, controls and procedures designed to ensure that
      information required to be disclosed by the Company in the reports that the
      Company files under the Exchange Act is accumulated and communicated to the
      Company’s management, including its principal executive and financial officers,
      as appropriate to allow timely decisions regarding required
      disclosure.




*Evaluation
      of Disclosure and Controls and Procedures.* As of
      the end of the period covered by this Quarterly Report, the Company conducted
      an
      evaluation, under the supervision and with the participation of its chief
      executive officer and chief financial officer, of the Company’s disclosure
      controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act).
      Based on this evaluation, the Company’s chief executive officer and chief
      financial officer concluded that its disclosure controls and procedures are
      effective to ensure that information required to be disclosed by the Company
      in
      reports that the Company files or submits under the Exchange Act is recorded,
      processed, summarized and reported within the time periods specified in
      Securities and Exchange Commission rules and forms.




*Changes
      in Internal Controls Over Financial Reporting.* There
      was no change in the Company’s internal controls, which are included within
      disclosure controls and procedures, during its most recently completed fiscal
      quarter that has materially affected, or is reasonably likely to materially
      affect, the Company’s internal controls.




12





**PART
      II**





**ITEM
      1. LEGAL PROCEEDINGS**





1)
      A Phlo
      affiliate is currently engaged in litigation with a contract research and
      development facility. Such affiliate terminated its agreement with the R&D
      facility, asserting that the facility had breached its agreement with the
      Company and committed fraud, and the Company demanded payment from the R&D
      facility as required by the agreement. Phlo is not a party to this litigation,
      was not a party to the contract at issue, and no claims have been made against
      Phlo. The Company insisted that an independent scientific lab perform an audit
      of the work allegedly performed by the R&D facility for the Company (for
      which the Company has rendered substantial consideration, including $225,000
      in
      cash). As a defensive measure, the R&D facility initiated legal action
      claiming wrongful termination. The Company has asserted as counterclaims breach
      of contract, fraud, and negligence. As Advanced Bio-Delivery, the operating
      entity involved in the litigation, has been dissolved by operation of the
      provisions of its operating agreement and is no longer conducting business,
      the
      Company did not continue to dedicate additional financial resources to the
      defense of the claims and the prosecution of its counterclaims.





Subsequent
      to December 31, 2006, a default judgment was entered in favor of the plaintiff
      in the amount of $248,807 in damages and $134,762 in attorney’s fees. The
      Company is determining whether an appeal should be filed, particularly as the
      judge held a hearing on damages without informing the Company of the date of
      such hearing. As of December 31, 2006, the Company had previously accrued and
      included in its liabilities the amount of approximately $250,000 for payments
      that could arguably be due pursuant to the contract with the R&D facility.





2)
      The
      Securities and Exchange Commission instituted public administrative and cease
      and desist proceedings against Phlo Corporation (“Phlo”), its President James B.
      Hovis, and its Executive Vice President, Anne P. Hovis, on April 21, 2005,
      alleging violations by Phlo Corporation related to certain transfer agent
      regulations and related to the late filing of its required periodic reports.
      The
      Company disputed the allegations and vigorously defended the SEC action.
      Additionally, the Company became completely current in its financial reporting
      prior to the issuance of an initial decision on this matter.





On
      February 17, 2006, an Initial Decision was rendered by the Administrative Law
      Judge (“ALJ”) in the matter. The ALJ determined that the registration of Phlo’s
      public securities should not be revoked. He entered cease and desist orders
      with
      respect to Phlo and James Hovis against future violations of reporting
      requirements. With respect to alleged transfer agent violations, the ALJ revoked
      Phlo’s status as transfer agent and entered a cease and desist order against
      Phlo and Anne Hovis against future violations and barred Anne Hovis from future
      association with a transfer agent. The ALJ also assessed civil penalties against
      Phlo in the amount of $100,000, against James Hovis in the amount of $25,000,
      and against Anne Hovis in the amount of $50,000.





The
      Company has appealed the Initial Decision, which stays the sanctions imposed
      for
      the duration of the appeal. Among other things, the Company argued that the
      ALJ
      had no jurisdiction to impose a fine against James Hovis; that many of the
      ALJ’s
      findings of fact were wrong in light of the evidence presented; that fines
      against Anne Hovis and Phlo were unduly harsh in light of the evidence; and
      that
      the ALJ ignored the SEC’s burden of proof. All appeal briefs have been filed by
      both sides, and oral argument was presented to the Commission. While the Company
      can make no assurances with respect to the outcome of this matter, management
      believes the ultimate disposition of this matter will not have a material
      adverse effect on the Company's consolidated financial position or results
      of
      operation.





The
      Company is a party to certain other legal matters arising in the ordinary course
      of business. Management believes the ultimate disposition of these matters
      will
      not have a material adverse effect on the Company's financial position or
      results of operations.





**ITEM
      2.**  **UNREGISTERED
      SALE OF EQUITY SECURITIES AND USE OF PROCEEDS**





In
      the
      quarter ended December 31, 2006, in consideration of $211,800, the Company
      issued 29,119,433 shares of Common Stock and warrants to purchase 3,924,380
      shares of Common Stock at exercise prices ranging from $0.02 to $0.03. The
      Company issued 2,545,385 shares of Common Stock for services rendered, and
      issued 1,876,215 shares of Common Stock pursuant to agreements involving, among
      other things, services rendered to the Company. These shares issued for services
      were valued at $95,714. Additionally, the Company issued 43,806,298 shares
      of
      Common Stock to officers of the Company in connection with such financings
      and
      in consideration of guarantees and supplying of shares of stock as collateral
      which were used to satisfy obligations of the Company. The Company accounted
      for
      and charged to operation such shares in the amount of $948,275.




**ITEM
      3.**  **EXHIBITS**




13





**Signatures**





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




**Phlo Corporation***February 23, 2007*
            By:
            */s/
              James B. Hovis**James
              B. Hovis**President
                and Chief Executive Officer*




14