SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-QSB

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15 (d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 
      For the quarterly  period ended September 30, 1995

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE
      SECURITIES EXCHANGE ACT OF 1934
      For the transition period from _________________ to ____________


Commission File Number: 33-18099-NY and 33-23169-NY

                           PHASE-OUT OF AMERICA, INC.
        (Exact name of small business issuer as specified in its charter)

            DELAWARE                                          11-2873662
(State or other jurisdiction of                       (I.R.S. Employer I.D. No.)
incorporation or organization)

                     140 Broadway, Lynbrook, New York 11563
                    (Address of principal executive offices)

Issuer's telephone number, including area code:  (516) 599-1900

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange Act during the past 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 ___

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
Common Stock, as of the last practicable date.

         Class                            Outstanding at September 30, 1995
-----------------------                   ---------------------------------
Common Stock, par value
   $.00003 per share                                  68,897,905


<PAGE>

PHASE-OUT OF AMERICA, INC.
FINANCIAL STATEMENTS (Unaudited)
September 30, 1995

Financial Statements

Accountant's Disclaimer of Opinion .............................      F2
Balance Sheets .................................................   F3 to F4
Statements of Operations and Deficit ...........................      F5
Statements of Cash Flows .......................................      F6
Schedules of General and Administrative Expenses ...............      F7
Financial Data Schedule ........................................      F8
Notes to Financial Statements ..................................   F9 to F13


                                      -F1-


<PAGE>


                               Stewart W. Robinson
                           Certified Public Accountant
                         450 Seventh Avenue, Suite 1009
                               New York, NY 10123
                                Tel. 212-629-7323
                                Fax 212-629-7052


PART 1 FINANCIAL INFORMATION
Item 1, financial statements


ACCOUNTANT'S DISCLAIMER OF OPINION


Shareholders and
Board of Directors
Phase-Out of America, Inc.
Lynbrook, New York

The accompanying balance sheet of Phase-Out of America, Inc. as of September 30,
1995 and the related  statements  of  operations  and deficit,  cash flows,  and
schedule of general and  administrative  expenses  for the nine and three months
ended September 30, 1995 and 1994 were not audited by me and, accordingly,  I do
not express an opinion or any other form of assurance on them.

I previously examined, in accordance with generally accepted auditing standards,
the balance  sheet as of  December  31,  1994,  and the  related  statements  of
operations  and deficit,  and cash flows for the year then ended (not  presented
herein);  and in my report  dated March 25,  1995,  I expressed  an  unqualified
opinion on those  financial  statements,  but I have not  performed any auditing
procedures since that date.

                                                 /s/ STEWART W. ROBINSON
                                                     Stewart W. Robinson

New York, New York
October 26, 1995


                                      -F2-


<PAGE>


PHASE-OUT OF AMERICA, INC.
BALANCE SHEETS (Unaudited)

                                                   September 30,    December 31,
                                                        1995            1994
                                                   -------------    ------------
                                                    (Unaudited)
ASSETS

CURRENT ASSETS
  Cash                                                 $151,263         $ 24,541
  Accounts receivable                                    66,706            2,084
  Inventory -- stated at the lower of cost
    or market - first-in first-out                      190,839          182,229
  Prepaid expenses                                       18,169           13,363
                                                       --------         --------
         TOTAL CURRENT ASSETS                           426,977          222,217

FIXED ASSETS, at cost, net of accumulated
 depreciation of  $12,939 (1995),
 $9,649 (1994)                                            8,586            9,886

SECURITY DEPOSITS                                         3,434            3,434

PATENTS - at cost, net of accumulated
  amortization of $3,060 and $857                        43,940           46,143
BOND DISCOUNT                                               108              408
                                                       --------         --------
                                                       $483,045         $282,088
                                                       ========         ========

                         (continued on next page . . . )

See accountant's disclaimer and notes to financial statements


                                      -F3-


<PAGE>


PHASE-OUT OF AMERICA, INC.
BALANCE SHEETS (Unaudited) -- Continued

                                               September 30,       December 31,
                                                   1995               1994
                                               -------------       ------------
                                                (Unaudited)

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

CURRENT LIABILITIES
  Senior secured notes payable, including
    accrued interest of $5,208                                      $   130,208
  Accounts payable and accrued expense           $   662,016            165,986
  Taxes payable                                       10,134              4,807
  Current portion of long term debt                   31,955             48,466
  Loan from director / shareholder                      --               20,000
  Amounts due to affiliate                              --              319,197
  Accrued officer compensation                       231,798            125,715
  Loans from Officer/Shareholder                       5,897              5,897
                                                 -----------        -----------
TOTAL CURRENT LIABILITIES                            941,800            820,276
                                                 -----------        -----------
SENIOR SUBORDINATED
  CONVERTIBLE DEBENTURES                             410,000

CAPITAL LEASES, net of current portion                  --                  586

STOCKHOLDERS' DEFICIENCY
  Series A Convertible Preferred Stock,
    par value $.001 per share --
    authorized 600,000 shares --
    no shares issued and outstanding

  Series B Convertible Preferred Stock,
    par value $.001 per share --
    authorized 5,000,000 shares --
    no shares issued and outstanding

  Common stock, $0.00003 par value:
  Authorized shares -- 100,000,000 
    Issued and outstanding shares -- 
    68,897,905 at September 30, 1995
    60,284,333 at December 31, 1994                    2,067              1,809

    Capital in excess of par                       1,828,557          1,481,809

    Accumulated deficit                           (2,699,379)        (2,022,392)
                                                 -----------        -----------
                                                    (868,755)          (538,774)
                                                 -----------        -----------
Related party transactions -- Note 5
Commitments and other comments -- Note 8
                                                 $   483,045        $   282,088
                                                 ===========        ===========

See accountant's disclaimer and notes to financial statements


                                      -F4-


<PAGE>


PHASE-OUT OF AMERICA, INC.
STATEMENTS OF OPERATIONS AND DEFICIT - UNAUDITED

<TABLE>
<CAPTION>
                                         Nine Months Ended                  Three Months Ended
                                           September 30,                       September 30,
                                  -----------------------------        ----------------------------
                                      1995              1994              1995              1994
                                  -----------        ----------        ----------        ----------
<S>                               <C>                <C>               <C>               <C>       
Sales -- net - Note 2             $ 1,007,312        $  288,017        $  550,332        $   73,647
Royalty income                           --               2,930
                                  -----------        ----------        ----------        ----------
                                    1,007,312           290,947           550,332            73,647
Cost of sales                         166,667           110,571            87,902            23,111
                                  -----------        ----------        ----------        ----------
         Gross Profit                 840,645           180,376           462,430            50,536

OTHER INCOME AND EXPENSES:
Interest expense                      (35,122)           (4,210)          (22,572)           (1,225)
Other income                           22,518                               6,294
Interest and dividend income               66               382                                 213
                                  -----------        ----------        ----------        ----------
                                      828,107           176,548           446,152            49,524
  Selling, general and
    administrative                  1,505,094           434,210           660,154           146,229
                                  -----------        ----------        ----------        ----------
Net loss                             (676,987)       $ (257,662)       $ (214,002)       $  (96,705)
                                                     ==========        ==========        ==========
Deficit - January 1, 1995          (2,022,392)
                                  -----------
Deficit -
  September 30, 1995              $(2,699,379)
                                  ===========
Loss per share                    $     (0.01)          NIL               NIL               NIL
                                  ===========        ==========        ==========        ==========
Weighted average number
  of shares outstanding            67,000,000        55,000,000        68,000,000        54,000,000
                                  ===========        ==========        ==========        ==========
</TABLE>

See accountant's disclaimer and notes to financial statements


                                      -F5-


<PAGE>


PHASE-OUT OF AMERICA, INC.
STATEMENTS OF CASH FLOWS  - UNAUDITED

<TABLE>
<CAPTION>
                                                    Nine Months Ended            Three Months Ended
                                                      September 30,                 September 30,
                                                ------------------------      ------------------------ 
                                                   1995           1994           1995          1994
                                                ---------      ---------      ---------      --------- 
<S>                                             <C>            <C>            <C>            <C>       
OPERATING ACTIVITIES
Net loss                                        $(676,987)     $(257,662)     $(214,002)     $ (96,705)
Adjustments to reconcile net income
  to cash used for operating activities:
Depreciation and amortization                       4,303          3,483          1,433          2,203
Decrease (increase) in accounts receivable        (64,622)        34,181        (14,253)        13,415
(Increase) in inventories                          (8,610)       110,571        (87,375)        23,111
(Increase) in prepaid and other current            (4,806)         1,873         (5,687)       (15,982)
(Increase) in accrued officer compensation        106,083         66,043         39,000         25,581
(Decrease) increase in accounts payable and
  accrued expenses                                496,030        (13,499)       446,799        (10,057)
(Decrease) increase in taxes payable                5,327        (12,533)           317            882
Bond discount                                         300             85            100
(Decrease) increase in due to affiliate          (319,197)       (48,011)      (257,009)       (36,000)
Expenses paid through the issuance
  of restricted common stock                      220,570         28,524            420          8,450
                                                ---------      ---------      ---------      --------- 
    CASH USED FOR OPERATING ACTIVITIES           (241,609)       (86,945)       (90,257)       (85,102)

INVESTING ACTIVITIES
Acquisition of fixed assets                          (800)        (2,113)          (800)        (2,113)
Increase in security deposits
                                                ---------      ---------      ---------      --------- 
      CASH PROVIDED BY (USED FOR)
        INVESTING ACTIVITIES                         (800)        (2,113)          (800)        (2,113)
                                                ---------      ---------      ---------      --------- 
FINANCING ACTIVITIES
Debt and capital lease payments                    (7,097)        (4,441)        (5,546)        (1,628)
Sales of Common Stock                             115,000                        65,000
Proceeds from senior secured notes payable           --          125,000                       125,000
Advances from officer/stockholder
Repayment of loans from officer/stockholder       (20,000)        (8,000)       (20,000)
Proceeds from debentures                          279,792                        95,000
Conversion on bond interest to common               1,436
                                                ---------      ---------      ---------      --------- 
    CASH PROVIDED BY FINANCING ACTIVITIES         369,131        112,559        134,454        123,372
                                                ---------      ---------      ---------      ---------
    INCREASE (DECREASE) IN CASH                   126,722         23,501         43,397         36,157

Cash at beginning of period                        24,541         18,719        107,866          6,063
                                                ---------      ---------      ---------      ---------
Cash at end of period                           $ 151,263      $  42,220      $ 151,263      $  42,220
                                                =========      =========      =========      =========
Supplemental information:
  Interest paid during the period               $  11,808      $     675      $  11,358      $     450
                                                =========      =========      =========      =========
</TABLE>

See accountant's disclaimer and notes to financial statements


                                      -F6-


<PAGE>


PHASE-OUT OF AMERICA, INC.
SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SCHEDULE 1  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    Nine Months Ended                      Three Months Ended
                                                                      September 30,                           September 30,
                                                             ------------------------------          -------------------------------
                                                                1995                1994                1995                 1994
                                                             ----------          ----------          ----------           ----------
<S>                                                          <C>                 <C>                 <C>                  <C>     
SELLING EXPENSES:
 Television marketing expense                                $  481,515          $     --            $  283,669           $     --
 Advertising and promotion                                      218,644              27,736              62,097                3,538
 Fulfillment and credit card                                    163,747              16,664             103,418                6,378
 Commissions and royalties                                       65,554              37,128              15,476               17,559
 Travel and entertainment                                        36,964              49,615              15,729               10,845
 Auto lease                                                      14,873              17,240               3,889                4,661
 Auto expense                                                    18,373               6,797              11,327                3,145
 Postage and shipping - net                                         446               8,475              (7,977)               3,516

GENERAL AND ADMINISTRATIVE EXPENSES:
 Officers' compensation                                         230,845             102,517              95,800               33,781
 Salaries                                                        59,049              31,050              23,487               13,996
 Consulting fees                                                 65,241              11,275                (630)               2,450
 Insurance expense                                               29,790              29,853              10,850                6,821
 Professional fees                                               20,304              20,739               7,498                7,771
 Telephone                                                       18,594              20,998               7,199                9,680
 Payroll taxes                                                   16,532              10,781               9,176                5,265
 Financing costs                                                 15,549                --                 1,562                 --
 Office supplies and expense                                     13,145               9,283               2,747                4,039
 Rent                                                            12,750              13,500               6,000                4,500
 Miscellaneous                                                    8,624               5,793               5,790                4,358
 Depreciation and amortization                                    4,303               3,483               1,434                2,203
 Utilities                                                        3,704               7,177               1,083                  511
 Equipment rental                                                 2,989                --                  --                   --
 Repairs and maintenance                                          1,601               2,313                 410                  563
 Stock transfer fees                                              1,515               1,793                 120                  649
 State Franchise Taxes                                              443                --                  --                   --
                                                             ----------          ----------          ----------           ----------
                                                             $1,505,094          $  434,210          $  660,154           $  146,229
                                                             ==========          ==========          ==========           ==========
</TABLE>

See accountant's disclaimer and notes to financial statements.


                                      -F7-


<PAGE>


PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
September 30, 1995


NOTE  1  --  BACKGROUND  AND  BASIS  OF  PRESENTATION

Phase-Out of America,  Inc. (the Company)  incorporated  in Delaware on July 17,
1987 for the purpose of  obtaining  scientific  and clinical  validation  of the
Phase-Out  System  smoking  cessation  product (the  "Product") and to develop a
marketing and  distribution  network in the United States.  The Company  emerged
from the development stage in 1993.

The  financial  statements  have been  prepared  assuming  that the Company will
continue as a going  concern.  The Company has  suffered  recurring  losses from
operations  ($676,987  in 1995  and  $257,662  in  1994),  and  has had  limited
liquidity   causing   difficulty  in  meeting  its  current   operating  expense
obligations  and  debt  service  requirements.   Additionally,  the  Company  is
preparing a response to a complaint by the Division of Advertising  Practices of
the FTC,  the outcome of which cannot be  determined  at this time (see note 8).
The Company is  commencing a wide range of direct  marketing  activities to help
improve  revenues  and is  attempting  to secure  additional  financing  through
private placement of debt and securities.

There is no assurance  that a larger  market can be developed for the product or
that profitable operations will be achieved.

The financial statements do not include any adjustments that might result should
the continued  existence of the Company be threatened by any continued losses or
the failure of the above  factors to influence  the  financial  viability of the
Company.

The interim  statements were prepared pursuant to the requirements for reporting
on Form 10-QSB.  The  December  31, 1994 balance  sheet was derived from audited
financial  statements but does not include all disclosures required by generally
accepted  accounting  principles.  The interim  financial  statements  and notes
thereto  should be read in conjunction  with the financial  statements and notes
included in the Company's latest Annual Report on Form 10-KSB for the year ended
December  31,  1994.  In  the  opinion  of  management,  the  interim  financial
statements  reflect all adjustments of a normal recurring nature necessary for a
fair statement of the results for interim periods. The current period results of
operations  are not  necessarily  indicative  of the results for the entire year
ending December 31, 1995.


NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Changes in significant accounting policies:

Management  implemented  a change in  accounting  for  revenues  from sales made
through television infomercials.  This is a change only from the methods used in
the immediately  preceding  quarter of the current year.  Since the Company owns
and is  responsible  for  storing  inventory  until sold  (title is  retained by
Company until  merchandise  is shipped to the retail  consumer),  taking orders,
shipping  and  collections  on all sales made via this medium  (some  activities
delegated  to  outside  fulfillment  entities),  the gross  sales  amount is now
reported as sales.

Originally, in the quarter ended June 30, 1995, sales of this type were recorded
net of all  fulfillment  and  commission  costs.  The  results of this change in
presentation  are  substantial  increases  in  sales,  as well as  expenses  for
fulfillment,  credit card services and,  commissions.  This change in accounting
and presentation has no effect on net loss.

                                      -F8-


<PAGE>


PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
September 30, 1995


NOTE 3 -- STOCKHOLDERS' EQUITY

Stock Issued to Officers, Consultants, Affiliates and Employees:

In 1995, the Company issued 793,653 shares to officers and directors,  2,900,000
to Products & Patents and 2,922,705 shares to consultants.  The 2,900,000 shares
to P&P were issued to P&P for funding of certain public relations  activities on
behalf of the Company and for securing  the  international  distribution  rights
(see Note 4).

Sales of common stock:

In April and July  1995,  the  Company  sold  606,000  and  1,000,000  shares of
restricted common stock to unrelated individuals for aggregate gross proceeds of
$115,000.

Bond conversion:

In April  1995,  two  holders of $2,500  each in  subordinated  debenture  bonds
exercised the conversion right for 96,120 shares of restricted  common stock. In
July  1995,   the  Company  issued  195,238  shares  in  conversion  of  certain
subordinated debentures currently in default (face amount $10,000).

Common stock purchase warrants:

In June 1995,  the board  approved the  extension of the Company's B warrants to
December 31, 1995.

Registration of consultant securities:

In June 1995, a Form S-8  registration  statement was filed with the  Securities
and Exchange Commission covering consultant shares.

Options:

The Company  granted options to directors  providing for $.075 share price.  The
options vest in February 1996, and are exercisable for five years thereafter.


NOTE 4 -- AMOUNTS DUE TO AND FROM AFFILIATED COMPANY

Amounts due to affiliated  company,  Products & Patents,  Ltd.  (P&P), a company
related by common  management  and  control,  consisted  of  intercompany  trade
payables and bore no interest.

In August 1995, the  relationship  with P&P was  terminated.  Consequently,  the
Company's  obligation to pay royalties  has been  discontinued.  Pursuant to the
termination  of the  relationship  with P&P, all debt due to P&P was canceled in
exchange for assumption of certain trade  liabilities.  In connection  with this
transaction,   the  Company   assumed  P&P's   obligation  to  its  supplier  of
approximately $401,000 and took title to 53,000 units of inventory.

                                      -F9-


<PAGE>


PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
September 30, 1995


NOTE 5 -- RELATED PARTY TRANSACTIONS

Officers' Compensation

Compensation  and expense  reimbursements  and  allowances  for the  Secretary /
Treasurer, President and Chairman / CEO were as follows:

                                                Nine Months Ended September 30,
                                                -------------------------------
                                                   1995              1994
                                                   ----              ----

Cash compensation                                $215,095(a)       $ 96,517
Bonuses  paid  by  issuance
 of restricted common stock                        15,750             6,000
                                                 --------          --------
                                                 $230,845          $102,517
                                                 --------          --------
Automobile lease                                 $ 14,873          $ 17,240
Automobile expenses                                 8,594             6,797
Entertainment expenses                             36,964            49,615
Telephone expenses                                  2,668             2,250


(a) $231,798 accrued and unpaid as of September 30, 1995.

Employment and Stock Ownership of Affiliate:

The Chairman / CEO is also an officer / director and significant  shareholder of
P&P and P&P is a significant shareholder of the Company. Accordingly,  there may
be conflicts of interest.

P&P is also a significant shareholder of the Company.

Loans from Officer/Stockholders:

An officer/stockholder is owed $5,897 by the Company. The loan bears interest at
10% and is payable on demand.

Other:

General  Counsel to the  Company  is a relative  of the  officers.  The  Company
incurred approximately $8,000 of legal fees with his firm in 1995. Also in 1995,
the Company issued 100,000 shares of restricted common stock to this law firm to
reduce the balance due them.


NOTE 6 -- INCOME TAXES

The Company has  experienced  losses since  inception.  At December 31, 1994 the
Company has available net operating  loss  carryovers  approximating  $2,000,000
which begin to expire in 2002 until 2009.

The Company has provided for minimum  state  franchise  taxes and taxes based on
capital. Such taxes are included in selling, general and administrative expenses
in the statement of operations.


NOTE 7 -- LONG TERM DEBT

Current portion of long-term debt:

Current portion of long-term debt consist of Subordinated  Debentures of $29,000
and capital leases of $2,955.

                                     -F10-


<PAGE>


PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
September 30, 1995


Default in subordinated debentures:

The Company is in default in payment of principal  and interest  with respect to
certain  subordinated  debentures (face amount of $29,000).  No default has been
declared by the bondholders. Additionally, the Company has not complied with the
provisions of the subordinated  debenture agreements with respect to the sinking
fund requirements.

Private Placement of Senior Subordinated Convertible Debentures:

In 1995, the Company  received  $285,000 in senior  subordinated  debt financing
from private lenders (in addition to the $125,000  converted from senior secured
notes).


NOTE 8--COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS

Dependency on Major Customers and Suppliers:

The  Company  is  dependent  on a few  major  customers  and  marketing  methods
controlled by specific outside  marketers for substantially all of its revenues.
Sales of  approximately  $763,000  (76% of net sales)  were made in  response to
television infomercials controlled and promoted by one unrelated entity.

Pursuant to the amendment of the licensing  agreement,  the Company is no longer
dependent  on P&P for its  product  line.  However,  the  Company  is  currently
dependent on one supplier for the  Phase-Out  smoking  cessation  device.  As of
September 30, 1995, the balance due to this supplier was approximately $374,000.

The Company has spent time and money on diversifying  its product line by adding
the "Total Quit Smoking  Program" and a group of consumable  products called the
"Phase-Out  Support  Group".  While the Company is dependent on one supplier for
its smoking  cessation  device, it will not be dependent on one supplier for any
of its new products.

Regulatory matters:

There has been no change in the status of the regulatory inquiry by the Food and
Drug Administration (FDA).

On August 3,  1995,  the  Company  received a  complaint  from the  Division  of
Advertising  Practices at the FTC  regarding  certain  advertising  claims.  The
complaint addresses  statements in the Company's  infomercial and claims made in
print  advertisements.  Management  believes  the ads  referred to are no longer
being used. This complaint will be responded to by the Company's attorney within
60 days.

                                     -F11-


<PAGE>


PHASE-OUT OF AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) -- see accountant's disclaimer
September 30, 1995


Operating leases:

In June  1995,  the  Company  entered  into a  non-cancelable  automobile  lease
providing for monthly  payments of $377 through  September  1998, with aggregate
minimum lease payments through the term of approximately  $15,000.  The lease is
guaranteed by an employee who has exclusive use of the vehicle.

Marketing agreements:

On May 9, 1995 a joint  venture was  established  with Eire  Partners,  a direct
response  marketing firm in Chicago - Eire partners  agreed to fund printing and
other  related  expenses  for a direct  mailing of Phase Out  advertisements  to
credit card  holders.  The initial  test is 1,100,000  mailing  pieces to Unocal
credit card holders.

An agreement  was entered into with Blagman Media for Phase Out to be advertised
on radio stations in major cities  throughout  the Country.  Three versions of a
sixty second  radio  commercial  have  started to air in New York,  Los Angeles,
Tampa, Chicago and Las Vegas.

On June 21, 1995 an agreement was reached with Tokyo Boeki, Ltd., a $1.7 billion
dollar  (annual  sales)  Japanese  trading  company.  Under  the  terms  of  the
agreement, Tokyo Boeki placed an initial test order for the Phase Out System and
has agreed to introduce  and  advertise  the Phase Out system in Japan for a one
year period.

On  September  20,  1995,   an  agreement   was  entered  into  with   Integrity
International,  Inc., a network  marketing  company,  to market an "Anti-Smoking
Kit/Program".  The  agreements  provides for specific  quotas and initial  order
amounts. Exclusivity for this means of marketing is provided in the agreement.

                                     -F12-


<PAGE>


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

                              Results of Operations
                  Nine Months Ended September 30, 1995 Compared
                     to Nine Months Ended September 30, 1994

The Company  incurred a net loss of $676,987 for the nine months ended September
30, 1995 as compared to the loss of $214,002 for the nine months ended September
30, 1994. Nine month revenues  increased 3 1/2 times compared to the same period
last  year  ($1,007,312  compared  to  $288,017)  and the  third  quarter  sales
increased  7 1/2 times over the same  quarter  last year  ($550,332  compared to
$73,647).  The improvement in revenues resulted from retail sales of the product
through television direct response methods. This represents substantially higher
unit  selling  prices more than  increases in unit  volume.  Although  increased
revenues are reflected in gross profit,  there are substantial  additional costs
associated with distribution  through this channel,  substantially  reducing the
net benefit of the sales increase to the Company.

Selling,  general and  administrative  expenses  more than doubled to $1,505,094
from $660,154 (128%  increase).  Of the total selling  general &  administrative
expenses,  $220,150 and $20,074 was paid in the form of restricted  common stock
(a non-cash  item),  respectively  for 1995 and 1994. An additional  officer was
added, as well as two more office employees.  The increase in payroll was needed
to manage increased  inquiries,  as well as managing the increased sales volume.
Total officer salaries rose to $230,845 compared to $95,800 for 1994.

Advertising  and  promotion  rose to  $218,644  compared  to  $62,097  for 1994.
Consulting fees increased to $65,871 from $8,825 in 1994.

The gross  profit  margin  increased  from 63% to 84%, due to the high volume of
direct response television sales.

The Company maintains a $1 million liability insurance policy.


                         Liquidity and Capital Resources

Cash of $241,609 was used for operations for the nine months ended September 30,
1995 as compared to $86,945 used in the same period of last year. Cash increases
were primarily from proceeds of private  placements during the nine months ended
September 30, 1995.

Short term liquidity is being affected by the need for cash to maintain a steady
flow of inventory now that sales have increased. Whereas the previous issue with
respect to liquidity was survival and meeting essential operating expenses,  the
need has turned to  maintaining  a steady  flow of  inventory  to replace  goods
shipped and meet customer orders, as well as funding promotional activities.

The product's  success depends heavily on reaching  potential  customers through


                                     -F13-


<PAGE>


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


advertising and other marketing methods requiring  additional cash flow for this
purpose.

The Company currently has no established sources of financing or unused lines of
credit.  While the  Company  is in  default  of the  repayment  terms of certain
subordinated debentures,  being delinquent on principal payments of $29,000 plus
interest.  No default has been declared by these bondholders,  and additionally,
the  amount in  default  has been  reduced  by  $15,000  since  year end 1994 by
conversion into common stock.

In 1995, the Company  received  $285,000 in senior  subordinated  debt financing
from private lenders (added to the $125,000 converted from senior secured notes)
and $115,000 from sales of restricted common stock, which enhances the near term
outlook and ability to continue operations with increased marketing  activities.
Management  believes,  but cannot assure that revenues will continue to rise for
the remainder of the year.

The Company's  working capital has deteriorated due to the use of current assets
for operations and increases in accounts  payable.  Working  capital and current
ratios were:

                               September 30,     December 31       September 30,
                                   1995             1994               1994
                                   ----             ----               ----
Working capital
  (deficiency)                  $(514,823)        $(598,059)        $(474,155)
Current ratios                     0.45:1            0.27:1            0.39:1


                              Impact of Tax Reform

The Company's  liquidity is not expected to be materially  affected by recent or
pending tax legislation.


                               Impact of Inflation

In general,  the Company's  overhead  expenses would come under pressure  should
inflation rates increase.

The labor used to manufacture the product is unskilled or semi-skilled. However,
increases  in wages  may  result  from  inflationary  pressures.  Since the sole
supplier  is now  manufacturing  the product  overseas,  foreign  exchange  rate
changes could affect product costs.

Should there be a resurgence in inflation rates, management believes, but cannot
assure that the product's  selling price could be increased to maintain  margins
and cover overhead increases.


                                     -F14-


<PAGE>


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


                           Distribution and Marketing

Over the past few years the  Company  has  entered  into test  marketing,  sales
representation,   distribution  and  distributorship   agreements  with  various
entities.

In December 1994, the Company entered into an agreement with On Air Infonetwork,
Inc., a direct  response  marketing  firm. The agreement  provides for exclusive
television direct response marketing rights in the United States and Canada. The
increase  in  sales  in the  second  quarter  was  mainly  attributable  to this
agreement.


                          Effect of Competing Products

The Food and Drug  Administration has approved nicotine patches for prescription
by licensed  physicians for treatment of nicotine  withdrawal.  Currently,  this
appears to be the most commonly prescribed smoking cessation treatment. However,
management  expects to benefit  from the  initial  success of the patch  program
because there has been adverse  publicity  regarding the medical side effects of
patches.

Firstly,  the patch  program  is costly,  with  physician  fees and patch  costs
totaling  in excess  of $300 as  compared  to  Phase-Out's  substantially  lower
suggested retail price. Furthermore,  initial studies have indicated that 25% of
the patch users have smoked  while using the patch.  This poses a severe  health
threat  to  certain  people  due  to the  duplication  of  nicotine  absorption.
Management  expects to use these  aspects of nicotine  patches to the  Company's
advantage in future marketing programs.


                               Regulatory Matters

On June 1, 1993, the Food and Drug Administration  (FDA) issued a warning letter
to the  Company  stating  its belief  that the  Phase-Out  device was a "medical
device" and therefore  subject to the  provisions of the Federal Food,  Drug and
Cosmetic Act (FDCA).  Since the Company has been marketing the Phase-Out  device
without obtaining  pre-marketing approval from the FDA, if the FDA's position is
correct,  the Company's activities would be in violation of the FDCA. On July 7,
1993 the Company  responded with  supporting  evidence that it believes that the
Phase-Out device is not a medical device.  No further  communications  have been
received  from the FDA since  that  response.  If the FDA were to resume  action
against the Company, the Company will incur substantial defense costs even if it
prevailed.  If the FDA  were to  prevail,  the  Company's  operations  could  be
suspended  or  terminated.  Management  believes  that the FDA letter  came as a
result of the FDA's investigation of the smoke cessation  industry.  As a result
of that  investigation,  the FDA has banned the sale of  over-the-counter  smoke
cessation


                                     -F15-


<PAGE>


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


products  using  active  ingredients  as of  December  1993.  Phase-Out  was not
affected by this ban.

The Company was advised by the FTC by letter dated  October 20,  1993,  that the
FTC was  conducting a  non-public,  informal  inquiry to  determine  whether the
Company had engaged in deceptive or unfair practices in violation of the Federal
Trade Commission Act (the "FTC Act") in connection with certain of the Company's
advertising  claims.  In that  connection,  the FTC  requested  that the Company
provide it with certain  information  and documents and also requested a meeting
on June 9, 1994 with the Company's  officers.  On December 3, 1994,  the Company
supplied the FTC with all the information they requested.  Subsequently, the FTC
canceled the meeting stating that they had sufficient information.

On August 3,  1995,  the  Company  received a  complaint  from the  Division  of
Advertising  Practices at the FTC  regarding  certain  advertising  claims.  The
complaint addresses  statements in the Company's  infomercial and claims made in
previous print advertisements.  Management believes that the ads referred to are
no longer being used. This letter will be responded to by the Company's attorney
within 60 days.  Discussions  with the FTC are now ongoing through the Company's
legal counsel.

                                     -F16-


<PAGE>

                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

                None

Item 2.   Changes in Securities

                None

Item 3.   Defaults Upon Senior Securities

                None

Item 4.   Submission of Matters to a Vote of Security Holders

                None

Item 5.   Other Information

              See notes to the financial statements

Item 6.   Exhibits and Reports

                None

<PAGE>

                                   SIGNATURES

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



                                        PHASE-OUT OF AMERICA, INC.


Dated: November 3, 1995                 /S/  IRWIN PEARL
                                       ---------------------------
                                       Irwin Pearl
                                       President & Director