UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                   FORM 10-QSB

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

       For the quarter ended June 30, 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. Employer
of incorporation or organization)                            Identification No.)

     6001-21 Argyle Forest Blvd.
               PMB #117
        Jacksonville, 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 August 16,
                             2006, is 457,171,550.

<PAGE>

                        PHLO CORPORATION AND SUBSIDIARIES

                     Quarterly Report on Form 10-QSB for the
                      Quarterly Period Ending June 30, 2006

                                Table of Contents

                                                                    Page to Page
                                                                    ------------
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheet as of
            June 30, 2006 (Unaudited)                                   3

         Condensed Consolidated Statements of Operations for the
         three months ended June 30, 2006 and 2005
         (Unaudited)                                                    4

         Condensed Consolidated Statements of Cash Flows for the
         three months ended June 30, 2006 and 2005
          (Unaudited)                                                   5

         Notes to Condensed Consolidated Financial Statements
         (Unaudited)                                                    6

Item 2.  Managements' Discussion and Analysis or Plan
         of Operation                                                   9

Item 3.  Controls and Procedures                                        10

PART II.  OTHER INFORMATION                                             11

Item 1.  Legal Proceedings                                              11

Item 2.  Unregistered Sale of Equity Securities and Use of Proceeds     11

Item 3.  Exhibits                                                       11

Signature                                                               11

Certifications                                                          12


                                       2
<PAGE>

                        PHLO CORPORATION AND SUBSIDARIES
                CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
                                  June 30, 2006

<TABLE>
<S>                                                                            <C>
                                     ASSETS
CURRENT ASSETS
   Cash                                                                               8,431
   Accounts Receivable                                                                  655
   Inventory                                                                   $     29,233
                                                                               ------------
           Total Current Assets                                                      38,319

PROPERTY PLANT AND EQUIPMENT, Net                                                     6,827

DEPOSITS                                                                             12,771
                                                                               ------------

TOTAL ASSETS                                                                   $     57,917
                                                                               ============
               LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable                                                               $  1,811,498
Accrued expenses and taxes                                                        3,001,102
Notes payable, current portion                                                      626,500
                                                                               ------------

           Total Current Liabilities                                              5,439,100
                                                                               ------------
Total liabilities                                                                 5,439,100
                                                                               ------------

COMMITMENTS 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                            50
authorized, 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 3,000,000
authorized, 1,302,304 shares outstanding (Liquidation preference $13,023)               130
Series C preferred convertible stock, 15,298 shares subscribed                            1
Common stock, $0.0001 par value, 250,000,000 shares authorized
395,801,259 shares issued and outstanding                                            39,580
Common stock, $0.0001 par value, 16,264,986 shares subscribed                         1,627
Additional paid-in capital                                                       15,665,852
Accumulated deficit                                                             (21,088,423)
                                                                               ------------
           Total Deficiency in Stockholders' Equity                              (5,381,183)
                                                                               ------------
TOTAL LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY                       $     57,917
                                                                               ============
</TABLE>

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


                                       3
<PAGE>

                        PHLO CORPORATION AND SUBSIDARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                For the Three Months Ended June 30, 2006 and 2005

<TABLE>
<CAPTION>
                                                 Three Months  Three Months
                                               --------------------------------
                                                   2006               2005
                                               -------------      -------------
<S>                                            <C>                <C>
REVENUES                                       $         875      $          --

COST OF REVENUES                                          --                 --
                                               -------------      -------------
GROSS PROFIT                                             875                 --

OPERATING COSTS AND EXPENSES
   General and Administrative                        420,110            434,732
   Research and Development                           25,000             24,144
                                               -------------      -------------

   LOSS FROM OPERATIONS                             (444,235)          (458,876)
                                               -------------      -------------
OTHER (EXPENSES)

  Financing Cost                                     (33,396)          (147,377)
  Interest expense                                   (16,838)           (19,806)
                                               -------------      -------------

   TOTAL OTHER (EXPENSES)                            (50,234)          (167,183)
                                               -------------      -------------
   LOSS BEFORE INCOME TAXES                         (494,469)          (626,059)

INCOME TAXES                                              --                 --
                                               -------------      -------------

NET LOSS                                       $    (494,469)     $    (626,059)
                                               =============      =============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING       417,514,475        254,183,421
                                               =============      =============

NET LOSS PER SHARE (BASIC AND DILUTED)         $       (0.00)     $       (0.00)
                                               =============      =============
</TABLE>

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


                                       4
<PAGE>

                        PHLO CORPORATION AND SUBSIDARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
                For the Three Months Ended June 30, 2006 and 2005

<TABLE>
<CAPTION>
                                                                         2006            2005
                                                                     -----------     -----------
<S>                                                                  <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                             $  (494,469)    $  (626,059)

Adjustments to reconcile net loss to net cash used in operating
 activities:
Common stock reimbursement to shareholder                                 33,396         127,376
Common stock issued for services                                              --          80,000
Warrants issued for services                                                  --          21,000
Warrants issued for financing expense                                         --          20,000
Depreciation and amortization                                                616             616

Changes in operating assets and liabilities:
         Inventory                                                       (29,233)
         Accounts receivable                                                 612              --
         Settlement receivable                                            45,000              --
         Other receivable                                                  6,964
         Accounts payable                                                295,364         123,230
         Accrued expenses and taxes                                       94,681          56,337
                                                                     -----------     -----------
NET CASH USED IN OPERATING ACTIVITIES                                    (47,069)       (197,500)
                                                                     -----------     -----------

CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from revolving credit line                                           --         130,000
Proceeds from sale and subscription of equity
 securities                                                               55,500          67,500
                                                                     -----------     -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                 55,500         197,500
                                                                     -----------     -----------

NET INCREASE IN CASH                                                 $     8,431     $        --

Cash and cash equivalents, beginning of the period                            --              --
                                                                     -----------     -----------
Cash and cash equivalents, end of the period                         $     8,431     $        --
                                                                     ===========     ===========

Supplemental Disclosures of Cash Flow Information:
 Cash paid during the period for interest                            $        --     $        --
  Income taxes paid                                                           --              --

Non-Cash Financing Activities:
   Common stock issued in exchange for accrued interest
    and accrued liabilities                                                   --           1,917
   Common stock issued in exchange for revolving credit
    line                                                                      --          43,584
</TABLE>

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


                                       5
<PAGE>

                        PHLO CORPORATION AND SUBSIDARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 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
months ended June 30, 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 June 30, 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
<PAGE>

                        PHLO CORPORATION AND SUBSIDARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (Unaudited)

NOTE B - REVOLVING CREDIT FACILITY

In June, 2002, the Company closed a revolving credit facility with a one-year
term which provides 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 interest and accrued principal and
interest.

During the term of the credit facility, the lender exercised its rights provided
by the loan documents to sell shares of Common Stock that were previously issued
and pledged as collateral for the repayment of advances pursuant to the credit
facility. During the quarter ended June 30, 2006, the lender paid $6,964 in
excess proceeds from the liquidation 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 June 30, 2006, the Company has 500,000 shares of Series A convertible
preferred stock, 1,302,304 shares of Series C convertible preferred stock, and
395,801,259 shares of Common Stock issued and outstanding. The Company has no
Series B non-convertible preferred stock issued and outstanding at June 30,
2006.

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
were issued in the quarter) and agreed to issue warrants to purchase 750,000
shares of Common Stock at an exercise price of $0.05 per share. 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 sold to satisfy
obligations of the Company (of which 951,112 were issued in the quarter). 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.


                                       7
<PAGE>

                        PHLO CORPORATION AND SUBSIDARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (Unaudited)

NOTE D - OTHER ASSETS AND LIABILITIES

In the fiscal year ended March 31, 2004, the Company entered into an agreement
with a company which is providing services to the Company related to the
enhancement of the Company's biotechnologies, including the supervision of
further research and development, protocols, and testing pertaining to the
enhancement and protection of the intellectual property related thereto and the
commercialization, production, marketing and distribution of the products
containing such biotechnologies. In conjunction therewith, the Company made
payments thereto of $42,576 during the quarter ended June 30, 2006 to be used
for the activities set forth above. During the fiscal quarter ended June 30,
2006, all of the funds advanced had been expended. The Company included a
$66,071 payable to such company in its current liabilities. Additionally, the
Company agreed to pay to the other party two percent of net revenues generated
by the sale of products with respect to which the company provided services
under the agreement during the term of the agreement, subject to certain
limitations set forth therein.

NOTE E - COMMITMENTS AND CONTINGENCIES

Litigation

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. 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 F - SUBSEQUENT EVENTS

Equity

Subsequent to the date of the financial statements, the Company issued 1,818,182
shares of stock in conjunction with an agreement; 30,252,110 shares of Common
Stock to a shareholders upon their conversion of 61,739 shares of Series C
Convertible Preferred Stock; 9,090,909 shares of Common Stock in conjunction
with an agreement; 1,300,000 shares of Common Stock previously subscribed and
issued a previously-subscribed warrant to purchase 500,000 shares of Common
Stock at an exercise price of $0.05 per share. Additionally, in consideration of
$82,000, the Company issued 18,909,091 shares of Common Stock and a warrant to
purchase 2,000,000 shares of Common Stock at an exercise price of $0.05 per
share.


                                       8
<PAGE>

                                     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.

OVERVIEW

The following discussion of the Company's financial condition as of June 30,
2006 and results of operations for the three months ended June 30, 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 June 30, 2006, the Company announced that has
commenced online sales through its website, and initial revenue has been
generated therefrom. Previously, the Company announced that it has commenced
initial sales to the athletic departments of colleges and universities of its
AQUIS(TM) Rapid Response Rehydration product line, which 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 fiscal year ended March 31, 2006, the Company improved the technology
contained in its AQUIS(TM) beverages, by significantly reducing 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. The Company's
VEP/PPC technology is an integral part of its AQUIS(TM) beverages, which creates
potent cell protection and repair in addition to rapid rehydration. This is
particularly important to athletes, who create significant cell damage during
strenuous physical exertion. To reflect the material improvements in its
beverages, the Company has also completely revised 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

During the quarter ended June 30, 2006, the Company generated revenue of $875
and reported no direct cost of sales, as compared with no revenue and no cost of
sales during the three month periods ended June 30, 2005. The selling, general
and administrative expenses for the three month period ended June 30, 2006 were
$420,110, as compared to $434,732 for the comparable three month period during
2005. The Company incurred research and development costs of $25,000 during the
three month period ended June 30, 2006, as compared with $24,144 for the
comparable three month period during 2005. The Company's operating loss was
$444,235 for the three month period ended June 30, 2006, as compared with an
operating loss of $458,876 for the comparable period ended June 30, 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
significantly greater positive operating results and greater shareholder value
than would otherwise be possible.


                                       9
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital deficit increased by $404,957 during the three
month period ended June 30, 2006, to $5,400,781. In addition, the Company's
Stockholders' Deficiency increased from $4,975,610 to $5,381,183 during the same
three-month period.

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 the prospects for
national and global distribution of its products through joint venture
undertakings with entities possessing marketing 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 debts 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.


                                       10
<PAGE>

                                     PART II

ITEM 1. LEGAL PROCEEDINGS

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. 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

During the period covered by this report, the Company issued shares of its
Common Stock as follows:

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
were issued in the quarter) and agreed to issue warrants to purchase 750,000
shares of Common Stock at an exercise price of $0.05 per share. 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 sold to satisfy
obligations of the Company (of which 951,112 were issued in the quarter). The
Company also issued a previously-subscribed warrant to purchase 1,250,000 shares
of Common Stock at an exercise price of $0.03. The Company has relied on
exemptions from the registration requirements of the Securities Act of 1933, as
amended.

ITEM 3. EXHIBITS

                                   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


August 18, 2006                        By: /s/ James B. Hovis
                                           ------------------------------------
                                           James B. Hovis
                                           President and Chief Executive Officer


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