<PAGE>

                                  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 September 30, 2001          Commission File Number 0-21079


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

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

       1775 Broadway, Suite 510
         New York, New York                               10019
(Address of principal executive offices)               (Zip code)

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

     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
November ____, 2001 is 42,458,587.


<PAGE>

                        PHLO CORPORATION AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>

                                                                          Page to Page
                                                                          ------------
<S>                                                                        <C>
  Item 1.  Financial Statements

           Consolidated Balance Sheet as of September 30, 2001 (Unaudited)      3

           Consolidated Statements of Operations for the three months
           Ended September 30, 2001 and 2000 (Unaudited)                        4

           Consolidated Statement of Cash Flows (Unaudited)                     5

           Notes to Consolidated Financial Statements (Unaudited)            4-12

  Item 2.  Managements' Discussion and Analysis of Financial
           Condition and Results of Operations                              12-14

  Signature
</TABLE>


                                       2

<PAGE>

                        PHLO CORPORATION AND SUBSIDARIES

                     CONSOLIDATED BALANCE SHEET (Unaudited)
                               September 30, 2001

                                     ASSETS

CURRENT ASSETS

   Cash                                                              $   44,453
   Accounts receivable                                                   69,685
   Inventory                                                            192,870
                                                                     ----------

              Total Current Assets                                      307,008

PROPERTY PLANT & EQUIPMENT                                               20,696

OTHER ASSETS
   Licensing fee - Net of accumulated amortization of $30,000            30,000
   Security deposits                                                     47,695
   Due from related party                                               107,284
   Deposit on Bond                                                       49,756
                                                                     ----------

                                                                        234,735

                                                                     ----------
              Total Other Assets

                                                                     $  562,439

                                                                     ==========
TOTAL ASSETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                                                  $  548,875
   Accrued Expenses and taxes                                           618,346
   Current portion of long-term debt                                    861,500
                                                                     ----------

              Total Current Liabilities                               2,021,721

COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS' DEFICIENCY
   Preferred stock 15,000,000 shares authorized:

   Series A convertible stock, $0.0001 par value, 500,000 shares             50
   authorized, issued and outstanding (Liquidation preferences $100,000)
   Series B non-convertible stock, none issued and outstanding                0
   Series C preferred convertible stock, $0.0001 par value 3,000,000          0
   authorized, 1,325,316 shares outstanding (Liquidation preference $       132
   Series C preferred convertible stock, 31,733 shares subscribed             3
   Common stock, $0.0001 par value, 250,000,000 shares authorized
    36,481,070 shares issued and outstanding                              3,735
   Common stock, $0.0001 par value, 12,311,409 shares subscribed          1,277
   Additional paid-in capital                                         7,433,177
    Unearned Compensation                                               -55,000
   Accumulated deficit                                               -8,842,656
                                                                     ----------

              Total Stockholders' Deficiency                         -1,459,282
                                                                     ----------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                       $  562,439
                                                                     ==========

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


                                       3

<PAGE>


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

<TABLE>
<CAPTION>
                                          Three Months                  Six Months
                                   -------------------------    -------------------------
                                      2001           2000           2001         2000
                                      ----           ----           ----         ----
<S>                                   <C>            <C>         <C>              <C>
SALES                                 90,270         81,977      1,270,715        278,417

COST OF SALES                         68,280         54,763        709,294        217,438

   GROSS PROFIT                       21,990         27,214        561,421         60,979

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES              317,204        884,410        938,019      1,611,020
OPERATING (LOSS)                    (295,214)      (857,196)      (376,598)    (1,550,041)

OTHER INCOME (EXPENSES):
  Interest expenses                  (61,575)       (93,016)      (136,121)      (165,563)
  Other Income                        (1,545)            --        236,263             --

Total Other Income (Expenses)        (63,120)       (93,016)       100,142       (165,563)


NET LOSS                            (358,334)      (950,212)      (276,456)    (1,715,604)

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING                       37,212,136     24,328,298     36,717,644     24,328,298


NET LOSS PER SHARE
(BASIC AND DILUTED)                    (0.01)         (0.04)         (0.01)         (0.07)
</TABLE>

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


                                       4

<PAGE>

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


                                                        2001         2000
                                                        ----         ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss)                                            (276,456)   (1,715,604)

Adjustments to reconcile net loss to net cash
  used in operating activities:

Stock-based compensation                                75,133        96,557

Depreciation and amortization                           22,761        50,573
Amortization of deferred debt discount                      --        17,619

Changes in operating assets and liabilities
         Accounts receivable                           (69,685)       54,504
         Inventory                                     (69,652)       66,812
         Other current assets                          143,604            --
         Security deposits                             (17,632)           --
         Accounts payable                             (307,297)      164,298
         Accrued expenses and taxes                    355,868       317,231

              TOTAL ADJUSTMENTS                        133,100       767,594


NET CASH FLOW USED IN OPERATING ACTIVITIES            (143,356)     (948,010)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment                     (8,069)      (13,386)
Due from related party                                  27,167            --


NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     19,098       (13,386)

CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from Long-term debt                           140,000       774,000
Repayments of debt                                    (104,000)           --
Proceeds from issuance of capital stock and
  stock subscriptions                                  124,973       171,560

NET CASH PROVIDED BY FINANCING ACTIVITIES              160,973       945,560

NET INCREASE (DECRESE)IN CASH                           36,715       (15,836)

CASH - Beginning                                         7,738        45,139
Cash - Ending                                          116,453
                                                                      29,303

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


                                        5

<PAGE>

     Note 1. Basis of Presentation

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

     Note 2.  Company Activities

     The Company,  a Delaware  corporation  incorporated  in December,  1995 and
     located in New York,  New York, is a manufacturer  of beverages  containing
     patented  and  patent-pending   biotechnologies.   The  Company  sells  its
     beverages to distributors,  who offer the beverages for sale in high volume
     chain stores,  such as  supermarkets,  and in small retail  outlets such as
     delicatessens and convenience stores.

     The Company  currently  sells two brands of beverages.  The Company's "ZO -
     Vital Cell Defense"  beverages,  which  include iced tea,  fruit drinks and
     lemonade,  feature  its  proprietary   (patent-pending)   composition  with
     controlled-release  capability  which is designed to protect cells from the
     oxidative  stress of aging and to stimulate cell repair.  The launch of the
     ZO  -   Vital   Cell   Defense   beverage   line   marks   the   successful
     commercialization of one of the Company's biotechnologies. The Company also
     sells  five  flavors  of  McCoy's  green  teas,  the first and only new age
     beverage  that  delivers a truly  functional  level of  powerful  green tea
     catechins, including the super-antioxidant EGCg.

     On October 22, 1998,  the Company  agreed to acquire the capital stock of a
     beverage  company,  X-Treem  Products  Corporation,  through an exchange of
     stock with the shareholders of X-Treem (the "Stock Exchange  Transaction").
     As of  September  30,  2001,  28,838  shares  of  X-Treem  capital  stock
     representing  96.47% of the total  outstanding  shares were exchanged for
     Phlo  shares  which  have  been  issued or are yet to be issued in order to
     complete the Stock Exchange Transaction. With respect to those shareholders
     of X-Treem who have elected to participate in the exchange transaction, the
     Company  is  required  to issue  10,987,951  additional  shares of common
     stock. In November, 2000, X-Treem was formally dissolved.


                                        6

<PAGE>

     On September 30, 2001,  there are 37,558,348  shares of common stock issued
     and  outstanding,  and  12,765,955  shares of common stock  subscribed.  In
     addition,  options and warrants to purchase 1,613,333 and 36,297,443 shares
     of common stock are also outstanding, respectively.

     Note 3.  Going Concern

     As shown in the  accompanying  financial  statements,  the  Company  had an
     operating loss of $295,214) for the quarter ended September 30, 2001. As of
     September 30, 2001 the Company's  current  liabilities  still  exceeded its
     current assets by $1,714,713 and its total  liabilities  exceeded its total
     assets by $1,459,282.  In addition, the Company is delinquent in connection
     with various obligations  including trade payables,  accrued payroll taxes,
     and notes payable.  These factors and uncertain conditions that the Company
     has faced in its  day-to-day  operations  create an  uncertainty  as to the
     Company's ability to continue as a going concern.  The financial statements
     do not include any  adjustments  that might be  necessary if the Company is
     unable to continue as a going concern. The continuation of the Company as a
     going  concern  is  dependent  upon the  success  of future  financing  and
     generating sufficient revenue through the expansion of its beverage product
     lines to generate future profits.

     Management  has  taken  actions  and is  implementing  additional  plans to
     strengthen the Company's  working capital position and generate  sufficient
     cash to meet it's operating needs through September 30, 2002 and beyond.

     Included in these actions is the continuing  expansion of the  distribution
     of  the  "ZO"  beverage  line  and  the  commercialization  of  two  of its
     biotechnologies  through the development of a line of personal  performance
     preparations delivered through 2 ounce sprays.

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

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

     Note 4.  Inventories

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


                                       7

<PAGE>

     Note 5.  Notes Payable

     Debt as of September 30, 2001 consists of the following:

     Note payable with interest at a rate of 14% per annum.  The Note matured on
     December 31, 1999,  when principal and unpaid  interest was due. The holder
     has obtained a summary judgment  against the Company.  The Company believes
     that the holder engaged in intentional  conduct which resulted in damage to
     the  Company and has filed an action  against  the holder in federal  court
     which is currently pending. In connection with the note, the Company issued
     to the holder a warrant to purchase  250,000  shares of common  stock at an
     exercise price of $0.20 per share upon issuance of the note and warrants to
     purchase an aggregate of 200,000  shares of the common stock in  connection
     with its option to extend the  maturity  date of the note to  December  31,
     1999. In addition, to secure repayment of the note, the Company issued to a
     trustee of the holder  105,875  shares of common stock and 11,441 shares of
     Series C Convertible Preferred Stock. (See Note 7).                 250,000

     Note payable  with  interest at a rate of 10%. The Note matured on December
     31, 2000, when principal and unpaid interest were due. In  consideration of
     this loan and two prior bridge loans, the Company agreed to issue shares of
     the  Company's  common  and  convertible  preferred  stock  to  the  holder
     representing  approximately  200,000  shares  of  common  stock  on a fully
     converted  basis.  The holder has agreed to extend the maturity date of the
     note to December 31, 2001.                                          104,000

     Note payable in the original principal amount of $25,000 with interest at a
     rate of 10% per annum. The Note matured on July 2, 1999, when principal and
     unpaid  interest  were due.  The Note is  currently  in  default,  although
     partial  payment has been made  subsequent to the maturity  date. No action
     has been taken against the Company to enforce the Note. In connection  with
     the note,  the Company  issued a warrant to purchase 5,000 shares of common
     stock at an exercise price of $.04 per share.                        17,500


     Convertible note payable with interest accruing at a rate of one percentage
     point (1%) above the prime rate.  Principal  and  interest  were due in May
     2001. After December 31, 1999 the principal under the note was convertible,
     at the option of the holder, into shares of the Company's common stock at a
     conversion  price of $0.22 per share.  Subsequent to September 30, 2001 the
     holder  converted  the note into  shares  of the  Company's  common  stock.
                                                                         100,000

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

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

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

     Note payable in the original principal amount of $100,000, with an interest
     rate of 10% per annum and  principal  and  interest  payable  in July 2001.
     $50,000  of the loan was  repaid in May,  2001.  In  conjunction  with this
     financing,  a warrant  to  purchase  100,000  shares of common  stock at an
     exercise  price of $0.50 per share is issuable  to the holder.  The Company
     has the  option to extend  the  maturity  date to  October  2001,  which it
     exercised  with  respect  to the  $50,000 of the  principal  and all of the
     interest payable pursuant to the note. As a result,  an additional  warrant
     to purchase 12,500 shares of the Common Stock at the same exercise price is
     issuable.                                                            50,000

     In April,  2001, the Company was loaned $40,000.  A promissory note has not
     yet  been  issued,  as  that  amount  was  only a  partial  funding  of the
     transaction.  The note will  provide an interest  rate of 10% and a term of
     120 days. A warrant will be issuable in  conjunction  with this  financing,
     however,  the amount of shares of common stock purchasable  pursuant to the
     warrant  will be  determined  once  the full  amount  of the  financing  is
     established.                                                         40,000
                                                                      ----------
     Total Current Debt Outstanding                                   $  861,500
                                                                      ==========


                                       8

<PAGE>

     Note 6. Stockholders Equity

     a.   Common Stock

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

     b.   Warrants

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

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

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

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

     c.   Options

     In ____ 2001,  the Company  entered into an agreement with a former officer
     and director pursuant to which options to purchase Company (825.000) shares
     of the Company common stock were cancelled.

     Note 7.  Commitments and Contingencies

     Loan Guarantee

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

     Litigation

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

     The Company is involved in  litigation  related to an  agreement it entered
     into for investment  banking  services.  The Company  executed a promissory
     note in the principal  amount of $500,000 which represents a bridge loan as
     part of an agreement by an investment banking firm to provide at least $2.5
     million in financing.  The financing did not occur.  The bridge note holder
     sued for equitable relief,  claiming that it is due a warrant to purchase 1
     million  shares of the  Company's  common stock.  The Company  disputes any
     obligation  to issue such  warrant,  given the  failure  of the  investment
     banking  firm to raise  capital.  Pursuant  to the terms of the  note,  the
     Company  issued a warrant in full  payment of the  principal  and  interest
     thereunder.  The  Company  is  challenging  the  action  on  the  basis  of
     jurisdiction.  In the event it is not successful in asserting such defense,
     the  Company  will join  additional  parties in the  litigation  and assert
     counterclaims related to the damage incurred by the Company for the failure
     to complete the financing. The Company anticipates that these counterclaims
     would far outweigh any award related to the bridge note.

     In August,  2001,  the Company filed a lawsuit  against a related party And
     his affiliate asserting,  among other things, breach of contract, breach of
     fiduciary  duty,  and  negligence,  and seeking an  accounting of financing
     activity. The defendants have filed responsive pleadings.

     Payroll Taxes

     The Company has not paid payroll  taxes since the third quarter of 1999 and
     currently  owes  ($______).  The  Company is in the  process of filing all
     returns and has accrued estimated penalties and interest of ($______.)


                                        9

<PAGE>

     Note 8.  Earnings (Loss) Per Share

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

                                       10

<PAGE>

     Note 9. Other Income

         (


                                                                             )

     Note 10. Economic Dependency

     Major Customer

     The Company sells a substantial  portion of its products to four customers.
     During  the  period  ended  June  30,  2001,  sale to these  customers  was
     approximately $382,062, $219,130, $215,352 and $171,613,  respectively, and
     represented 32%, 19%, 18% and 15% of total Company sales, respectively.  As
     of June 30,  2001,  there was $39,989  receivable  from these  customers in
     aggregate.

     Major Supplier

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

     Note 11.  Related Party Transactions

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

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

     Note 12. Recent Accounting Pronouncements

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

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

     Note 13.  Subsequent Events

         (


                                                                              )

                                       11

<PAGE>

Item 2.

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

SAFE HARBOR STATEMENT

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

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

OVERVIEW

The following  discussion of the Company's  financial  condition as of September
31, 2001 and results of  operations  for the year ended  September  31, 2001 and
2000  includes  Phlo  Corporation  and  its  subsidiaries   (collectively,   the
"Company") and should be read in  conjunction  with the  consolidated  financial
statements and notes appearing elsewhere in this 10-Q.

RECENT DEVELOPMENTS

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

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

The Company has during October 2001 completed the  development of two additional
product lines containing two of the Company's biotechnologies. The product lines
consist of personal  performance  preparations  delivered through 2-ounce sprays
("Spray Products")  containing VEP/PC and the Company's cognition  biotechnology
which creates great focus and mental alertness without the secondary  depression
associated with the intake of stimulants.  These new spray products will be made
available  initially in natural food chains and later in the major  distribution
segments  of  chain  and  independent  convenience  stores,  drug  stores,  mass
merchandisers, and supermarkets.


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<PAGE>

RESULTS OF OPERATIONS

The  Company's  sales  for the three  month  period  ended  September  30,  2001
increased to $90,270 as compared with sales of $81,977 for the comparable  three
month  period  for  the  comparable  period  during  2000.  Sales  significantly
increased to  $1,270,715  for the six month period ended  September 30, 2001, as
compared to sales of $278,417 for the six month period ended September 30, 2000.
The  selling,  general and  administrative  expenses  for the three month period
ended September 30, 2001 decreased to $302,204 from $884,410 for the three month
period ended  September 30, 2000.  For the six month period ended  September 30,
2001,  selling,  general and administrative  expenses decreased to $923,019 from
$1,611,020  for the six month period ended  September  30, 2000.  The  Company's
operating  loss  substantially  decreased to $280,214 for the three month period
ended  September 30, 2001 as compared with an operating loss of $857,196 for the
three month period ended  September  30, 2000.  The  operating  loss for the six
month period ended September 30, 2001  significantly  decreased to $376,598 from
$1,550,041 for the comparable period during the Company's prior fiscal year.

The operating loss for the three month period ended  September 30, 2001 resulted
from the  decrease in revenue  associated  with the effect of CCE's  purchase of
Coca-Cola  Hondo.  This  purchase  resulted  in  many of the  top  personnel  of
Coca-Cola  Hondo being  replaced in addition to a delay in the full execution of
the launch of the Company's  products as a result of the acquisition  transition
process.  Although the immediate  effect on the Company was the primary cause of
the operating loss during the reporting period,  the Company believes that CCE's
re-launch of the Company's  products and the long-term  effect of its being able
to utilize the CCE  distribution  system (all  distribution  segments  including
vending)  will  have  a  major  beneficial  effect  on  its  future  results  of
operations.  Additionally,  the Company is developing  new  proprietary  plastic
packaging and labeling for its beverage  lines in order to take advantage of the
availability  of all  segments of  distribution,  including  vending,  which has
delayed the Company's  replacement of some of its most popular  beverage flavors
while the Company  completes the sale of the remaining  finished goods inventory
in 16-ounce glass.

The launch of the Vital Cell  Defense  line of  beverages  marks the  successful
commercialization  of one of the  Company's  biotechnologies  and is expected to
lead to significantly  higher future sales,  and greater  margins.  ZO was first
produced  in a limited  volume  production  run in  October,  2000.  Quick sales
followed, as well as an exclusive distributorship agreement with Coca-Cola Hondo
covering  the  entire  Coca-Cola  Hondo  distribution  territory  consisting  of
Illinois, Wisconsin,  Michigan, and parts of Indiana, Ohio, Pennsylvania and New
York.  In April 2001,  the Company  began  shipping  its  beverages to Coca-Cola
Hondo, to enable Coca-Cola Hondo to make initial  distributions of the Company's
beverages to its customer base.

LIQUIDITY AND CAPITAL RESOURCES

During the quarter ended September 30, 2001, the Company  significantly  reduced
its working  capital  deficit by  approximately  $1,105,091  to  $1,714,713.  In
addition,  the Company's  Stockholders'  Deficiency decreased from $2,471,705 to
$1,459,282.


                                       13

<PAGE>

During the upcoming  fiscal year ending  March 31,  2002,  the Company is taking
further steps to reduce or eliminate the Stockholders'  Deficiency and to create
a positive working capital position. Based on the taste and uniqueness of the ZO

line,   the   addition   of  two  product   lines   containing   the   Company's
biotechnologies, and the ability to utilize all distribution segments in the CCE
system just recently  purchased from Coca-Cola  Hondo,  and the potential of the
development of future products based on its biotechnology,  the Company believes
it could  achieve  profitability  for the fiscal  year  ending  March 31,  2002.
Additionally,  the  Company  believes  it is more  likely than in prior years to
raise substantial  equity funds as a result of its expanded  distribution  base,
the existence now of three product lines containing commercialized biotechnology
and prospects for income for the full fiscal year ending March 31, 2002. On June
11, 2001, the Company signed a full service  investment  banking  agreement with
Sands  Brothers  & Co.,  Ltd.  Sands  Brothers  will  provide  a full  range  of
investment banking and financial advisory services to the Company, including the
immediate placement of up to $5 million of is securities.  Finally,  the Company
has taken steps to convert certain  existing debts into equity and will continue
to pursue these steps.

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

Impact of Inflation

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



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<PAGE>

                                   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

November 19, 2001                        By: /s/ James B. Hovis
                                           -------------------------------------
                                           James B. Hovis
                                           President and Chief Executive Officer



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