UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

             [X]   QUARTERLY REPORT UNDER SECTION 13 0R 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended December 31, 2000

                       INITIAL QUARTERLY REPORT FOLLOWING
                         EFFECTIVE DATE OF REGISTRATION

                         Commission File Number 0-29915
                                                -------

                                  FREFAX INC.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


            FLORIDA                                     65-0786722
-------------------------------           ------------------------------------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
Incorporation or organization)


                1255 University, Suite 1604, Montreal, H3B3X3
                ------------------------------------------------
                    (Address of principal executive offices)


                               (514) 938 - 0755
                               ------------------
                               Issuer's Telephone


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 ___

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the  registrant  filed all  documents  and reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court. Yes ____ No ____

                      APPLICABLE ONLY TO CORPORATE ISSUERS

       State the number of shares  outstanding  of each of the issu&s classes of
common equity, as of the latest practicable date:

                 19,446,000 - Common stock as of September 30, 2000
    ------------------------------------------------------------------------

    Transitional Small Business Disclosure Format (Check One) Yes [ ] No [x]


<PAGE>




                                TABLE OF CONTENTS



PART I ...............................................................       1

      ITEM 1.   FINANCIAL STATEMENTS..................................       1

      ITEM 2.   PLAN OF OPERATION.....................................       1

PART II...............................................................      N/A


SIGNATURES............................................................       2


<PAGE>
                                     PART I

ITEM 1.  FINANCIAL STATEMENTS

         Attached  unaudited  financial  statements  for Frefax,  Inc.  (FC) and
subsidiary,  for the  period  ending  December  31st,  2000  are  submitted  in
compliance with item 310 (b) of Regulation SB.


ITEM  2.          PLAN OF OPERATION


         The  plan  of  operation  from  the  corporations'  point  of  view  is
summarized as follows:

1.       FC has not received or generated revenues as of the end of this quarter
         ending December 31st 2000.

2.       FC has not purchased or sold any significant equipment or assets.

3.       FC has no significant change of employees.

4.       FC is in the process of diversifying  its core business from developing
         communication  technology to a real estate development  company,  which
         would also acquire and develop technologies to be used in
         environmental  applications.

5.       Based upon the above mentioned corporate strategy to diversify from its
         core business the corporation  anticipates raising  approximately three
         million dollars in additional funds within the next 12 months by means
         of private placements.

6.       In connections with diversifying its core business, on August 30, 2000,
         the company  entered into  memorandum of agreements  with four Canadian
         individuals  whereby  the  company  intends on buying  their  ownership
         interest  (by  issuance  of its  common  stock) in  Zaveco  Development
         Corporation a newly formed Canadian corporation ("Zaveco").

7.       Zaveco has acquired  land in Montreal,  Canada for  $4,000,000.  Zaveco
         plans to develop approximately 265,000 square feet of retail space. The
         company is awaiting building permits to be issued to Zaveco by the City
         of Montreal in order to complete the acquisition of Zaveco.

                                       1

<PAGE>

Item  1. - 5. Not Required

Item 6. Exhibits

         Exhibits (3i) and (ii) are  incorporated  into this filing by reference
to  Exhibits  2(i) and  2(iii=i) as filed in part 3 of form 10 S-B as filed with
the Securities and Exchange Commissions on March 8th, 2000.


                                   SIGNATURES

         In accordance  with the  requirements  of Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                            FREFAX, INC.
                                            (Registrant)

Date:    February 2, 2000              By: /s/ Tony  Papa
                                           -------------------------
                                           Tony  Papa
                                           Chairman






                                       2
<PAGE>



                           FREFAX, INC. AND SUBSIDIARY

                          (A DEVELOPMENT STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS

               FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

                                      AND

                                 CUMULATIVE FROM

           SEPTEMBER 26, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 2000

                                   (UNAUDITED)


<PAGE>






                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)




                                                                      Page
                                                                     number

Consolidated balance sheet at December 31, 2000 (unaudited)
  and June 30, 2000...................................................F-1

Consolidated   statements  of  operations   and   comprehensive
  income  (loss) (unaudited)  for the six months ended
  December 31, 2000 and 1999 and cumulative from September 26, 1997
  (date of inception) to December 31, 2000............................F-2

Consolidated   statements  of  operations   and   comprehensive
   income  (loss) (unaudited) for the three months ended
   December 31, 2000 and 1999.........................................F-3

Consolidated  statement of stockholders'  deficiency  (unaudited)
   for the period from September 26, 1997 (date of inception)
   to December 31, 2000...............................................F-4 - F-5

Consolidated  statements  of cash flows  (unaudited)  for the six
   months  ended December 31, 2000 and 1999 and cumulative from
   September 26, 1997 (date of inception) to December 31, 2000........F-6

Notes to consolidated financial statements............................F-7 - F-10


<PAGE>

<TABLE>

<CAPTION>

                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                                  December 31,
                                                                      2000        June 30,
                                                                  (unaudited)       2000
                                                                   ---------     ---------
<S>                                                               <C>            <C>
Current assets:
    Cash $ ......................................................        277     $     280
     Recoverable use tax ........................................      4,609         4,656
                                                                   ---------     ---------
         Total current assets ...................................      4,886         4,936

Furniture, fixtures and equipment, net ..........................     80,273        80,611
                                                                   ---------     ---------
Total assets ....................................................    $85,159       $85,547
                                                                   =========     =========


                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
    Accrued expenses - related party ............................   $  26,452    $  28,500
    Loans from related party ....................................     159,966      148,689
                                                                    ---------    ---------
         Total current liabilities ..............................     186,418      177,189
                                                                    ---------    ---------

Commitments and contingencies (Note 4) ..........................        --           --
                                                                    ---------    ---------

Stockholders' deficiency:
    Common stock - $.001 par value, 50,000,000 shares
    authorized, 19,446,000 shares issued and outstanding ........      19,446       19,446
    Additional paid-in capital ..................................     180,864      180,864
    Accumulated deficit during the development stage ............     (95,975)     (87,973)
Accumulated other comprehensive income (loss) ...................     (11,116)     (11,372)
    Stock subscriptions receivable ..............................    (194,478)    (192,607)
                                                                    ---------    ---------
       Total stockholders' deficiency ...........................    (101,259)     (91,642)
                                                                    ---------    ---------

Total liabilities and stockholders' deficiency ..................    $ 85,159    $  85,547
                                                                    =========    =========

    See accompanying notes to consolidated financial statements (unaudited)

                                      F-1




<PAGE>


                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                   (UNAUDITED)
                                                                              Cumulative from
                                                                               September 26,
                                                 For the six   For the six         1997
                                                  months          months        (date of
                                                   ended          ended         inception)
                                                 December 31,  December 31,   to December 31,
                                                    2000           1999          2000
                                                   -------       -------       --------
<S>                                                <C>           <C>           <C>
Income .........................................   $  --         $  --         $   --
                                                   -------       -------       --------

Expenses:
    Selling, general and administrative expenses     9,873         5,073         93,736

    Research and development ...................      --           4,422         17,864
                                                    -------       -------       --------


Total expenses .................................     9,873         9,495        111,600
                                                    -------       -------       --------


Loss before other income

(expense) and provision for income taxes .......    (9,873)       (9,495)       (111,600)
                                                    -------       -------       --------


Other income (expense):
   Gain on foreign currency transactions .......      --          4,833             8,638

   Interest income .............................     1,871         1,263            7,451


   Interest expense ............................      --            (218)           (464)
                                                    -------       -------       --------


   Total other income (expense).................      1,871        5,878          15,625



Loss before provision for income taxes..........       (8,002)     (3,617)        (95,975)

Provision for income taxes......................         --            --             --
                                                     -------       -------       --------

Net (loss)......................................     (8,002)        (3,617)       (95,975)

Other items of comprehensive income (loss)......        256         (5,909)       (11,116)
                                                     -------       -------       --------

Comprehensive net (loss)........................   $ (7,746)       $(9,526)     $(107,091)
                                                     ========      =======       ========


Basic:
    Net (loss).................................    $   NIL        $  NIL        $   (.01)
                                                     ========      =======       ========


Weighted average number of
 common shares outstanding....................     19,446,000    19,446,000    13,630,587
                                                   ==========    ==========    ==========

</TABLE>

     See accompanying notes to consolidated financial statements (unaudited)

                                      F-2

<PAGE>





                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                   (UNAUDITED)


                                                    For the three  For the three
                                                    months ended    months ended
                                                    December 31,    December 31,
                                                        2000            1999
Income .........................................   $       --      $       --
                                                    ------------    ------------

Expenses:
    Selling, general and administrative expenses          9,873           1,842
    Research and development ...................           --             1,105
                                                    ------------    ------------

Total expenses .................................          9,873           2,947
                                                    ------------    ------------


Loss before other income
(expense) and provision for income taxes .......         (9,873)         (2,947)
                                                    ------------    ------------
Other income (expense):
   Gain on foreign currency transactions .......           --             1,208

   Interest income .............................          1,871            316

   Interest expense ............................           --              (92)
                                                    ------------    ------------
   Total other income (expense) ................          1,871           1,432
                                                    ------------    ------------

Loss before provision for income taxes .........         (8,002)         (1,515)

Provision for income taxes .....................           --               --
                                                    ------------    ------------

Net (loss) .....................................         (8,002)         (1,515)

Other items of comprehensive income (loss) .....            256          (2,100)
                                                    ------------    ------------

Comprehensive net (loss) .......................    $    (7,746)   $     (3,615)
                                                    ------------    ------------
Basic:
    Net (loss) .................................    $      NIL     $      NIL
                                                    ------------    ------------


Weighted average number of
 common shares outstanding .....................     19,446,000      19,446,000
                                                    ===========     ============

     See accompanying notes to consolidated financial statements (unaudited)

                                      F-3


<PAGE>

<TABLE>

<CAPTION>

                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
 FOR THE PERIOD FROM SEPTEMBER 26, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 2000
                                  (UNAUDITED)


                                                                               Accumulated
                                                                                 Deficit    Accumulated
                                             Common Stock          Additional  During the      Other          Stock        Total
                                        ----------------------      Paid-in    Development Comprehensive  Subscription  Stockholders
                                          Shares       Amount       Capital       Stage    Income (Loss)   Receivable    Deficiency
                                        ---------    ---------     ---------    ---------    ---------     ---------      ---------
<S>                                     <C>          <C>           <C>          <C>         <C>            <C>            <C>
Issuance of common stock upon
capitalization of company ...........     500,000    $     500    $    2,000    $      --   $       --     $      --     $    2,500


Issuance of common stock in
connection with limited offerings ...     403,000          403           297           --           --            --            700

Net loss from date of inception
(September 26, 1997) to June 30, 1998          --           --            --       (2,954)          --            --         (2,954)
                                        ---------    ---------     ---------    ---------    ---------     ---------     ----------



Balances at June 30, 1998 ...........     903,000          903         2,297       (2,954)          --            --            246


Issuance of common stock in
  connection with acquisition
  of subsidiary .....................  10,000,000       10,000            --           --           --            --         10,000


Issuance of common
stock in connection with
limited offering
(November 1998) .....................   6,001,000        6,001        54,009           --           --        (60,010)          --


Issuance of common
stock in connection with
limited offering
(February 1999) .....................   2,542,000        2,542       124,558           --           --        (127,100)         --


Accrued interest on

   subscriptions receivable .........        --            --            --            --           --           (1,755)     (1,755)


Foreign currency

    translation adjustment ..........        --            --            --          --        (6,436)           --          (6,436)


Net loss for the year ended
  June 30, 1999 .....................        --            --            --      (49,719)          --            --        (49,719)
                                        ---------    ---------     ---------    ---------    ---------     ---------     ----------

Balances at June 30, 1999 (forwarded)  19,446,000       19,446       180,864     (52,673)      (6,436)     (188,865)       (47,664)
                                        ---------    ---------     ---------    ---------    ---------     ---------     ----------




     See accompanying notes to consolidated financial statements (unaudited)

                                      F-4

<PAGE>


                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
     FOR THE PERIOD FROM SEPTEMBER 26, 1997 (DATE OF INCEPTION) TO DECEMBER
                         31, 2000 (UNAUDITED) (cont'd)



                                                                               Accumulated
                                                                                 Deficit    Accumulated
                                             Common Stock          Additional  During the      Other          Stock        Total
                                        ----------------------      Paid-in    Development Comprehensive  Subscription  Stockholders
                                          Shares       Amount       Capital       Stage    Income (Loss)   Receivable    Deficiency
                                     -----------   -----------  ----------   -----------      ---------  ----------    ------------
<S>                                  <C>           <C>          <C>          <C>            <C>          <C>           <C>
Balances at June 30, 1999
(from previous page) ...............   19,446,000   $   19,446   $  180,864   $  (52,673)      $(6,436)   $ (188,865)   $  (47,664)

Accrued interest on
   subscriptions receivable ........         --           --           --           --            --          (3,742)       (3,742)

Foreign currency
   translation adjustment ..........         --           --           --           --          (4,936)         --          (4,936)

Net loss for the year
   ended June 30, 2000 .............         --           --           --        (35,300)         --            --         (35,300)
                                      -----------   -----------  ----------   -----------      ---------  ----------    ------------
 Balances at June 30, 2000 .........   19,446,000       19,446      180,864      (87,973)      (11,372)     (192,607)      (91,642)

Accrued interest on
   subscriptions receivable ........         --           --           --           --            --          (1,871)       (1,871)

Foreign currency
   translation adjustment ..........         --           --           --           --             256          --             256

Net income (loss) for the six months
    ended December 31, 2000 ........         --           --           --         (8,002)         --            --          (8,002)
                                      -----------   -----------  ----------   -----------      ---------  ----------    ------------
Balances at December 31, 2000 ......   19,446,000     $ 19,446     $180,864     $(95,975)     $(11,116)   $ (194,478)   $ (101,259)
                                      ===========   ===========  ==========   ===========      =========  ==========    ============




     See accompanying notes to consolidated financial statements (unaudited)

                                      F-5
<PAGE>


<CAPTION>



                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


                                                                                                                 Cumulative
                                                                                                                    from
                                                                                 For the six   For  the six   September 26, 1997
                                                                                months ended   months ended  (date of inception)
                                                                                 December 31,   December 31,   to December 31,
                                                                                    2000            1999         2000
                                                                                   ----------   ----------   ----------
<S>                                                                                <C>          <C>           <C>
Cash flows from operating activities:
   Net  (loss) .................................................................   $  (8,002)   $  (3,617)   $ (87,973)
   Adjustments to reconcile net (loss) to net cash used for operating
    activities:
       Foreign currency translation ............................................         256       (5,909)     (11,372)
       Depreciation ............................................................        --          1,739        7,891
       Interest income on subscriptions receivable .............................      (1,871)      (1,261)      (5,497)
(Increase) decrease in:
          Recoverable use tax ..................................................          47         (449)      (4,656)
          Security deposits ....................................................        --           (117)        --
Increase (decrease) in:
       Accounts payable and accrued expenses ...................................      (2,048)     (10,774)      28,500
                                                                                   ----------   ----------   ----------
Net cash used for operating activities .........................................     (11,618)     (20,388)     (73,107)
                                                                                   ----------   ----------   ----------

Cash flows from investing activities:

   Purchase of furniture, fixtures and equipment ...............................         338         (819)     (88,502)
                                                                                   ----------   ----------   ----------
Net cash used for investing activities .........................................         338         (819)     (88,502)
                                                                                   ----------   ----------   ----------

Cash flows from financing activities:
   Proceeds from initial capitalization of
   company and from sale of common
   stock in connection with private placements .................................        --           --          3,200
   Loans from related parties ..................................................      11,277       18,989      158,689
                                                                                   ----------   ----------   ----------
Net cash provided by financing activities ......................................      11,277       18,989      161,889
                                                                                   ----------   ----------   ----------

Net (decrease) increase in cash ................................................          (3)      (2,218)         280


Cash, beginning of period ......................................................         280        3,813         --
                                                                                   ----------   ----------   ----------

Cash, end of period ............................................................   $     277    $   1,595     $    280
                                                                                   ==========   ==========   ==========

Supplemental disclosure of non-cash flow information:  Cash paid during the year
for:

         Interest ..............................................................   $     --     $      --      $     --
                                                                                   ==========   ==========   ==========
         Income taxes ..........................................................   $     --     $      --      $     --
                                                                                   ==========   ==========   ==========

Schedule of non-cash investing activities:
   Issuance of 8,543,000 shares of common stock
     in exchange for subscription receivables ..................................   $    --      $    --      $ 187,110
                                                                                   ==========   ==========   ==========


</TABLE>

     See accompanying notes to consolidated financial statements (unaudited)

                                      F-6

<PAGE>

                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
                                       AND
   CUMULATIVE FROM SEPTEMBER 26, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 2000
                                   (UNAUDITED)



NOTE 1 -      ORGANIZATION

         Frefax,  Inc. (the "Company") was  incorporated in the State of Florida
         on September  26, 1997 as Central  Group,  Inc. The name of the Company
         was changed on September 15, 1998 to its current name.

         Pursuant to the stock  purchase  agreement  dated July 30, 1998 between
         the Company and the  shareholders of Frefax,  Inc.  (Canada),  ("Frefax
         Canada"),  a company  incorporated in the province of Ontario,  Canada,
         the Company  issued an aggregate of 10,000,000  shares of its $.001 par
         value common stock to the shareholders of Frefax Canada in exchange for
         100%  of  Frefax  Canada's   issued  and   outstanding   common  stock.
         Accordingly,  Frefax  Canada  became a wholly owned  subsidiary  of the
         Company.  Such transaction is considered a capital  transaction whereby
         Frefax  Canada  contributed  its  stock  for the net book  value of the
         Company.

         Frefax Canada was  incorporated on September 5, 1996 for the purpose of
         developing  software to be utilized in reducing long distance telephone
         fax charges.

         As of December 31, 2000,  the Company and Frefax Canada are  considered
         to be development stage companies.

         The Company is in the process of  diversifying  its core  business from
         developing  communication  technology  into a real  estate  development
         company,  which would acquire environmental  technologies to be used in
         numerous  applications.  Accordingly  for the six months ended December
         31,  2000,   the  Company  had  no  operations.   In  connection   with
         diversifying its core business, on August 30, 2000, the Company entered
         into  memorandum of agreements with four Canadian  individuals  whereby
         the Company intends on buying their ownership  interest (by issuance of
         its common  stock) in Zaveco  Development  Corporation,  a newly formed
         Canadian corporation ("Zaveco").  Zaveco is in the process of acquiring
         land in Quebec, Canada for approximately  $4,000,000 with the intent of
         developing it into approximately 265,000 square feet of retail space.

                                      F-7

<PAGE>

                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
                                   (UNAUDITED)



NOTE 2 -          INTERIM RESULTS AND BASIS OF PRESENTATION

                  The unaudited consolidated financial statements as of December
                  31,  2000  and  for the  three  and six  month  periods  ended
                  December  31, 2000 and 1999 have been  prepared in  accordance
                  with  generally  accepted  accounting  principles  for interim
                  financial information and with the instructions to Form 10-QSB
                  and items 303 and 301(B) Regulation S-B.

                  In the  opinion  of  management,  the  unaudited  consolidated
                  financial  statements  have been prepared on the same basis as
                  the annual consolidated  financial  statements and reflect all
                  adjustments,  which include only normal recurring adjustments,
                  necessary  to present  fairly  the  financial  position  as of
                  December 31, 2000 and the results of our  operations  and cash
                  flows for the three and six month periods  ended  December 31,
                  2000 and 1999. The results for the three and six month periods
                  ended December 31, 2000 are not necessarily  indicative of the
                  results  to be  expected  for any  subsequent  quarter  or the
                  entire fiscal year ending June 30, 2001.  The balance sheet at
                  June 30, 2000 has been derived  from the audited  consolidated
                  financial statements at that date.

                  Certain information and footnote disclosures normally included
                  in financial  statements prepared in accordance with generally
                  accepted accounting  principles have been condensed or omitted
                  pursuant to the Securities and Exchange Commission's rules and
                  regulations.  It is suggested that these  unaudited  financial
                  statements be read in conjunction  with our audited  financial
                  statements  and notes thereto for the year ended June 30, 2000
                  as included in our report on Form 10-KSB  filed on October 13,
                  2000.

NOTE 3 -          STOCKHOLDERS' DEFICIENCY

                  Acquisition of Subsidiary

                  Pursuant  to a stock  purchase  agreement  dated July 30, 1998
                  between the Company and the shareholders of Frefax Canada, the
                  Company issued an aggregate of 10,000,000  shares of its $.001
                  par value common stock to the shareholders of Frefax Canada in
                  exchange  for 100% of Frefax  Canada  issued  and  outstanding
                  common  stock.  Accordingly,  after such  transaction,  Frefax
                  Canada became a wholly owned  subsidiary of the Company.  Such
                  transaction is considered a capital transaction whereby Frefax
                  Canada  contributed  its stock  for the net book  value of the
                  Company, and accordingly, no goodwill is recorded.


                                      F-8

<PAGE>


                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
                                   (UNAUDITED)



NOTE 4        -       COMMITMENTS AND CONTINGENCIES

        a)    Rent

         Frefax  Canada  leased  office space under a one-year  renewable  lease
         agreement,  which expired  November 30, 1999. Rent expense  amounted to
         $-0- and $1,755 for the six months  ended  December  31, 2000 and 1999,
         respectively  and $4,045  cumulative  from  September 26, 1997 (date of
         inception) to December 31, 2000.  During  January  2000,  Frefax Canada
         moved its  operations to a space owned by a shareholder  of the Company
         on a month to month basis,  at no charge until a permanent  location is
         found.

         The Company itself does not require any  significant  office space and,
         accordingly it utilizes the mailing address of its outside counsel on a
         month to month basis, at no charge.

         b)       Lack of Insurance

         The Company does not maintain any property, product liability,  general
         liability or any other form of  insurance.  Although the Company is not
         aware of any claims  resulting from product  malfunctions,  there is no
         assurance that none exists. In addition, as a result of not maintaining
         any  property  insurance,  the  Company's  equipment is deemed to be at
         risk.

NOTE 5   -   RELATED PARTY TRANSACTIONS

         a)       Loans From Related Parties

         The  Companies  have been advanced  funds from a Canadian  corporation,
         which owns  approximately 1.1 % of the outstanding  common stock of the
         Company.  The loans are non-interest  bearing and are due on demand. As
         of December 31,  2000,  such loans  amounted to $147,906.  In addition,
         $12,000  of  expenses  was  paid  on  behalf  of the  Companies  by its
         President.

         b)       Rent Expense

         During January 2000, Frefax Canada moved its equipment to a space owned
         by one of the Company's  shareholders  on a month to month basis, at no
         charge until a permanent location is found. The Company itself does not
         require any significant office space and, accordingly,  it utilizes the
         mailing  address of its outside counsel on a month to month basis at no
         charge.

                                      F-8

<PAGE>


                           FREFAX, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
                                   (UNAUDITED)



NOTE 5          -           RELATED PARTY TRANSACTIONS (cont'd)

         c)       Equipment Purchases

         Frefax   Canada   purchased   equipment   and  services   amounting  to
         approximately  $90,000 from a corporation  which is a 10.3% shareholder
         of  the  Company.  In  addition,  the  President  of  such  corporation
         beneficially owns an additional 20.6% of the Company.

         d)       Accrued Expenses - Related Party

         Accrued   expenses  at  December   31,  2000  of  $26,452   consist  of
         professional  fees which have been  subsequently  paid by the Company's
         President.

NOTE 6  -  SUBSEQUENT EVENT

         On January 28, 2000 the Company entered into a letter of intent and has
         agreed  to  provide  a  $500,000  interim  loan to  Nanoworld  Projects
         Corporation  ("Nano")  accruing at 15%  interest  for a period of three
         months.  On January 31, 2001 a shareholder of the Company  forwarded on
         behalf of the Company $172,000 to Nano related to this loan.

         The agreement provides that Frefax will commit itself to providing Nano
         with all funds  necessary  to satisfy  existing  obligations  to Centro
         Recherche Fiat associated with the collaboration  agreement struck with
         CRF on  September  12th,  company's  research  collaboration  with this
         entity,  and the cash costs  component of Nanos  commitment  to acquire
         Euroinks s.r.l.

         In  consideration  of this funding,  Nano would agree to provide Frefax
         with 85% of all profits  accruing to Nano from the  exploration of such
         property which may result from the company's collaboration with CRF, as
         well as 85% of all income  accruing to the company from Euroinks s.r.l,
         once  acquired as  subsidiary,  and 85% of all profit  accruing to Nano
         from the  exploration  of any product that may result from its research
         collaboration with Oomlabs.

         In addition to the 15%  reserved  for the benefit of Nano,  the Company
         will retain ownership of its technology, and any technology,  which may
         be in  development  pursuant  to its  collaborations,  and  100% of any
         profits, which may result, from activities not mentioned above.

                                      F-10