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

                                    FORM 10-K


[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
                                   ACT OF 1934
                    For the fiscal year ended: June 30, 2000

                                       OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                 For the transition period from ______ to ______

                        Commission file number: 000-28705


                                CATHAYONLINE INC.
        -----------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

Nevada                                            88-0346952
--------------------------------                  -----------------------------
(State or other jurisdiction of                  (I.R.S. Employer
incorporation or organization)                    Identification No.)


                         437 Madison Avenue, 33rd Floor
                            New York, New York 10022
               --------------------------------------------------
               (Address of principal executive offices) (Zip Code)


Registrant's telephone number, including area code: (212) 888-6822

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to section 12(g) of the Act:
     (Title of class)
      Common Stock, par value $0.001 per share

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  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
                                             -----   -----

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
                                             -----

     As of September 22, 2000,  the aggregate  market value of voting stock held
by  non-affiliates  of the  registrant,  based  upon  the  price  at  which  the
registrant's common stock was sold as reported on the Nasdaq Bulletin Board, was
approximately $7.54 million.

     The  number  of shares  of  registrant's  common  stock  outstanding  as of
September 22, 2000 is 30,184,201.


                                     PART I

                       DOCUMENTS INCORPORATED BY REFERENCE

     The following  documents (or part  thereof) are  incorporated  by reference
into the following parts of this Form 10-K: Certain information required in Part
III of this Form 10-K is incorporated from the registrant's  Proxy Statement for
its 2000 Annual Meeting of Shareholders.

     This Annual Report on Form 10-K contains  forward-looking  statements based
on our current expectations about our company and our industry. You can identify
these  forward-looking  statements when you see us using words such as "expect,"
"anticipate,"  "estimate" and other similar expressions.  These  forward-looking
statements  involve  risks and  uncertainties.  Our actual  results could differ
materially  from those  anticipated  in these  forward-looking  statements  as a
result of the risk factors  described in this report. We undertake no obligation
to publicly update any  forward-looking  statements for any reason,  even if new
information becomes available or other events occur in the future.

     As used herein,  "CathayOnline" or the "Company" includes CathayOnline Inc.
and its subsidiaries, unless the context requires otherwise.

     We publish our financial  statements in United States dollars. In this Form
10-K,  any figure which is  denominated,  by contract or otherwise,  in Canadian
dollars or Chinese Renminbi has been converted into U.S. dollars at the exchange
rate on June 30, 2000. At June 30, 2000,  CAN$1 was convertible  into US$0.6750,
based on a fixed  exchange  rate of  CAN$1.4798  for each U.S.  dollar,  and one
Chinese Renminbi was convertible into US$0.1208,  based on a fixed exchange rate
of RMB 8.2782 for each U.S. dollar. (All Canadian currency  information is based
on exchange rates reported by the Federal Reserve Statistical Release dated July
3, 2000.)


ITEM 1.  BUSINESS.

     OVERVIEW.

     We are a fully  integrated  Internet  company  serving  the global  Chinese
community,  with a primary focus on the People's  Republic of China. We launched
our  Internet  initiatives  in China in the  Spring  of 1999.  To date,  we made
significant  inroads in developing  our Internet  infrastructure  in China while
focusing on recruiting quality personnel,  raising capital and developing strong
regional and local  partners  and global  strategic  relationships.  Through the
leadership of our management  team, our focus on execution of our business plan,
our  attention to the  market's  needs,  our local  partnerships  and  strategic
acquisitions,   joint   ventures  as  well  as  alliances  with  leading  global
corporations, we have established a solid foundation in China.

     We focus on these lines of business:

o    Internet  connectivity  and  value-added  Internet  technology  services in
     Sichuan Province, Beijing, and Guangdong Province, China; and

o    Internet  communication  services  including  Web-based  e-mail,   advanced
     messaging  services,  Fax over  Internet  (FoIP)  and Voice  over  Internet
     (VoIP).

     Our goal is to become a major  Internet  service and solutions  provider in
China.  We are  pursuing  this goal by  developing  recognition  of our  brands,
expanding  our  Internet   connectivity  and  communications   services  to  our
registered  and  potential  customer base across  China's  major urban  markets,
continuing  to  pursue  strategic  acquisitions  and  alliances,  and  acquiring
experienced and quality management and support teams.

     Our network consists of the following branded Internet properties:

o    CathayOnline.com, our flagship corporate Web site;

o    TorchMail.com, our e-mail and advanced messaging service; and

o    Guoxun.net and Torchnet.com,  our Internet services partners in the Sichuan
     Province and currently expanding into Beijing and Guangdong Province.

     Through  these  established  brand  names,  we  intend  to offer  customers
Internet services and  communications,  other value-added  Web-based  commercial
services, business-to-business (B2B) tools and a variety of communication tools.

     We  currently  provide  Internet  services in Sichuan,  one of China's most
populated  provinces with  approximately  85 million  residents.  The technology
center for our Sichuan operations is located in Chengdu (Sichuan's  capital),  a
central hub for business and technology in  southwestern  China. In May 2000, we
took  possession  of  office  space  for our China  operations  in the  nation's
capital,  Beijing, which represents a major step forward in the expansion of our
branded  Internet  services  network and advanced  e-mail  services into China's
urban markets.

     Summarized  below are the  milestones  we  achieved  during the fiscal year
ended June 30, 2000.

-    July 1999: We acquired TorchMail.com, Inc.

-    August 1999: We established Sichuan  CathayOnline  Technologies Co. Ltd. to
     provide Internet services.

-    August  1999:  Sichuan  CathayOnline  expanded  its  offices  and  Internet
     services to markets in Chengdu, China.

-    November  1999: We entered into an agreement with  Register.com  to provide
     domain name registration services.

-    December 1999: We launched a Chinese version of TorchMail.com.

-    February  2000: Mr. Keli Wu of  ChinaOnline  joined  Beijing  operations as
     Chairman of Beijing CathayOnline Technologies Co. Ltd.

-    March 2000:  TorchMail.com signed an agreement with the National Library of
     China to provide e-mail and advanced messaging services.

-    April 2000:  We entered into a joint  venture  with CMD Capital  Limited to
     create  PRCinvest.com,  a financial  news  Internet  content  portal  being
     developed with China Investment Journal.

-    April 2000:  We  completed a private  placement  of our shares which raised
     $6.8 million (before financing costs).

-    April 2000: We announced the signing of a  cooperation  agreement  with the
     Second  Institution of the Aerospace  Machine & Electronic Group to provide
     Internet services in Beijing.

-    May 2000:  We  completed  phase one of  upgrade  of the  Internet  services
     facilities in Chengdu, China.

-    May 2000: We entered into a cooperation  agreement with Wuyi  University of
     Jiangmen to expand Internet services to Guangdong Province.

-    May 2000:  Beijing  CathayOnline  took possession of its Beijing offices to
     serve as our  headquarters in China and began to set up its technology site
     for Internet services.

-    June 2000:  We sold our  interest  in CMD Capital  Limited and  developed a
     strategic alliance with Premier Brands Inc. (now known as CathayOne Inc.)


     THE INTERNET MARKET IN CHINA

     The Internet has become an important global medium that enables millions of
people to obtain and share information and conduct business  electronically.  In
China, improvements in technological  infrastructure,  the increase in access to
personal  computers and a rapid increase of online Chinese language  contents is
driving the growth of the Internet.  The number of Web sites hosted in China has
grown from 3,700 in 1994 to 27,289 in 2000.

     The number of people using the Internet in China, the world's most populous
nation,  has increased  more than 30 fold in just five years.  According to "The
Internet in China",  a study  published in June 1999 by the Strategis  Group and
BDA  China,  China is the  fastest-growing  Internet  market in Asia.  The study
estimated  that, by the end of 1999,  more than 6.7 million  people in China had
Internet  access, a number projected to grow to 33 million or more by 2003. Some
forecasts  project up to 100  million  users by 2010,  at which time China would
surpass the United States as the country with the most Internet  users. A recent
study by a U.S.-based  research company,  The Yankee Group,  predicts that China
will have more Internet users than any other  Asia-Pacific  nation by 2001, with
about 40 million  people  online;  and by 2005,  China should surpass the United
States in having the most Internet users in the world. In addition,  the Chinese
market for  personal  computers  is  expected to become the largest in the world
with personal  computer  sales  anticipated to exceed those in the United States
this year.

     ChinaNet,  the first commercial  Internet Services Provider (ISP) in China,
was  established in June 1995 in Beijing to provide  Internet  dial-up  service.
Within one year,  its  user-base  increased  from zero to 50,000 even though the
average  subscription  fee per subscriber was 20 times higher than that in North
America.

     Access to the  Internet  in China is  accomplished  primarily  through  the
government owned  infrastructure.  China's Internet is primarily made up of five
largely  separate  national  networks.  Until March  1997,  these  networks  had
virtually no interconnectivity - all inter-network  traffic had to be routed via
the United States.

     Over  the  last  several  years,  due to  China's  central  and  provincial
governments'   policies  and   initiatives   to  construct   and  modernize  the
telecommunications  industry and information  distribution system, licenses have
been granted to private  organizations to provide  Internet-access  services. In
October 1999, an estimated 150 private ISPs operated in China.  Access  services
in China are generally  limited to dial-up  modem access.  Dial-up modem access,
unlike dedicated  high-speed  connections,  requires a user's computer to dial a
number which connects the user to a network owned and maintained by the ISP. The
majority of  commercial  users  access the network  via  dial-up  accounts  that
support  speeds  of up to  33.6K.  All  ISPs  in  China  rely  on  the  national
telecommunications companies, such as China Telecom and China Unicom, to provide
Internet access lines and to maintain local telecommunications lines.

     According  to the July 2000 report of China  Internet  Network  Information
Center  ("CNNIC"),  a  department  of the Chinese  Academy of  Sciences,  88% of
Internet users cited e-mail as their favorite Internet  service.  According to a
1999 survey by  Greenfield  Online,  59% of online  users now prefer  sending an
e-mail to making a phone call. A United States Embassy report on the Internet in
China  indicates  that over 9% of  information  carried by Internet  circuits in
China are devoted to e-mail.

     The Chinese  government has already  invested over $28 billion on more than
100,000  kilometers  of  optical  fiber that now links 85% of the  country.  The
China-U.S.  Cable Network  project,  valued at $1.2  billion,  will be the first
direct  fiber-optic  link between China and the United States and is expected to
be completed shortly.

     CNNIC's latest report provides the following data for July, 2000:

     -    Total computers connected to the net: 6,500,000
     -    Total direct connections: 1,010,000
     -    Total dial-up connections: 5,490,000
     -    Total estimated dial-up users: 11,760,000
     -    Total estimated leased line users: 2,580,000
     -    Total estimated users with both leased line and dial-up: 2,560,000
     -    Total Internet users: 16,900,000

     The  Ministry  of  Information  Industry  of China is  encouraging  Chinese
language Web presence for electronic  resources,  ranging from search engines to
weather services. The Chinese government has also initiated a series of projects
that  will  employ  state-of-the-art  technology  in  areas  such as  education,
agricultural planning, healthcare and finance.

     BUSINESS AND REVENUE MODEL

     Our business model consists of basic, high demand Internet utility services
as well as a multitude of value-added  Internet services and solutions targeting
large groups of Internet users from mid-size to large  corporations,  government
agencies and  universities  in urban areas in China. We are organized into three
service  divisions which plans to generate revenues through fees by offering the
following services:

     Connectivity: User fees for connection to the Internet.

     Communications:  User  fees  for  providing  outsourced  e-mail  and  other
advanced communications products.

     Value-added  Internet  Services:  Fees for  providing  Web and data hosting
services.

     CONNECTIVITY

     We are  committed to providing  reliable  connectivity  to Internet  users.
Through an exclusive  Management and Consultancy  Service Agreement with Sichuan
Guo Xun Xin Xi Chan Ye You Xian Gong Si ("Sichuan  Guo Xun"),  a local  Internet
service  provider,  Sichuan  CathayOnline  provides  a full  range  of  Internet
connectivity  services to the Sichuan market under the Sichuan Guo Xun brand. In
consideration  of the  services we render to Sichuan Guo Xun, we are entitled to
receive a fee equal to 90% of the net profits  generated  from Sichuan Guo Xun's
operations.  The agreement  with Sichuan Guo Xun extends  through March 2003 and
will be  automatically  renewed for a period  equal to the  renewed  term of the
license.

     At October 31, 1999, under the Sichuan Guo Xun brand,  Sichuan CathayOnline
served  approximately 2,500 subscribers  (including trial accounts).  Because of
infrastructure  and technical delays, we were unable to collect service fees nor
retain a substantial number of these subscribers.


     COMMUNICATIONS

     We recently announced the launch of a  state-of-the-art  messaging service,
the Personal Intelligent  Messaging (PIM) service.  This service gives users one
single number,  which will be their contact number for all services ranging from
telephone  calls to faxes to e-mails.  The PIM service will be marketed  through
our partner in Chengdu,  Sichuan GuoXun. It is the only messaging service of its
kind available in China.

     For phone messages,  PIM users would give the service up to four numbers at
which they would like to be reached.  The service takes the incoming  call,  and
attempts  to reach the user at each number in the order the user  specifies.  If
the user does not answer at any of the numbers,  the service  prompts the caller
to leave a voicemail message. The system can be configured into home, office, or
remote  profiles,  or for  time of day,  and try to reach  him  where he is most
likely to be found. The PIM number can also accept digital information, and send
it to the user's fax, pager, or computer. (Callers are prompted to enter one key
to choose between phone, pager, fax, and e-mail.)

     This messaging system is highly sophisticated,  and should give Sichuan Guo
Xun's clients a means of enhancing,  as well as simplifying,  their business and
personal calls. We expect that premium services such as these may assist Sichuan
GuoXun to add more clients to its subscriber base.

     TorchMail.com,  Inc. ("TorchMail"),  our wholly-owned subsidiary,  provides
e-mail and advanced messaging services on the Internet for consumers, businesses
and Web  portals in China.  We  acquired  TorchMail  in July 1999 for an initial
payment of  2,500,000  shares of our common  stock plus cash of $10,000.  (Brian
Ransom,  our  president,  subsequently  purchased such shares from the holder of
such shares.) Further payments  possibly may have to be made for the acquisition
of TorchMail.  Upon the resale of 360,000  mailboxes  created  within a Customer
Account through use of TorchMail's  services by a user or "Seats", we will issue
an additional  2,500,000 shares; upon the resale of 500,000 Seats, we will issue
an additional  1,250,000  shares;  and upon the resale of 750,000 Seats, we will
issue an additional 1,250,000 shares.

     TorchMail's  services are being designed to provide high level scalability,
reliability,  and accessibility.  TorchMail,  when fully developed, will provide
our Internet  connectivity  customers with a full range of consumer services and
our other  subsidiaries  with a full  range Web  portal  and  business  services
including:

     Consumer Services                           Web Portal and Business
                                                 Services

     Chinese language  capabilities              Chinese language  capabilities
     Permanent  e-mail addresses                 Anytime,  anywhere easy access
                                                 to e-mail

     Anytime, anywhere access to e-mail          Compatibility with existing
                                                 e-mail systems

     Robust set of basic e-mail features         Specialized applications

     Optional advanced functionality             Rapid deployment and reduced
                                                 costs Customized "look and
                                                 feel"

     Account privacy and security                Scalability to accommodate
                                                 growth

                                                 Reliability and security

                                                 Sophisticated customer service
                                                 and support


                            Consumer Market Services

     TorchMail's consumer market communications services segment was launched in
August 1999 with the objective of becoming a major independent  Web-based e-mail
service  focused on the  Chinese  speaking  community  on the  Internet.  In the
consumer  market,  TorchMail  expects to generate  revenues from advertising and
related sales, including direct marketing and e-commerce promotion. Revenues are
also expected to be generated from subscription services, such as a service that
allows members to purchase  increased  storage  capacity for their  e-mails.  In
addition, TorchMail anticipates generating revenue by offering fee-based premium
services such as virus scanning, e-mail forwarding and message notification.

     TorchMail's  strategy  is to  offer  free  e-mail  services  to  individual
consumers  which will allow  TorchMail to quickly build a large user base and to
establish its brand name and reputation for providing quality service.  Users of
TorchMail's  Web-based e-mail and messaging  services receive a permanent e-mail
address   of  their   choice   with  a   "torchmail.com"   domain   name   (e.g.
username@torchmail.com). Users can send or retrieve e-mail through TorchMail Web
site  (www.torchmail.com)  from any computer  connected  to the Internet  with a
standard Web browser.  Since TorchMail's system is Web-based,  users do not need
to download or install special software to access the service.

                           Commercial Services

     TorchMail  offers a range of e-mail and fax services to  businesses  and is
expected to derive  revenue from site license  charges,  monthly fees, and usage
charges.  TorchMail  connects existing e-mail systems to the Internet,  monitors
Internet  e-mails for viruses or specific  content and hosts and manages  e-mail
systems.  Many corporate customers have implemented in-house e-mail systems that
require hardware, software and technical and administrative resources. TorchMail
sells commercial  messaging services on a turnkey basis with a complete customer
service package,  including both account management and technical  support.  The
business  customers  may select from a wide range of products and services  that
are priced based upon the service  package  selected.  TorchMail  also  provides
customers with  broadcast  fax,  production fax and desktop fax services via the
Internet.

     TorchMail's  Web strategy is to develop  strong  regional  partnerships  in
various geographic areas,  aligning the TorchMail brand with both major business
portals and consumer-oriented portals.  Additional revenues for TorchMail may be
derived  from  fee-based  premium  services  and selling  advertising  in select
situations.  TorchMail  will  share a portion  of the  advertising  and  premium
service revenues with its partners.

     TorchMail recently  announced a partnership  agreement to supply co-branded
Web-based  e-mail  services  with the  National  Library of China,  the  largest
library in Asia and a national general repository of publications.  The National
Library also provides  services for the central  government  priority readers in
research,  educational and production  institutions throughout China, as well as
the general  population.  The National  Library  communicates  with an estimated
4,000 libraries in China and 1,000 other libraries worldwide. With approximately
1 million hits per day,  more than 200,000  publications  available  for viewing
online,  and more than 49 million pages of information,  the National  Library's
Web site has been  awarded  "The  Best  Site  under  the  category  of  Culture,
Entertainment and Sports" issued by the China Internet Competition  Committee in
January 2000.  Under the agreement,  TorchMail will provide the National Library
with Web messaging services and will co-manage the National Library's e-mail Web
site.

     TorchMail  also  offers its  customers  domain name  registration  services
through a  strategic  partnership  with  Register.com.  Customers  can  register
domains across 29 domain name  extensions,  including  ".com",  ".net",  ".org",
".co.uk" (UK) and ".co.nz"  (New  Zealand) and can access all of  Register.com's
registration  services such as multiple  domain  registration  and transfers for
bulk registrations, one step registrations and on-line domain management tools.


     IP PHONE (VoIP)

     We are  positioned  to acquire a portion  of the IP phone  market in China.
Telephone users and telephony sets in China have  experienced  among the highest
growth rates in the world.  In 1996,  China had just 55 million  telephone users
but, two years later,  had more than 125 million users.  The telephony market is
currently  dominated  by China  Telecom.  The  recently  formed China Unicom was
established to create  competition.  Since  telephony  networks are very capital
intensive,  the  competition  generated by Unicom did not bring down phone rates
for users. Long-distance rates are still very high. Currently, the charge for an
international call to North America is approximately  $1.80 per minute,  while a
call from North America into China could cost as low as $0.30 per minute.

     We have established a VoIP (Voice over Internet Protocol) gateway with high
quality  equipment which we will initially market to our large corporate clients
in China. In the long term,  reasonably  priced services will also be offered to
individual users via a prepaid phone card system.


     VALUE-ADDED SERVICES

     Sichuan  CathayOnline  provides  Sichuan Guo Xun the following  value-added
consulting  and  management   services:   strategic   planning,   designing  and
implementing   computer   networking,   managing  data  processing   operations,
developing and implementing  computer and electronic  communications  and a full
range of administrative services.

     In addition to  providing  consulting  services  with  respect to technical
issues,  management and administrative  services to ISPs,  CathayOnline provides
Web site consulting and development services. The Company was engaged to upgrade
the Sichuan  Famous Brand  Product Web site  (http://www.scmp.gov.cn).  This Web
site  is the  home to many  well-known  Chinese  corporations  with  brand  name
products  and has been  endorsed  by the  Government  of Sichuan  Province.  The
updated  Web site  was  re-launched  in May,  2000  and  currently  has over 300
enterprises  publishing  their  product  materials  online.  The  next  phase of
development for Sichuan Famous Brand Product will be to leverage its content and
traffic as a platform  for  e-commerce  with a mix of  business-to-business  and
business-to-consumers users. The site will allow detailed search and ordering of
the  brand-named  products and extend the market reach of these products  within
China and worldwide.  We expect to derive revenue from annual  registration fees
and fees for Web site development paid by these Chinese corporations.


     GEOGRAPHICAL MARKETS

     We have  targeted  geographical  markets  in  China  which  offer  the best
investment  potential based on economic and demographic profiles which support a
growing demand for Internet  access,  content and online  services.  Our primary
focuses are the regions of Sichuan, Beijing and Guangdong, with future expansion
into other areas.
<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
                                     Chengdu, Sichuan     Sichuan Province              Beijing             Guangdong
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>                  <C>                    <C>
Population (2000)                       10.04 million        84.93 million        12.46 million          71.2 million
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Gross Domestic Product (GDP)           RMB119 billion       RMB371 billion       RMB217 billion        RMB846 billion
(1999)(Renminbi)
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Foreign Direct Investment,                        N/A       $ 2.74 billion      $ 12.71 billion       $ 86.91 billion
cumulative as of end of 1999
(U.S dollars)
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Internet Users (July 2000)                        N/A              556,150            3,163,680             2,166,580
----------------------------------------------------------------------------------------------------------------------
</TABLE>



                           Sichuan Province and Chengdu

     The Province of Sichuan is situated in the western  section of China and is
bordered  on the south and west by the Yangtze  River.  It is one of the largest
province in China and has 85 million residents. GDP, which was approximately RMB
371 billion in 1999, ranks tenth among China's provinces.  Sichuan Province also
has numerous universities, high-tech businesses and companies in heavy industry,
which are the primary users of the Internet in China.

     Chengdu,  the  capital  city of  Sichuan  Province,  is the most  important
hi-tech  hub in the  southwestern  region  of  China.  It is also  an  important
political,  economic,  and cultural  center,  and holds a strategic  position in
China's economic development plan. In 1999, the city's GDP grew 10.25% from 1998
to  RMB  119  billion  (US  $14.5   billion).   The  population  of  Chengdu  is
approximately  10  million  and there are more  than 20  universities  with over
150,000 full-time students within the city.

     The Internet development in Chengdu,  Sichuan began at the end of 1995. The
Sichuan Scientific  Information  Institute established the first ISP. Now, there
are approximately  200,000 Internet users in the area (more than 95% of them are
individual subscribers). This number is expected to grow exponentially.

     We believe that we are well positioned to offer our Internet access service
to the  approximately  3.44 million  fixed line  telephone  subscribers  and the
546,000  mobile   telephone   subscribers  in  Sichuan.   We  have  developed  a
growth-oriented   marketing   plan  for   Chengdu   focusing   on   governmental
organizations,  local foreign-owned corporations,  major universities,  research
institutes, and individuals.  We believe that the small number of ISPs operating
in  Sichuan,  its  demographic  profile,  and  the  technological  and  physical
infrastructure in the area,  including telephone lines, are all positive factors
which  will  permit  our  subscriber  base to grow  significantly  over the next
several years.


                           Beijing

     As the  national  capital of China,  Beijing is  characterized  as a highly
urban and affluent city.  Beijing attracts large numbers of foreign visitors and
investors  who  contribute  to this  prosperity.  The residents of Beijing place
great importance on education.  As a result,  Beijing's citizens have the lowest
illiteracy rate and highest percentage of college graduates in China. Beijing is
the only region in China where the service sector is a major  contributor to the
economy. This sector, which includes financial services, computer services, real
estate services and media,  attracts  significant foreign investment.  The rapid
shift to a  service-based  economy  has  resulted  in a large  concentration  of
younger residents in this city, most of whom earn far above average incomes when
compared to the national average.  Beijing is currently the "most wired" city in
China and is home to over 21% of China's Internet market.

     We have entered into a cooperation agreement with the Second Institution of
the Aerospace Machine & Electronic Group ("AMEG"),  to provide Internet services
for the region of Beijing.  AMEG's current scope of business includes  telephone
communications,  computer network communications, cable television networks, and
fiber-optic  cable  networks.  We will  leverage  AMEG's market  penetration  to
develop and expand a diverse customer base in this region.


                           Guangdong

     Guangdong  is China's  fifth most  populous  province  but has the  largest
economy of all the  provinces.  Guangdong  has continued to experience a rise in
urbanization  in the past few years and has had increases in foreign  investment
and trade,  which can be attributed to Guangdong's  proximity to Hong Kong. This
province receives approximately 28% of all foreign direct investment coming into
China.  The residents of Guangdong  recognize the need for education in order to
succeed  in  China's  new   economy   and  place  an  emphasis  on   educational
achievements.  The  region's  economic  growth has lead to  increased  levels of
personal income which has resulted in a growth of computer  ownership as well as
Internet usage in Guangdong.

     As with the other  target  markets,  we will focus our efforts on the local
and  foreign  owned  corporations  and  educational  institutions,  as  well  as
individuals.



     COMPETITION

     The Internet  market in China is new and rapidly  evolving.  Competition is
intense and is expected to increase significantly in the future because barriers
to entry in our  market are not  insurmountable.  While the  Chinese  government
tightly  controls  ISP  licenses in Chengdu and  throughout  China,  the Chinese
government has granted and will continue to grant  licenses to competitors  that
intend to enter our market.  Currently,  our competitors  include China Telecom,
China Unicom and China Gitong Telecom.

     A number of existing or new Internet  service  providers,  including  those
controlled or sponsored by Chinese  government  entities,  may have  competitive
advantages  over us in terms  of  brand  recognition,  financial  and  technical
resources,  and better  access to capital  needed to  develop  and expand  their
infrastructure and technical capabilities.

     However,   we  believe  we  have  some  competitive   advantages  over  our
competitors.  Our strong  development  team,  advanced  technology and strategic
partnerships provide us with the ability to provide reliable, consistent service
and support that surpass our competition in China.

     Our  existing   competitors  may  in  the  future  achieve  greater  market
acceptance  and gain  additional  market  share.  It is also  possible  that new
competitors  may emerge and acquire  significant  market  share.  We believe the
rapid increase in China's online  population will draw more attention from these
multinational players to the Chinese Internet market.


     STRATEGIC ALLIANCE WITH CATHAYONE INC.

     On June 30, 2000,  we sold CMD Capital  Limited  ("CMD") to Premier  Brands
Inc. (now known as CathayOne Inc. or "CathayOne") in consideration for 1,750,000
of shares of common  stock of  Premier  Brands.  Through  this  transaction,  we
received  approximately  6%  equity  interest  in  CathayOne,  enabling  the two
companies to develop a strong strategic alliance.

     CMD is the  owner of  PRCInvest.com,  a  bilingual  financial  portal to be
launched that will provide users with up-to-the-second  financial information as
well as advanced  services such as on-line stock  trading.  We estimated  that a
significant  amount of capital  would be needed to fully  develop  this  content
portal.  We believe  that this sale will  relieve us from  capital  requirements
needed  for  such   development.   By   significantly   reducing  our  projected
expenditures  for content  development,  we are able to focus our  financial and
managerial  resources on developing our Internet  connectivity and communication
services.  As a result  of the sale of our  interest  in CMD,  we are no  longer
focusing on developing our own Internet content sites.

     We may assist CathayOne in the implementation of a broad array of services,
including Web hosting, Web development and strategic planning.


     EMPLOYEES

     We  presently  have a growing  team of  approximately  80  experienced  and
talented  employees,  including  a senior  management  team  experienced  in the
Internet  industry  in  China.  The  cultural   diversity  of  the  team  allows
CathayOnline to function effectively in a multilingual,  multicultural  business
environment in Asia and the United States.  Our emphasis on maintaining a strong
local presence in the markets in which we operate allows us to better understand
market  needs,  to stay close to  customers  and to  maintain  strong  strategic
business relationships.


     GOVERNMENT REGULATIONS

     In order to take  advantage  of the  tremendous  flow of  information,  the
Chinese   government  is  encouraging   foreign  investment  and  assistance  in
developing its  telecommunications  and technology  infrastructure.  We are in a
select  position  to  achieve  a  major  role  in  the  development  of  China's
telecommunication technology.

     Internet services are treated as value-added information/telecommunications
services,   which   are   subject   to   telecommunications   regulations.   The
telecommunications  regulations  explicitly  state  that  foreign  companies  or
nationals  are  allowed  to  be  involved  in  equipment  manufacturing,  system
installation,  and  management  consultation.  Foreign  companies  have and will
continue  to have an  active  role in system  integrating  and  equipped  sales.
However,  foreign  companies or nationals  are not  permitted to directly own or
operate basic and value-added  information/telecommunication  services including
Internet content provider (ICP) and ISP.

     Foreign  corporations have in the past worked around these  prohibitions by
forming a joint  venture  with the  functioning  operation  of  another  Chinese
business entity.  Many foreign  companies have already adopted the joint venture
approach in the cellular and paging services markets. Foreign corporations, such
as Prodigy,  have  created a joint  venture  with China North  Industries  Corp.
Group,  and there are dozens of smaller  companies  from North America that have
followed this approach.

     With  respect to foreign  investments  in Internet  services,  many foreign
companies entered into strategic alliance with Chinese ICPs or ISPs. The Chinese
regulations  prohibit any foreign investments in ICPs or ISPs. However,  foreign
companies are permitted to provide technology services or management consultancy
services  to Chinese  ICPs and ISPs.  Foreign  companies  are also  entitled  to
receive  payments from those ICPs and ISPs for the provision of such  technology
and/or  management  consultancy  services.  This  policy  has  provided  foreign
companies a practical way to gain entry into China  Internet  services  business
without undue regulatory risks.

     In  August  2000,  LycosAsia,  a  foreign  invested  company,  successfully
obtained an ICP license in  Shanghai.  It has been  regarded by some IT business
and legal  professionals  as a positive  signal  that  China will allow  foreign
investments in ICPs.

     On May 24, 2000, the United States House of Representatives  voted to grant
China  Permanent  Normal  Trade  Relation  (PNTR)  status,  a  prelude  to  full
membership in the World Trade Organization  ("WTO").  Recently,  the U.S. Senate
also  voted in favor of  granting  PNTR  status to China.  The PNTR and  China's
pending entry into the WTO bodes well for China  businesses and companies  doing
business  in  China,  particularly  companies  like us who have  created  strong
economic ties within China prior to its entry into the WTO.

     WTO  membership  for China is  expected  to  stimulate  spending on China's
Internet and  telecommunications  infrastructure.  China's current commitment to
developing its  telecommunications  and technology  infrastructure  contemplates
opening up the  telecommunications  sector to foreign  direct  investment and to
businesses providing  telecommunication  services of all types. China has agreed
to eliminate  foreign equity  restrictions and has agreed to accede to the Basic
Telecommunications  &  Financial  Services  Agreement  while  "grand  fathering"
current  market  access for all U.S.  service  providers.  This is  expected  to
benefit existing U.S. service providers in China.

     By virtue of the Basic  Telecommunication  & Financial  Service  Agreement,
China  will  become a member  of the  Basic  Telecommunications  Agreement(BTA).
Chinese government also promises the following after its entry into WTO:

o        China will  phase out all  geographic  restrictions  for (i) paging and
         value-added  services in two years; (ii)  mobile/cellular in five years
         and (iii)  domestic  wire  line  services  in six  years.  China's  key
         telecommunication   services  corridors  in  Beijing,   Shanghai,   and
         Guangzhou,  which represents approximately 75% of all domestic traffic,
         will open immediately on accession to the WTO in all telecommunications
         services.

o        China will allow up to 49% foreign investment in all  telecommunication
         services industry, and will allow up to 50% foreign ownership for value
         added  services  in two  years  and  paging  services  in three  years.
         Currently,  China allows no foreign  investment  in  telecommunications
         services industry.

o        China  will allow up to 25%  foreign  investment  in  Chinese  Internet
         service providers,  and the percentage will increase to 49% after three
         years.  Foreign  investors  are  allowed to have 30%  shareholdings  in
         Chinese ICP and other  value-added  services in Beijing,  Shanghai  and
         Guangzhou. This percentage will increase to 50% after two years and the
         geographic restrictions will be eliminated.

     We believe that we are well positioned to seize the opportunity  offered by
China's  entry  into the WTO and to expand our role and  involvement  in Chinese
telecommunications  and Internet  participation.  Our  management  team has been
working  within China for many years and has  developed  relationships  in China
which will prove to be of  immeasurable  financial  value to the  Company in the
years ahead.



     FACTORS THAT MAY AFFECT FUTURE RESULTS

     This Annual Report on Form 10-K includes forward-looking  statements within
the meaning of the Private  Securities  Litigation  Reform Act of 1995. This Act
provides a "safe harbor" for  forward-looking  statements to encourage companies
to provide  prospective  information  about  themselves so long as they identify
these statements as forward looking and provide meaningful cautionary statements
identifying  important  factors that could cause  actual  results to differ from
projected  results.  All statements  other than  statements of historical  fact,
including   statements  regarding  industry  prospects  and  future  results  of
operations  or financial  position,  made in this Annual Report on Form 10-K are
forward  looking.  We use words such as  "anticipates,"  "believes,"  "expects,"
"future"  and  "intends"  and similar  expressions  to identify  forward-looking
statements. Forward-looking statements reflect management's current expectations
and are inherently  uncertain.  Some of the risks and  uncertainties  that could
cause the Company's  actual results to differ  significantly  from  management's
expectations are described below. These are not the only risks and uncertainties
we face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business.  If any of the following
risks actually occur,  our business,  operating  results or financial  condition
could be materially adversely affected.

     IT IS DIFFICULT TO EVALUATE  OUR BUSINESS AND  PROSPECTS  BECAUSE WE HAVE A
LIMITED OPERATING  HISTORY.  We began exploring the possibility of entering into
the Internet  business in China in January  1999 and reached an  agreement  with
Sichuan Guo Xun in September 1999 to render the consulting services described in
the agreement between us. Accordingly, we have had only a very limited operating
history upon which to evaluate our business and  prospects.  As a young company,
we  face  risks  and  uncertainties  relating  to our  ability  to  successfully
implement our business  plan.  Being a company in its early stage of development
and doing  business in the new and  rapidly  evolving  markets in China,  we may
encounter great difficulties and incur substantial expenses in:

     -    building  a  subscriber  base for the  Internet  services  offered  by
          Sichuan Guo Xun or to be offered by Beijing CathayOnline;

     -    successfully  marketing  our Web-based  e-mail and advanced  messaging
          services; and

     -    promptly  addressing  the  challenges  faced by early stage  companies
          which do not have an  experience  or  performance  base upon  which to
          draw.

     If we do not  successfully  address  these  risks  and  uncertainties,  our
business, operating results and financial condition will be materially adversely
affected.

     WE HAVE A HISTORY OF  LOSSES,  WE EXPECT TO LOSE MONEY IN THE FUTURE AND WE
MAY NOT ACHIEVE OR SUSTAIN  PROFITABILITY.  We have not generated any meaningful
revenues from our current  business  operations,  and our  operating  costs have
exceeded our revenues for all quarters  during which we have been engaged in the
Internet services and Web-base e-mail businesses.  We expect to continue to lose
money at least  through the end of fiscal year 2001. We incurred net losses from
operations  of  approximately  $1.66  million for the fiscal year ended June 30,
2000. We may never generate  revenues  sufficient to offset  expenses and we may
never become profitable.  We have historically  funded our operations by selling
stock and not by generating income from our business.

     WE REQUIRE  ADDITIONAL  FUNDS TO  IMPLEMENT  OUR CURRENT  PLANS AND FINANCE
FUTURE  GROWTH.  Our  business  model  assumes  that we  will  be able to  raise
substantial  additional  funds to  implement  the full  range  of  products  and
services we plan to offer. We will seek to obtain additional funds through sales
of equity and/or debt securities,  or other external  financing in order to fund
our current  operations and to achieve our business plan. We cannot be sure that
any additional capital resources will be available to us, or, if available, will
be on terms that will be acceptable to us. Any additional  equity financing will
dilute the equity interests of existing security holders.  If adequate funds are
not available or are not available on acceptable  terms,  our ability to execute
our business plan and our business could be materially and adversely affected.

     OUR MANAGEMENT HAS LIMITED EXPERIENCE OPERATING A PUBLIC COMPANY. No member
of our  current  management  team has ever  operated a public  company.  We must
develop the skills and  knowledge  required to operate  effectively  as a public
company,  and there can be no assurance that we will be able to do so. If we are
not successful in developing these skills or do not retain  individuals who have
significant  experience  operating  a public  company,  we may  never be able to
implement  all or any portion of our  business  plan and our  business  could be
materially and adversely affected.

     WE MAY FACE RISKS  ASSOCIATED  WITH  POTENTIAL  ACQUISITIONS,  INVESTMENTS,
STRATEGIC  PARTNERSHIPS  OR  OTHER  VENTURES.  As part of our  long-term  growth
strategy,   we  may  seek  to  acquire  or  make  investments  in  complementary
businesses,   technologies,   services  or  products  or  enter  into  strategic
relationships with parties who can provide access to those assets. We may not be
able to identify or complete such  transactions.  Moreover,  acquisitions  often
involve  a number of  special  risks  such as  difficulty  integrating  acquired
operations,  products,  services and  personnel;  inability  to retain  acquired
subscribers;  inability to  successfully  incorporate  acquired  technology  and
rights into our service  offerings  and maintain  uniform  standards,  controls,
procedures, and policies;  inability to retain the key personnel of the acquired
company;  failure by the acquired  business to achieve the revenues and earnings
we  anticipated;  and  liability  for  contingent  and  other  liabilities,  not
previously disclosed to us, of the companies that we acquire. We may not be able
to  successfully  overcome  problems  encountered  in connection  with potential
future  acquisitions.  These  difficulties  could disrupt our ongoing  business,
distract our management and employees and increase our expenses. Furthermore, we
may have to incur  indebtedness or issue equity securities to pay for any future
acquisitions.

     WE DEPEND ON OUR RELATIONSHIP WITH SICHUAN GUO XUN TO GENERATE REVENUES AND
OUR BUSINESS COULD SUFFER IF THIS RELATIONSHIP IS TERMINATED. Our agreement with
Sichuan Guo Xun extends  through  March 2003.  This  agreement may be terminated
early in certain  circumstances.  If this  relationships is terminated early, we
will be unable to recover the costs and expenses  associated  with  building our
operations in these  markets.  If Sichuan Guo Xun  terminates  our  relationship
prior to or upon the expiration of our agreement with it, it is unlikely that we
could reach an agreement with an existing  private ISP in China and our business
would be materially adversely affected.

     IF WE FAIL TO EFFECTIVELY  MANAGE OUR GROWTH,  OUR BUSINESS WILL SUFFER. If
the Internet and Web-based  e-mail and messaging  services become as widely used
in  China  as we  expect  and  as  estimates  suggest  and  our  business  grows
correspondingly,  this  rapid  growth  will  place a  significant  strain on our
managerial,   operational,  financial  and  information  systems  resources.  To
accommodate any significant  increase in our size and manage our growth, we must
implement  and improve  these  systems  and  attract,  train,  manage and retain
qualified  employees.  These  demands  will  require  us to add  new  management
personnel  and  develop new  expertise.  If we fail to  successfully  manage our
growth,  our  ability to  maintain  and  increase  our  subscriber  base will be
impaired and our business will suffer.

     WE RELY ON THIRD PARTIES TO PROVIDE SOFTWARE AND HARDWARE TO KEEP PACE WITH
TECHNOLOGICAL  CHANGE AND EVOLVING  INDUSTRY  STANDARDS AND REMAIN  COMPETITIVE.
Both the Internet  services market and Web-based  e-mail and advanced  messaging
market are  characterized  by rapidly  changing  technology,  evolving  industry
standards,  changes in  subscriber  needs and  frequent new services and product
introductions.  No  assurance  can be given  that our  software  providers  will
develop or offer to us new products and services to enhance our Web-based e-mail
and advanced messaging services.  In addition, we depend on certain suppliers of
hardware and software  components to build  Sichuan Guo Xun's ISP  business.  We
acquire a majority of our  networking  service  components,  including  terminal
servers and high-performance routers, from only a few companies, including Cisco
Systems,  Sun Microsystems and Hewlett Packard,  all of which are located in the
United States.  We have experienced and may in the future  experience  delays in
delivery of new modems,  terminal  servers  and other  equipment.  If delays are
severe,  all of Sichuan  Guo Xun's  incoming  modem lines may become full during
peak times,  resulting in busy signals for subscribers who are trying to connect
to Sichuan  Guo Xun.  We have lost and may in the  future  lose  customers  as a
result.

     ANY DECLINE IN OUR SUBSCRIBER  RETENTION  LEVELS WILL ADVERSELY  AFFECT US.
Our new subscriber  acquisition  costs, both with respect to the Internet access
services  provided  by Sichuan  Guo Xun and the  Web-based  e-mail and  advanced
messaging  services that we will provide,  will be  substantial  relative to the
monthly fees we expect to charge.  Accordingly,  our long-term  success  largely
depends on our  retention of existing  members.  While we have invested and will
continue to invest significant resources in our infrastructure and technical and
member  support  capabilities,  it is  relatively  easy for  Internet  users and
Web-based  e-mail  and  advanced  messaging  customers  to switch  to  competing
providers.  We have lost a substantial  number of  subscribers  in Chengdu.  Any
significant loss of members will substantially decrease our expected revenue and
cause our business to suffer.

     WE MAY BE SUBJECT TO LIABILITY  AND OUR  REPUTATION  MAY SUFFER  BECAUSE OF
SPAMMING,  LOST OR MISDIRECTED  MESSAGES OR OTHER  PROBLEMS.  Even to the extent
these claims do not result in  liability,  we could incur  significant  costs in
investigating or defending against these claims, or in implementing  measures to
reduce our exposure to such  liability.  These types of claims may also hurt our
reputation which is crucial to our business.

     DISRUPTIONS  CAUSED BY SYSTEM  FAILURES COULD HAVE AN ADVERSE EFFECT ON OUR
BUSINESS.  We  expect  to  derive  the vast  majority  of our  revenues  for the
foreseeable  future from our  relationship  with Sichuan Guo Xun, which provides
Internet  access  services to  residents  of Sichuan  Province,  China,  and the
Web-based e-mail and advanced  messaging  services  provided to our subscribers.
These  services are provided over  telecommunications  lines leased from China's
national  telecommunications  monopolies such as China Telecom and China Unicom,
upon which we are dependent for physical  repair and  maintenance  of the leased
lines.  We have no or little  control over how the Chinese  telephone  companies
conduct  their  business  and cannot  cause any of these  entities to take steps
necessary to protect our interests, such as creating back-up systems to which we
could turn in the event of an interruption in service.

     SICHUAN GUO XUN'S NETWORKS ARE SUBJECT TO SECURITY RISKS AND  INAPPROPRIATE
USE BY INTERNET USERS THAT COULD  INTERRUPT OUR SERVICES.  The future success of
our business will depend on the security of the  third-party  networks.  Despite
implementation of security  measures,  we remain vulnerable to computer viruses,
sabotage,  break-ins and similar  disruptive  problems  caused by subscribers or
other Internet users.  Any breach of Sichuan Guo Xun's network security or other
inappropriate  use of the network through which we conduct our businesses,  such
as the sending of excessive  volumes of unsolicited bulk e-mail or "spam," could
lead to interruptions,  delays, or cessation of services to our subscribers. Our
subscribers,  in turn, could terminate their membership or assert claims against
us. Third parties could also potentially jeopardize the security of confidential
information   stored  in  the  computer  systems  of  Sichuan  Guo  Xun  or  our
subscribers'  computer systems by their inappropriate use of the Internet (e.g.,
"cracking" or "hacking"),  which could cause losses to our  subscribers or us or
deter potential  customers from subscribing to our services.  Although we intend
to continue to  implement  security  measures  with  respect to Sichuan Guo Xun,
"hackers" have circumvented  measures taken by other ISPs in the past, and these
hackers may be able to circumvent  the security  measures in the future.  To fix
problems  caused by  computer  viruses or other  inappropriate  uses or security
breaches, we may have to interrupt, delay, or cease service to our subscribers.

     OUR SERVICES AND REPUTATION MAY BE ADVERSELY  AFFECTED BY SOFTWARE DEFECTS.
Our services  depend on complex  software  developed by third parties.  Software
often contains defects,  particularly when first introduced or when new versions
are released.  These defects could cause service  interruptions  that damage our
reputation,  increase our service costs, cause us to lose revenue,  delay market
acceptance or divert our development  resources,  any of which could  materially
adversely affect our business, operating results and financial condition.

     FAILURE  TO PAY  ROYALTIES  MAY  RESULT  IN THE LOSS OF  TORCHMAIL.  We are
required to pay to the seller of  TorchMail  royalties  based upon the number of
Seats (e-mail  boxes) we service  ranging from between $.01 to $.10 per Seat per
month. If we fail to make these payments, or otherwise breach our agreement with
the seller of  TorchMail,  we will lose our right to TorchMail and we would lose
the entire amount we have invested in this business through the date of any such
forfeiture. The loss of TorchMail would have an adverse effect on our business.

     IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES OR HIRE NEW QUALIFIED  PERSONNEL,
OUR BUSINESS  WILL BE ADVERSELY  AFFECTED.  Our success  greatly  depends on our
ability to  attract  and retain key  technical,  sales,  marketing,  information
systems, and financial and executive  personnel.  We are especially dependent on
the continued services of our senior management team, particularly Brian Ransom,
our President,  and Owen Li, our General Manager of Chinese operations.  We have
entered into employment  agreements with each of Mr. Ransom and Mr. Li. However,
these  agreements  are terminable by us and each of these  employees.  All other
members of our senior  management  team can  terminate  their  employment at any
time. If we fail to attract,  hire or retain the necessary  personnel,  or if we
lose the  services of any member of our senior  management  team,  our  business
could be adversely affected.

     WE  MUST   ESTABLISH,   MAINTAIN  AND   STRENGTHEN  OUR  BRANDS  TO  REMAIN
COMPETITIVE.  To be  successful,  we believe that we must establish and maintain
our brands.  We must  succeed in our  marketing  efforts,  provide  high-quality
services and increase our user base to build our brand awareness.  If consumers,
Web portals,  businesses  or  advertisers  do not perceive our services to be of
high quality, or if users reject our new services, the value of our brands would
be diluted. If we are unable to establish and maintain our brands, our business,
operating  results  and  financial  condition  would  be  materially   adversely
affected.

     WE MUST COMPETE  SUCCESSFULLY WITH OUR COMPETITORS IN ORDER TO MAINTAIN OUR
BUSINESS.  Both the ISP industry  and  Web-based  e-mail and advanced  messaging
industries in the geographic areas where we do business are highly  competitive.
The ISP  industry  in China is  dominated  nationally  and in each  province  by
government-owned  ISPs.  These  entities  are  significantly  larger and possess
greater  financial  and  personnel  resources  than  do  Sichuan  Guo Xun or us.
Furthermore,  these ISPs have access to inexpensive telecommunications lines and
can charge  significantly  lower  prices  than  Sichuan  Guo Xun. In order to be
competitive  with  and  overcome  the  inherent  advantages  possessed  by these
entities,  we will have to offer  higher  quality  Internet  access  services by
decreasing the  subscriber-to-line  ratio and providing faster and more reliable
services.  In  addition,  if  the  Chinese  government  relaxes  constraints  on
licensing and other  impediments to entering the  provincial ISP market,  we can
expect many new entrants into the market,  both Western and Asian, most of which
will have substantially  greater resources than we have at our disposal.  We can
offer no assurance that we will be able to compete  successfully  against public
or private ISPs now  existing or which may enter the market in the future.  It's
also expected  additional  companies  will offer  Web-based  e-mail and advanced
messaging  services in China to avail themselves of the enormous potential which
exists.  Many of the  entities  which we  expect  would  enter  the  market  are
substantially  larger  and  have  greater  financial,  technical  and  personnel
resources  than we do. There can be no assurance that we will be able to compete
successfully against any of our competitors in the Web-based e-mail and advanced
messaging industry.

     WE MUST DEVOTE SIGNIFICANT MANAGERIAL, TECHNICAL AND FINANCIAL RESOURCES TO
OUR STRATEGIC  RELATIONSHIP  WITH SICHUAN GUO XUN AND THIS  RELATIONSHIP MAY NOT
PROVE TO BE PROFITABLE. Our strategic relationship with Sichuan Guo Xun requires
that we devote significant managerial, technical and financial resources to this
relationship.  Our  agreement  with  Sichuan Guo Xun  requires us to support its
operations  by  contributing  hardware  and  software to our Chinese  subsidiary
(Sichuan  CathayOnline),  which will require a substantial capital contribution.
We have invested significant resources in our Chinese subsidiary to enable it to
purchase  additional  hardware and other capital equipment used in the provision
of  Internet  access  services  and to provide  service  and support in order to
achieve  our  expansion  and  growth  objectives,   and  we  expect  to  provide
substantial  additional  capital in the future. If we are unable to provide this
additional capital to purchase hardware and software on a timely basis,  Sichuan
Guo Xun may  terminate  our  relationship.  We may fail to  generate  sufficient
revenues from these operations to offset the expenses and resources we devote to
developing,  maintaining and enhancing such services. This relationship may also
divert our resources  and our  management's  time and  attention  from our other
services,  including our e-mail and advanced messaging services. These risks and
uncertainties  could  result in  material  adverse  effects  upon our  business,
operating results and financial condition.

     SICHUAN GUO XUN IS  DEPENDENT ON NATIONAL  TELECOMMUNICATIONS  CARRIERS FOR
CONNECTIONS  AND IS  SUBJECT TO THEIR LINE  CHARGES.  Sichuan  Guo Xun relies on
traditional  telecommunications  carriers to transmit its traffic over local and
long distance networks,  both with respect to dial-up service for its subscriber
base as well as for line charges which connect it to China's Internet  backbone.
Specifically,  it  relies  on the  Chinese  telephone  monopolies  such as China
Telecom and China Unicom. The benefits of competition and alternative sources of
supply  are not  present  in these  markets.  These  entities  can set rates and
charges for Sichuan Guo Xun's lines while  competing  only  against  themselves.
Although  line rates and charges have been  reduced  since the break-up of China
Telecom into several government owned telecommunications  carriers, there can be
no  assurance  that line rates will  continue to decrease or that rates will not
increase in the future.  Sichuan Guo Xun will have to pay the line rates charged
by these  entities to continue in  business.  Although we have been assured that
additional lines are available,  these entities may deny or delay the allocation
of leased  lines to Sichuan Guo Xun for no reason.  Any drastic  increase in the
rates  charged by the  telecommunications  monopolies  for  access  lines or any
failure to obtain  additional  lines will  adversely  affect  our  business  and
potentially  slow  our  growth.  In  addition,  these  networks  may  experience
disruptions and capacity  constraints that are not easily remedied.  Sichuan Guo
Xun has no means of replacing these services.

     IF  SICHUAN  GUO XUN DOES NOT  SUCCEED  IN  DEVELOPING  SUFFICIENT  NETWORK
CAPACITY, IT MAY LOSE CUSTOMERS.  The success of Sichuan Guo Xun will depend, in
part,  on the  capacity,  reliability  and security of its network.  Sichuan Guo
Xun's network includes  computers,  servers,  routers,  modems and other related
hardware  and  software.  While  Sichuan  Guo Xun has  not  experienced  network
capacity  constraints to date,  such  constraints  (e.g.,  the ability to obtain
additional  dial-up  telephone  numbers  and  telecommunications  lines by which
subscribers  access Sichuan Guo Xun) may occur in the future, if Sichuan Guo Xun
grows as we  anticipate.  These  capacity  constraints  may result in slowdowns,
delays or inaccessibility when subscribers try to use a particular service. Poor
network  performance  could cause subscribers to terminate their membership with
us. To reduce the  probability of such  problems,  we will be required to expand
and improve Sichuan Guo Xun's network.  Such expansion and  improvement  will be
very costly and time consuming. We may not have sufficient funds or otherwise be
able to expand or adapt Sichuan Guo Xun's network to meet  additional  demand or
changing  subscriber  requirements  on a  timely  basis  or  at  a  commercially
reasonable cost.

     BECAUSE  SICHUAN  GUO XUN LACKS FULL  BACK-UP OF ITS  COMPUTER  SYSTEMS,  A
SYSTEMS  FAILURE COULD PREVENT IT FROM  OPERATING ITS BUSINESS.  Sichuan Guo Xun
relies on the Internet and, accordingly, upon the continuous reliable and secure
operation of its Internet servers, hardware,  software and infrastructure,  such
as leased  lines  from  telecommunications  service  providers  operated  by the
government of China. While Sichuan Guo Xun does have limited back-up capability,
it does not have full  redundancy of all of its computer and  telecommunications
systems.  As a result,  failure of key  primary  or  back-up  systems to operate
properly  could  lead  to a loss of  customers  and  damage  Sichuan  Guo  Xun's
reputation.  We are working to increase the extent of the  redundancy of Sichuan
Guo Xun's  systems to lessen the  effects of any system  failure,  but we cannot
make any assurance  that existing  back-up  systems or those  implemented in the
future will be sufficient to avoid the problems  which may result from a failure
of existing systems.

     OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF THE INTERNET IN CHINA. Although
we believe  that  computer and Internet  usage and the  popularity  of Web-based
e-mail and advanced messaging services in China will continue to grow, we cannot
be certain  that this  growth  will  continue  or that it will  continue  in its
present  form.  The  growth  of  computer  usage  and the  Internet  in China is
constrained  by the cost of  computers  and other  Internet  access  devices  to
Chinese  people   relative  to  their  annual  income  and  current   technology
infrastructure.  No  assurance  can be given that  computers  or other  Internet
access  devices  will be  offered at prices  within  the  budget of the  average
Chinese consumer or that the technological  infrastructure will be enhanced.  If
Internet usage  declines in China or evolves away from our business,  our growth
will slow or stop and our financial results will suffer.

     RECENTLY ENACTED CHINESE LAWS RELATING TO THE ABILITY OF COMPANIES  ENGAGED
IN INTERNET  ACTIVITIES IN CHINA TO TRADE PUBLICLY COULD  NEGATIVELY  IMPACT OUR
BUSINESS.  New rules adopted by the Chinese  government  which have not yet been
formally  announced  provide  that  companies  (whether  organized  in  China or
overseas)  engaged in Internet  activities  in China would be required to secure
approval from Chinese  authorities to list their shares in the overseas markets,
including  the United  States.  We may be  required  to obtain  approval  of the
Chinese  government to undertake an offering of our  securities or for seeking a
listing on the  NASDAQ  market.  We can  provide  no  assurance  that we will be
successful in obtaining  the approval of the Chinese  government to any offering
of  securities  we may wish to undertake or to the listing of our  securities on
the  NASDAQ  Stock  Market  or  other  exchange.  If we  cannot  obtain  Chinese
government's  approval  to such  offering  or  listing,  we may  have to  forego
opportunities  in  this  potentially  lucrative  field  which  could  materially
adversely effect our future results of operations.

     INCREASED  GOVERNMENT  REGULATION  IN CHINA MAY  INCREASE OUR COST OF DOING
BUSINESS  OR  CAUSE  US TO  CHANGE  THE WAY WE  CONDUCT  OUR  BUSINESS.  Any new
legislation  or  regulation  adopted by the  Chinese  government  regarding  the
Internet,  or the  uncertainty  relating to the application of existing laws and
regulations to the Internet,  could  materially  adversely  affect our business,
operating results and financial  condition.  Legislation could impair the growth
of the Internet and decrease the acceptance of the Internet as a  communications
and commercial medium. This could decrease the demand for our services, increase
our cost of doing  business or otherwise  have a material  adverse effect on our
business,  financial  condition and operating results.  Further,  the growth and
development of the Internet messaging market may prompt calls for more stringent
consumer  protection  laws  that may  impose  additional  burdens  on  companies
conducting  business  online.  These laws may impose  additional  burdens on our
business.  For example,  because we rely on the  collection  and use of personal
data from our users for targeted  advertisements,  any laws or regulations  that
restrict our ability to collect or use such  information  may harm us. Hong Kong
has enacted laws or adopted  regulations that prevent Internet  companies or Web
portals from selling any information collected from users.

     WE MAY BE  SUBJECT  TO  CRIMINAL  PENALTIES,  INCLUDING  REVOCATION  OF OUR
LICENSE TO DO BUSINESS IN CHINA IF WE ARE SUBJECT TO CLAIMS  BASED ON THE NATURE
AND CONTENT OF MATERIALS  TRANSMITTED THROUGH OUR WEB-BASED E-MAIL AND MESSAGING
SERVICES.  Online content  restrictions  in China are extremely  broad and cover
many areas (e.g.,  national  security,  state  secrets,  infringement  on State,
social or collective  interests,  or the legal rights and interests of citizens)
and prohibit the  transmission  of indecent or obscene  information and content.
While we are unaware of any enforcement of these laws by the Chinese  government
in  connection  with the  content  of e-mail and online  messages,  the  Chinese
government  could  successfully  use  these  laws  to  terminate  operations  of
Web-based  e-mail and  messaging  providers  licensed to operate in China.  As a
provider of Web-based e-mail and messaging services,  we may be subject to legal
claims based on the nature and content of the materials  transmitted  by e-mail.
We do not and cannot  screen all of the  content  generated  by our users and we
could be exposed to liability with respect to this content.

     REGULATION OF THE INTERNET AND INFORMATION  INDUSTRY IN CHINA MAY ADVERSELY
AFFECT OUR BUSINESS.  The Chinese government has enacted  regulations  governing
the provision of ISP services,  Internet access and the distribution of news and
other information.  The Chinese  government  regulates access to the Internet by
imposing strict  licensing  requirements  and requiring ISPs in China to use the
government operated  international  inbound and outbound Internet backbones (the
telephone  lines  which  connect  China's  domestic  Internet  network  with the
international  Internet  network).  Sichuan  Guo Xun has been issued the license
required to offer Internet access services in the Province of Sichuan. There can
be no assurance  that  Sichuan Guo Xun will retain its license.  The Ministry of
Information Industry has published implementing  regulations that subject online
information  providers  to  potential  liability  for content  included on their
portals and the actions of subscribers and others using their systems, including
liability for violation of Chinese laws  prohibiting the distribution of content
deemed to be socially destabilizing.  Because many Chinese laws, regulations and
legal  requirements with regard to the Internet are relatively new and untested,
their   interpretation  and  enforcement  of  what  is  deemed  to  be  socially
destabilizing by Chinese  authorities may involve  significant  uncertainty.  In
addition,  the Chinese legal system is a civil law system in which decided legal
cases have little precedential value. As a result, in many cases it is difficult
to determine the type of content that may result in liability. We cannot predict
the effect of further  developments  in the Chinese legal  system,  particularly
with regard to the Internet,  including the promulgation of new laws, changes to
existing laws or the interpretation or enforcement thereof, or the preemption of
local  regulations  by  national  laws.  Periodically,  the  Ministry  of Public
Security has stopped the  distribution of information over the Internet which it
believes to be socially  destabilizing.  The Ministry of Public Security has the
authority  to cause any local ISP to block any Web site  maintained  outside  of
China at its sole  discretion.  Web sites that are or have been blocked in China
include many major news-related Web sites such as www.cnn.com,  www.latimes.com,
www.nytimes.com  and  www.appledaily.com.hk.  The  Chinese  government  also has
expressed  its  intention  to closely  control  possible  new areas of  business
presented  by the  Internet,  such as  Internet  telephony.  We  cannot  provide
assurance that we will be able to obtain any necessary  license  required in the
future or that  future  changes in Chinese  government  policies  affecting  the
provision of ISP  services,  information  services,  including  the provision of
online services, will not impose additional regulatory requirements on us or our
strategic partner,  intensify competition in the Chinese information industry or
otherwise have a material  adverse effect on our business,  financial  condition
and results of operations.

     THERE ARE  ECONOMIC  RISKS  ASSOCIATED  WITH DOING  BUSINESS IN CHINA.  The
Chinese economy has experienced  significant growth in the past decade, but such
growth has been uneven across  geographic and economic  sectors and has recently
been  slowing.  There can be no assurance  that such growth will not continue to
decrease or that any slow down will not have a negative  effect on our business.
The Chinese  economy is also  experiencing  deflation  which may continue in the
future.  The current economic  situation may adversely affect our  profitability
over time as expenditures for  advertisements may decrease due to the results of
slowing domestic demand and deflation.  In addition, the international financial
markets in which the securities of the Chinese government,  agencies and private
entities are traded also have experienced  significant  price  fluctuations upon
speculation  that the Chinese  government  may devalue the Renminbi  which could
increase our costs relative to our revenues from China.

     CHANGES IN CHINA'S POLITICAL AND ECONOMIC POLICIES COULD HARM OUR BUSINESS.
The  economy  of China  has  historically  been a  planned  economy  subject  to
governmental plans and quotas and has, in certain aspects, been transitioning to
a more market-oriented economy. Although we believe that the economic reform and
macroeconomic  measures  adopted by the Chinese  government  have had a positive
effect on the  economic  development  of China,  we cannot  predict  the  future
directions of these  economic  reforms or the effects these measures may have on
our business,  financial  position or results of  operations.  In addition,  the
Chinese  economy  differs from the economies of most countries  belonging to the
Organization  for  Economic   Cooperation  and   Development,   or  OECD.  These
differences include economic structure,  level of government  involvement in the
economy, level of development,  level of capital investment,  control of foreign
exchange,  inflation  rates,  methods of  allocating  resources,  and balance of
payments  position.  As a result  of these  differences,  our  business  may not
develop in the same way or at the same rate as might be  expected if the Chinese
economy were similar to those of the OECD member countries.

     RESTRICTIONS  ON  CURRENCY  EXCHANGE  MAY LIMIT OUR  ABILITY TO UTILIZE OUR
REVENUES  EFFECTIVELY.  We expect to derive a significant portion of revenues in
the form of Renminbi.  Although Chinese governmental policies were introduced in
1996 to allow greater convertibility of the Renminbi,  significant  restrictions
still  remain.  We  can  provide  no  assurance  that  the  Chinese   regulatory
authorities will not impose greater  restrictions on the  convertibility  of the
Renminbi. Any future restrictions on currency exchanges may limit our ability to
utilize revenue  generated in Renminbi to fund our business  activities  outside
China.

     A CHANGE IN CURRENCY  EXCHANGE  RATES COULD  INCREASE OUR COSTS RELATIVE TO
OUR  REVENUES.  We expect to generate a  significant  portion of our revenues in
Renminbi and to incur a significant  portion of our expenses and  liabilities in
Renminbi  and U.S.  dollars.  As a result,  we are  subject  to the  effects  of
exchange rate fluctuations with respect to any of these currencies.  We have not
entered into agreements or purchase instruments to hedge our exchange rate risks
although we may do so in the future.

     THE UNCERTAINTY OF THE  ENFORCEABILITY OF OUR CONTRACTUAL RIGHTS MAY HAVE A
SERIOUS ADVERSE IMPACT ON OUR BUSINESS.  The legal system in China is still at a
developmental  stage. There are uncertainties in terms of the predictability and
transparency  of its laws and  regulations.  The judicial  system is  relatively
young.  As a  result,  our  contractual  rights in China  are  subject  to these
uncertainties.  We may have serious disruptions and suffer significant losses in
terms of business  opportunities and operations if our contractual rights cannot
be fully enforced.



     CORPORATE HISTORY

     We were incorporated in the State of Nevada on September 20, 1995 under the
name Kyocera  Management,  Ltd. We were initially  incorporated to allow for the
issuance  of up to 25,000  shares of no par value  common  stock.  On January 5,
1998, we amended our Articles of  Incorporation  to allow for the issuance of up
to 50,000,000 shares of $0.001 par value common stock.

     We were  inactive  from our inception  through  December  1998. In December
1998, we sold  5,785,500  shares of our common stock to a group of  individuals,
including members of our current Board of Directors, in consideration of $57,850
in cash and  services  rendered.  The  members  of the then  Board of  Directors
resigned and appointed Mr. Brian Ransom, our current  President,  as a Director.
We  subsequently  commenced our Internet  services  business.  In April 1999, we
changed our company name to CathayOnline Inc.

     On January 18, 2000, we entered into an  Acquisition  Agreement and Plan of
Merger whereby we acquired all of the  outstanding  shares of Lazzara  Financial
Asset Recovery,  Inc., an inactive Nevada corporation  ("Lazzara"),  in exchange
for 25,000 shares of our common stock.  In connection  with the merger,  we also
incurred  professional  fees of $250,000 in cash and 225,000  shares  issued for
services  rendered.  We are the  surviving  entity in the  merger.  Lazzara  was
registered  under the Securities  Exchange Act of 1934 (the "Exchange  Act") and
was  required to file reports  under the Exchange  Act. We elected to succeed to
Lazzara's reporting requirements under the Exchange Act, as permitted by Section
12g-3(b) thereof,  and as a result became a reporting company under the Exchange
Act on January 18, 2000.  Accordingly,  we now are required to file reports with
the Securities and Exchange  Commission  under the Exchange Act commencing  upon
the filing of the  Current  Report on Form 8-K filed on January 18,  2000.  As a
consequence  of the merger and our  election to succeed to  Lazzara's  reporting
requirements  under the Exchange  Act, our common  stock  remained  eligible for
trading  and  continues  to trade on the  Over-the-Counter  Electronic  Bulletin
Board.


     AVAILABLE INFORMATION

     The Company files annual,  quarterly and special reports,  proxy statements
and other information with the Securities and Exchange Commission.  Any document
the Company files with the Commission may be read or copied at the  Commission's
public reference room at 450 Fifth Street, N.W., Washington,  D.C. 20549. Please
call the  Commission at  1-800-SEC-0330  for further  information  on the public
reference  room.  The  Company's  Commission  filings are also  available to the
public at the Commission's Web site at http://www.sec.gov.




ITEM 2.  PROPERTIES.

     We maintain our  principal  executive  office at 437 Madison  Avenue,  33rd
Floor, New York, New York 10022 where we lease  approximately  2,500 square feet
of office space at a cost of $13,260 per month through June 30, 2005.

     We lease  approximately  4,200 square feet of office space at 543 Granville
Street,  Vancouver,  British  Columbia,  Canada. We have leased this space for a
term of five years through April 2005 at a monthly rent of approximately $6,818.

     Our Sichuan  operations are run from a 12,100 square foot office located in
the City of Chengdu,  Sichuan Province. We have leased this space through August
2004 at a monthly rent of approximately $7,300.

     We also entered into an agreement to lease  approximately 3,300 square feet
of office space at No. 6, Ritian Road, Chao Yang District,  Beijing for a period
of two years at a monthly  rent of $6,311 and took  possession  of this space on
May 1, 2000. We have the right to extend the lease for five one-year  periods on
terms to be agreed upon by the parties prior to each extension.

     We believe that our offices in New York and  Vancouver are  sufficient  for
our present and future needs.  Should  additional space be required,  we believe
that  additional  space  is  available  in each of  these  geographic  areas  at
competitive prices. If our business grows as we anticipate, we expect to require
additional office space in Chengdu, Beijing and Guangdong. We are confident that
sufficient  additional  office  space is available  in the  respective  areas on
commercially competitive terms.


ITEM 3.  LEGAL PROCEEDINGS.

     The Company  currently  is not  involved in any  litigation  the outcome of
which would have a material adverse effect on the Company's  financial position,
results of operations and net cash flow.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matters were submitted for a vote of  shareholders of the Company during
the fourth quarter of the fiscal year ended June 30, 2000.





     PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     On June 30,  2000,  the closing bid price per share of our common stock was
$.4375.  The following  table sets forth the quarterly  high and low closing bid
and closing  ask prices (in U.S.  dollars)  for our common  stock for the period
August 26, 1998 through the last quarter of fiscal year ended June 30, 2000:

                                                                  Closing Bid
For the quarter ended                   High                           Low
-----------------------------           --------------        -------------
August 26 through September 30, 1998        UNPRICED
December 31, 1998                                    $1.50             $ .01
March 31, 1999                                       $1.25             $ .50
June 30, 1999                                        $1.25             $ .31
September 30, 1999                                   $ .99             $ .50
December 31, 1999                                    $3.37             $0.31
March 30, 2000                                       $2.00             $1.25
June 30, 2000                                        $1.93             $0.44

Source: National Quotation Bureau, LLC


     The foregoing data  represents  prices between dealers and does not include
retail mark-ups,  mark-downs or commissions, nor does such data represent actual
transactions or adjustments for stock-splits or dividends.


     DIVIDEND

     To date,  we have not declared or paid  dividends on our common  stock.  We
presently plan to retain earnings, if any, for use in our business.


     TRADING MARKET

     Our common stock  trades on the NASD  Electronic  Bulletin  Board under the
symbol "CAOL.BB".


     PRINCIPAL MARKET MAKERS

     On June 30, 2000, there were 22 active market makers of our common stock.


     NUMBER OF SHAREHOLDERS OF RECORD

     At June 30, 2000,  there were  approximately  400 shareholders of record of
our common stock.


     RECENT SALES OF UNREGISTERED SECURITIES

     During the fiscal year ended June 30, 2000,  the Company  issued  2,500,000
shares  pursuant to  Regulation S under the  Securities  Act of 1993, as amended
(the "Securities  Act"). The shares were issued for the acquisition of TorchMail
at $0.53 per share.

     During the fiscal year ended June 30, 2000,  the Company  issued  2,500,000
shares pursuant to Regulation S under the Securities Act. The shares were issued
for cash and at $0.375 per share.

     During the fiscal  year ended June 30,  2000,  the Company  issued  213,793
shares pursuant to Regulation S under the Securities Act. The shares were issued
for a cashless exercise of warrants at $0.35 per share.

     During the fiscal  year ended June 30,  2000,  the Company  issued  100,000
shares pursuant to Regulation S under the Securities Act. The shares were issued
for cash on the exercise of warrants at $0.35 per share.

     During the fiscal  year ended June 30,  2000,  the Company  issued  250,000
shares  pursuant to Rule 701 under the Securities  Act of 1933, as amended.  The
shares were issued for the  acquisition  and merger of Lazzara  Financial  Asset
Recovery Inc. at $1.38 per share.

     In March and April 2000, the Company issued 775,000 shares of common stock,
valued at $1.38, as part of the purchase price for a controlling interest in CMD
Capital Limited, a Hong Kong enterprise. The transaction was a private placement
and exempt from  registration  pursuant to Rule 701 under the  Securities Act of
1933, as amended.

     In April,  2000,  the Company  completed a private  placement  of 9,751,470
Units  at $.70  per  Unit,  consisting  of one  share of  common  stock  and one
redeemable  common  stock  purchase  warrants.  The  transaction  was a  private
placement  and exempt  from  registration  pursuant  to  Regulation  S under the
Securities Act of 1933, as amended.

     During the fiscal year ended June 30, 2000,  the Company  issued  1,136,301
shares pursuant to Regulation S, Rule 701 and Rule 144 promulgated by the United
States Securities and Exchange  Commission.  The shares were issued for services
at the market value of the shares at prices from $0.38 to $1.75 per shares.



ITEM 6.  SELECTED FINANCIAL DATA.

     The  consolidated  statement of income data set forth below with respect to
the years ended June 30, 1998, 1999 and 2000, and the consolidated balance sheet
data at June 30, 1999 and 2000, are derived from, and are qualified by reference
to, the audited  consolidated  financial  statements  included elsewhere in this
Form 10-K.  The  consolidated  statement of income data for the years ended June
30, 1996 and 1997 and the consolidated  balance sheet data at June 30, 1996, and
1997 are derived from audited  consolidated  financial statements of the Company
not included  herein.  The data  presented  below are  qualified by reference to
Consolidated  Financial  Statements included elsewhere in this filing and should
be read in conjunction with such financial  statements and related notes thereto
and "Management's  Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7.
<TABLE>
<CAPTION>


                                                             Fiscal Years Ended June 30,
                             --------------------------------------------------------------------------------------------
                                 1996 (1)           1997 (1)          1998 (1)             1999               2000
                             -----------------  ----------------- ------------------ -----------------  -----------------
<S>                          <C>                <C>               <C>                <C>                <C>
Income Statement Data:
   Net sales                         $      -           $      -           $      -          $      -           $      -
   Operating loss                       (507)              (640)            (2,353)         (322,038)        (4,876,905)
   Other income, net                        -                  -                  -                 -          3,212,540
                             -----------------  ----------------- ------------------ -----------------  -----------------

   Net loss                            $(507)             $(640)           $(2,353)        $(322,038)       $(1,664,365)
                             =================  ================= ================== =================  =================

Per Share Data:
   Net loss                          $      -           $      -           $      -     $      (0.06)        $    (0.08)
                             =================  ================= ================== =================  =================

   Weighted average shares
   outstanding                      1,099,956          1,099,956          2,500,200         5,748,248         20,176,167
</TABLE>
<TABLE>



                                                                      June 30,
                             --------------------------------------------------------------------------------------------
                                 1996 (1)           1997(1)            1998(1)             1999               2000
                             -----------------  ----------------- ------------------ -----------------  -----------------
<S>                          <C>                <C>               <C>                <C>                <C>
Balance Sheet Data:
Working capital                      $      -           $      -           $      -           $92,176            $59,906
Total assets                            2,693              2,053                  -           380,064         10,124,153
Long-term debt                              -                  -                  -                 -                  -
Shareholders' equity                    2,693              2,053                  -           300,338          8,967,763
</TABLE>


     The Company was dormant from September 25, 1995 to January 8, 1998.


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
     OF OPERATION.

     The  following   discussion   should  be  read  in  conjunction   with  the
Consolidated  Financial Statements and Notes thereto appearing elsewhere in this
Form 10-K.


     OVERVIEW

     We are a Nevada  corporation  incorporated  in September  1995. In December
1998, we changed our management with the objective of analyzing and implementing
a strategy with respect to the long-term opportunities in the Internet sector in
the People's Republic of China and other Chinese-speaking markets, including the
provision of consulting and management services to Internet service providers in
China,  collateral operating and Web-based services (e.g.,  Web-based e-mail and
advanced  messaging  services),  and integration of Internet services with other
forms and means of communication.  Additionally,  we have explored opportunities
in online lottery kiosks.

     From January 1999 through June 1999,  our  operating  activities  consisted
primarily of identifying  opportunities,  negotiating  letters of  understanding
with potential  partners  identified in our search,  planning and developing the
operations,  recruiting  personnel,  raising  capital and  purchasing  operating
assets.

     During the period from June through December 1999, we finalized a number of
agreements   (including   an   agreement   to   acquire   TorchMail.com   and  a
first-to-market Reseller Agreement with USA.Net, under which TorchMail.com,  our
wholly-owned subsidiary, obtained the right to market a Chinese language version
of Web-based  e-mail and  advanced  messaging  services to the Chinese  speaking
markets),   established  a   wholly-owned   subsidiary,   Sichuan   CathayOnline
Technologies Co. Ltd.  (which,  through a joint project with Sichuan Guo Xun Xin
Xi Chan Ye You Xian Gong Si,  operates a government  licensed  Internet  Service
Provider in the Sichuan  Province in China),  established a co-branded  Web site
with Register.com under which TorchMail.com will sell primary level domains, and
indirectly  acquired interests in ten lottery kiosks in Guangzhou,  China (which
was subsequently written off.)

     From January 2000 through March 2000,  the Company's  operating  activities
consisted primarily of continuing to identify opportunities, negotiating Letters
of Understanding with potential partners identified in our search,  planning and
developing operations,  planning corporate restructuring,  recruiting personnel,
raising  capital and purchasing  operating  assets.  During the same period,  we
finalized a number of arrangements including:

     o    the appointment of Mr. Ken Levy as a Director of the Company;
     o    the appointment of Mr. Keli Wu as Chairman of the Beijing operations;
     o    the launch of the co-branded Web site with Register.com; and
     o    the signing of the  agreement  with the  National  Library of China by
          TorchMail.com.

     During this period, we invested over $3,000,000 in our Chinese  subsidiary,
Sichuan CathayOnline, to provide technological and personnel support.

     From March 2000 through June 2000, we announced:

     o    the acquisition of a controlling  interest in CMD Capital Limited, the
          parent company of ChinaNet Publishing Co. Ltd.;
     o    the closing of a $6.82 million financing;
     o    the completed  construction of our state-of-the-art  Internet facility
          in Sichuan Province;
     o    the  appointment of Mr. David Ng as Director of Corporate  Finance and
          Special Projects;
     o    an agreement with Sichuan  Famous Brand Product  Enterprises to act as
          its  exclusive  business-to-business  marketer  for its Web  site  and
          products online;
     o    a co-operation  agreement with the Second Institution of the Aerospace
          Machine &  Electronic  Group to  provide  Internet  services  to their
          subscriber base of 70,000 users;
     o    the  sale of our  interest  in CMD  Capital  Limited  and a  strategic
          alliance with CathayOne Inc.

     Subsequent  to our fiscal year ended June 30, 2000,  we appointed Mr. Glenn
Ohlhauser as our Chief Financial Officer. We also commenced the marketing of our
Personal  Intelligent  Messaging  services  and  announced  the opening of a new
satellite office in the city of Chongqing,  an autonomous city-state situated in
Sichuan  Province.  Chongqing  is  China's  largest  city,  with over 33 million
residents, and the fastest-growing city for Internet use in southwestern China

     To date,  we have  invested  over  $3,000,000  in our  Chinese  subsidiary,
Sichuan CathayOnline,  to provide technological and personnel support,  which we
believe will allow Sichuan Guo Xun to expand its operations to accommodate up to
25,000 subscribers.  Sichuan Guo Xun's primary target is providing ISP services,
training,  service,  technical support and Web site development to mid-sized and
large corporations and government  institutions in the Sichuan Province desiring
to establish or expand their online presence.

     Presently,  we generate no significant  income and have incurred net losses
since  inception.  Our prospects must be considered in light of the  significant
risks,  costs and difficulties  often  encountered by enterprises in their early
stages of development,  in particular companies in the Internet sector targeting
and operating in the Chinese and East Asian markets.

     Our capital and operating expenses will increase  significantly in the near
future as the result of commitments  and hiring  requirements  to meet marketing
objectives.  We will need to raise  additional funds required for our operations
and expansion in the near future.  There is no guarantee that we will be able to
raise the funds successfully.

     We believe  that  opportunities  exist in the  Internet  industry in China.
Management  believes that the combination of China and the Internet  creates one
of the greatest  opportunities  ever for visionaries.  We are well positioned to
aggressively  seize our market position,  acquire new customers and increase our
market  share.   Additionally,   the  combined  effects  of  increased  industry
deregulation  coupled with a growing demand for Internet services,  products and
applications are expected to create exciting investment opportunities in China.

     We expect to expand our employee base. We currently have  approximately  80
employees.  With additional  funding, we expect to increase our employee base to
over  100 in the next  six  months,  including  sales,  marketing,  operational,
technical and customer support resources. In particular, we intend to expand our
sales force to market the services  provided by the ISP and the marketing of the
Web-based e-mail and advanced messaging services under the name TorchMail.

     We intend to further develop existing  strategic  partnerships and identify
new  opportunities to expand our distribution  channels for Web-based e-mail and
advanced  messaging  services to the Chinese  speaking  markets,  in  particular
partnerships  with  other  Internet  service  providers,  portals,  Web  hosting
companies and government institutions in China.

     Currently, our principal office is in New York. We maintain a technical and
administrative office in Vancouver,  Canada. Our operational offices are located
in Chengdu and  Beijing,  China.  We also  maintain a  representative  office in
Jiangmen, China.


     SICHUAN ISP PROJECT

     On August 10, 1999, we organized,  in accordance  with the laws of China, a
wholly-owned  subsidiary,  Sichuan CathayOnline  Technologies Co. Ltd. ("Sichuan
CathayOnline"),  which  operates in the City of Chengdu.  On  September 9, 1999,
Sichuan CathayOnline entered into a management and consultancy service agreement
with  Sichuan  Guo Xun Xin Xi Chan Ye You Xian Gong Si  ("Sichuan  Guo Xun"),  a
local ISP in Sichuan Province licensed by the Sichuan  Administrative Bureau for
Posts and Telecommunications for an initial term from September 8, 1999 to March
23, 2003.  Pursuant to this  agreement,  Sichuan  CathayOnline  and Guo Xun work
jointly in providing  Internet services and Sichuan  CathayOnline is entitled to
90% of the profit generated from such services.

     In May 2000, we announced the signing of an agreement  with Sichuan  Famous
Brand Product Enterprises to act as its exclusive  business-to-business marketer
for its Web site and products  online.  We, in conjunction with Sichuan Guo Xun,
developed the Web site for Sichuan Famous Brands,  which represents and contains
the  equivalent of Sichuan  Province's  "Fortune  100". The main function of the
site,  which  contains more than 300 brand name  enterprises,  is to promote the
provincial  economy by  marketing  products in the  international  market and to
expand sales of the  products in the Chinese  market via the  Internet.  The Web
site was designed to build a solid  foundation  for Sichuan Famous Brands and to
expand its role in e-business and e-commerce.


     BEIJING ISP PROJECT

     On April 27, 2000,  we announced a  cooperation  agreement  with the Second
Institution  of the  Aerospace  Machine & Electronic  Group  ("AMEG") to provide
Internet services for the region of Beijing,  the capital city of China.  AMEG's
current scope of business includes  telephone  communications,  computer network
communications,  cable television networks and fiber-optic cable networks. It is
our  intention,  under the  cooperation  agreement,  to be able to build out the
infrastructure  so that we can provide full Internet  service to AMEG's existing
user base which AMEG intends to expand.


     TORCHMAIL.COM, INC.

     We  intend  to seek out and  train  strategically  located  sales  teams to
promote TorchMail's Web-based professional advanced messaging services in China.

     In March 2000,  the Company  announced a  partnership  agreement  to supply
co-branded  Web-based  e-mail services with the National  Library of China,  the
largest library in Asia and a national general  repository of publications.  The
National  Library also  provides  services for the central  government  priority
readers in research,  educational and production  institutions throughout China,
as well as the general  population.  The National Library  communicates  with an
estimated  4,000 libraries in China and 1,000 other  libraries  worldwide.  With
approximately 1 million hits per day, more than 200,000  publications  available
for viewing online, and more than 49 million pages of information,  the National
Library  Web site has been  awarded  "The  Best  Site"  under  the  category  of
"Culture,  Entertainment  and  Sports"  issued  by  China  Internet  Competition
Committee  in January  2000.  Under the  agreement  TorchMail  will  provide the
National Library with Web messaging services.

     It is TorchMail's intent to expand its international  member base by adding
additional  international partners and by providing new features to the services
offered. We are also exploring business  opportunities and partnerships in other
market segments including the wireless market and education related markets.  We
will also continue to seek to acquire  strategic  businesses and technology that
will help us serve these markets.

     In July 1999, TorchMail entered into a reseller agreement with USA.Net Inc.
("USA.Net")  pursuant  to which  USA.Net  agreed  to  adapt  and  customize  its
professional  messaging services and e-mail applications to the Chinese language
for TorchMail to employ in our product offerings. However, USA.Net was unable to
adapt and provide such services in a manner which we considered  acceptable  for
the Chinese market. As a result, the reseller  agreement was terminated,  and we
are negotiating with USA.Net to settle their account.  We are considering  other
alternatives  to replace  the  services  which were  supposed  to be provided by
USA.Net.


     MARKET STRATEGY

     According  to  the  statistics  compiled  by  the  China  Internet  Network
Information   Center  ("CNNIC")  in  1999,  the  three  most  important  factors
considered by Internet users when choosing an ISP are connection speed,  service
quality  and price.  Our  strategy is to  aggressively  ensure that all three of
these factors are delivered to our customers. We will provide more bandwidth for
Internet upstream connection, linking our system to both ChinaNet and Unicom and
making  sure that if traffic on one side is  congested,  users'  traffic  can be
routed  through  another  carrier.  For  customer  quality,  we provide  24-hour
service.

     While our prices will be competitive  with other  providers,  we will offer
value-added  Internet services such as Internet Fax/Phone,  systems integration,
on-site  training,  full  customer  support  and other  advanced  Web  features.
Additionally,  we will hold seminars, on-site training at our customer's office,
offer the "Electronic Mall" for use by advertisers, provide trial accounts, have
dedicated  lines and have virtual Web and domain names.  We believe that we will
be able to stand  out  among  our  competitors  and that our  customers  will be
completely satisfied with this full-service solution.

     Our  long-term  objective  is to become the  communications  portal for our
members on the Web by combining e-mail, fax, voicemail, calendars, address books
and  related  tools  into one fully  integrated  service.  We plan to expand our
international  member base by adding  additional  international  partners and by
providing  new  features  such  as  e-mail  language  translation.  We are  also
exploring business  opportunities and partnerships in other market segments such
as the  wireless  market and  schools.  We may also  continue to seek to acquire
additional strategic businesses and technology that will help us to better serve
these markets.


     GROWTH OF THE BUSINESS

     As we become more fully  established  in Chengdu,  we will  quickly  expand
services in other cities in China. As our Internet  connectivity network expands
to cover a greater number of major urban markets, we will continue to focus upon
building  a  scalable  network  platform  and  forming  strategic  business  and
technology partnerships.  Under this strategy, we expect to achieve rapid growth
and to quickly become the leading brand name within our respective markets.

     We  anticipate  that,  by first  quarter  of 2001,  we will have  commenced
services  in Beijing  and  Guangzhou.  Services in  MianYang  and  Shanghai  are
expected to follow.


     RESULTS OF OPERATIONS

     During the period from  September  20, 1995 to January 6, 1998,  we did not
engage in any operations  and were  considered  dormant.  On January 6, 1998, we
obtained a Certificate of Renewal from the State of Nevada. As of June 30, 2000,
the Company was still in the  development  stage and, as of June 30,  2000,  has
only recently commenced planned principal operations.

     Since inception,  we have incurred  significant  losses and, as of June 30,
2000,  had an accumulated  deficit of  approximately  $1.99  million.  It is our
intention to invest  heavily to expand network  infrastructure  and expand sales
and  marketing.   We  expect  to  incur  substantial  operating  losses  in  the
foreseeable future.

     With the rapidly evolving nature of the technology industry,  potential for
political  uncertainty and our limited  operating  history,  we believe that any
period to period  comparisons  of our  revenues  and  operating  results are not
meaningful and should not be relied upon as an indication of future performance.
As of June 30, 2000 the Company had  approximately  80 employees,  in comparison
with three full time employees in just fifteen months earlier. CathayOnline does
not believe that its  historical  growth rates for revenues,  expenses,  capital
investments or personnel are indicative of future results.


     INCOME TAXES

     No provision  for federal and state  incomes  taxes has been recorded as we
have incurred net operating  losses from inception  through June 30, 2000. As of
June 30,  2000,  we had  approximately  $1,990,000  of  federal  and  state  net
operation  loss  carryforwards  available to offset future  taxable income which
expire in varying amounts  beginning in 2015.  Under the Tax Reform Act of 1986,
the  amounts  of and  benefits  from net  operating  loss  carryforwards  may be
impaired or limited in certain circumstances. Because there is significant doubt
as to whether we will realize any benefit from this deferred tax asset,  we have
established a full valuation allowance as of June 30, 2000.


     INFLATION AND REGULATION

     Our operations  have not been, and in the near term are not expected to be,
materially   affected  by  inflation  or  changing  prices.  We  will  encounter
competition  from a variety of firms  selling  Internet  services  in our market
area.  Many of these firms have  long-standing  customer  relationships  and are
well-staffed  and well  financed.  We believe that  competition  in the Internet
industry is based on competitive pricing,  although the ability,  reputation and
support of a marketing network is also  significant.  We do not believe that any
recently enacted or presently pending proposed  legislation will have a material
adverse effect on its results of operations.


     LIQUIDITY AND CAPITAL RESOURCES

     Since  inception,  we have funded our operations from the net proceeds from
the sale of common stock and other securities convertible into common stock. For
the fiscal year ended June 30, 1999,  cash provided by financing  activities was
approximately  $482,026.  For the fiscal year ended June 30, 2000, cash provided
by financing activities was approximately $6,457,389.

     As of June 30, 2000, we have no debt.

     Our  current  cash  balances  will not be  sufficient  to meet our  working
capital and capital  expenditure  requirements for the next twelve months. It is
anticipated  that with the further  expansion  of the  operations  we will incur
negative cash flows,  therefore  requiring us to seek  additional  financings to
support the growth in operations,  both on a short-term and long-term  basis. We
expect to acquire or invest in businesses,  products,  services and technologies
that complement or augment our service offerings and customer base. We currently
are  engaged  in  discussions  with a number of  companies  regarding  strategic
acquisitions  or  investments.   Although  these  discussions  are  ongoing,  no
definitive agreements have been signed and there can be no assurance that any of
these  discussions  will result in actual  acquisitions.  It is anticipated that
some of the acquisitions will be paid for by issuing additional common stock and
this could dilute our shareholders. In addition, there may be the requirement to
amortize  significant  amounts  of  goodwill  and  other  intangible  assets  in
connection  with  future  acquisitions,  which  would  materially  increase  the
Company's  operating  expenses.  In  addition,  we may  seek to  raise  funds by
offering  debt or  equity  to the  public.  Thereafter,  we may  need  to  raise
additional funds in order to meet funding requirements of a more rapid expansion
plan,  potential  acquisitions,  development  of new  or  enhanced  products  or
services,  in response to competitive  pressures or to acquire  technologies  or
complimentary products or businesses.

     There is no guarantee that we will be able to raise the funds that we need.
In  addition,  unless we amend our  Articles of  Incorporation  to increase  the
number of authorized shares, we may not have sufficient  authorized but unissued
shares to permit us to offer additional common stock to potential investors.  As
of  September  22, 2000,  we have issued and  outstanding  30,184,201  shares of
common stock and warrants to purchase  45,231,221 shares of common stock,  while
we are  currently  authorized  to issue only up to  50,000,000  shares of common
stock.

     If we cannot obtain outside  financing,  we will consider  scaling back our
expansion  plans  for  TorchMail's  and  Sichuan  Guo  Xun's   operations,   and
re-evaluate  certain potential  acquisitions and, instead,  rely upon internally
generated  cash  flow.  Resources  that  would  have  been  allocated  to a more
aggressive  expansion  plan  would  then  be  diverted  towards  a  broad  based
advertising campaign to build upon the subscriber bases permitting an internally
financed growth.

     Net  of  depreciation,   our  investment  in  property  and  equipment  was
$1,592,419 as of June 30, 2000. In  comparison,  our  investment in property and
equipment, net of depreciation, was nominal as of June 30, 1999. Installation of
infrastructure  equipment in Chengdu,  purchases of furniture  and equipment for
new employees, and leasehold improvements related to office expansions accounted
for this increase. It is expected that our investments in property and equipment
will continue to grow as we seek to increase capacity and services.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are not  exposed to a material  level of market  risks due to changes in
interest  rates.  We do not  have  outstanding  debt  instruments  and we do not
maintain a portfolio of interest-sensitive debt instruments.

     We  expect to  derive a  significant  portion  of  revenues  in the form of
Renminbi and, therefore, may be exposed to significant foreign currency risks in
the  future.  During the fiscal year ended June 30,  2000,  we did not engage in
hedging  activities to mitigate the impact of changes in foreign exchange rates.
We may in the  future use  foreign  currency  forward  exchange  contracts  as a
vehicle for hedging purposes.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     Reference is made to the financial statements listed under the heading "(a)
(1)  Consolidated  Financial  Statements"  of Item 14  hereof,  which  financial
statements are incorporated herein by reference in response to this Item 8.


ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
     FINANCIAL DISCLOSURE.

     None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The response to this item is  incorporated  by reference  from the Sections
titled   "Management"   and  "Section  16(a)  Beneficial   Ownership   Reporting
Compliance" in the  Registrant's  Proxy Statement for its 2000 Annual Meeting of
Shareholders.



ITEM 11. EXECUTIVE COMPENSATION.

     The response to this item is  incorporated  by  reference  from the Section
titled "Executive Compensation" in the Registrant's Proxy Statement for its 2000
Annual Meeting of Shareholders.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The response to this item is  incorporated  by  reference  from the Section
titled "Share Ownership" in the Registrant's Proxy Statement for its 2000 Annual
Meeting of Shareholders.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The response to this item is  incorporated  by  reference  from the Section
titled "Certain  Relationships  and Related  Transactions"  in the  Registrant's
Proxy Statement for its 2000 Annual Meeting of Shareholders.



ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a)(1) Consolidated Financial Statements

     (a)(2) Financial Statement Schedules

     (a)(3) Exhibits

     The following  Exhibits are  incorporated  herein by reference or are filed
with this report as indicated below. Copies of exhibits will be furnished,  upon
request,  to holders or beneficial  owners of the  Company's  Common Stock as of
September 22, 2000,  subject to payment in advance of a fee of 25 cents per page
to reimburse the Company for reproduction costs.


INDEX TO EXHIBITS

EXHIBIT
NO.               DESCRIPTION
-------           -------------------------

2.1               Share  Purchase  Agreement  dated  as of June 30,  2000  among
                  CathayOnline    Technologies   (Hong   Kong)   Limited,   SNet
                  Communications  (HK)  Limited,   Ting  Kan  Nok,  CMD  Capital
                  Limited, CathayBancorp.com, Limited and Premier Brands, Inc. *

3.1               Articles  of  Incorporation  of  CathayOnline  Inc.  (Filed as
                  Exhibit 3.1 to Amendment No. 1 to the Company's Current Report
                  on Form 8-K dated January 18, 2000 and incorporated  herein by
                  reference.)

3.2               Amended and Restated By-Laws of CathayOnline Inc. *

4.1               Specimen Form of Common Stock  Certificate.  (Filed as Exhibit
                  4.1 to Amendment No. 1 to the Company's Current Report on Form
                  8-K  dated  January  18,  2000  and  incorporated   herein  by
                  reference.)

4.2               Form of Warrant issued to Employees and Consultants. (Filed as
                  Exhibit 4.2 to Amendment No. 1 to the Company's Current Report
                  on Form 8-K dated January 18, 2000 and incorporated  herein by
                  reference.)

4.3               Form of  Warrant  issued  in April  1999  Offering.  (Filed as
                  Exhibit 4.3 to Amendment No. 1 to the Company's Current Report
                  on Form 8-K dated January 18, 2000 and incorporated  herein by
                  reference.)

4.4               Form of  Warrant  issued  in June  1999  Offering.  (Filed  as
                  Exhibit 4.4 to Amendment No. 1 to the Company's Current Report
                  on Form 8-K dated January 18, 2000 and incorporated  herein by
                  reference.)

4.5               Form of Warrant  Issued in  Regulation  S Offering.  (Filed as
                  Exhibit 4.5 to Amendment No. 1 to the Company's Current Report
                  on Form 8-K dated January 18, 2000 and incorporated  herein by
                  reference.)

10.1              Management and Consultancy  Service Agreement with Sichuan Guo
                  Xun Xin Xi Chan Ye You Xian Gong Si. (Filed as Exhibit 10.1 to
                  Amendment  No. 1 to the Company's  Current  Report on Form 8-K
                  dated January 18, 2000 and incorporated herein by reference.)

10.2              Agreement to Acquire TorchMail.com Inc. (Filed as Exhibit 10.2
                  to Amendment No. 1 to the Company's Current Report on Form 8-K
                  dated January 18, 2000 and incorporated herein by reference.)

10.3              Employment  Agreement  between  CathayOnline  Inc.  and  Brian
                  Ransom.  (Filed  as  Exhibit  10.6 to  Amendment  No. 1 to the
                  Company's  Current  Report on Form 8-K dated  January 18, 2000
                  and incorporated herein by reference.)

10.4              Management  Agreement  with Owen Li. (Filed as Exhibit 10.7 to
                  Amendment  No. 1 to the Company's  Current  Report on Form 8-K
                  dated January 18, 2000 and incorporated herein by reference.)

10.5              Consulting Agreement with Peter Lau. (Filed as Exhibit 10.8 to
                  Amendment  No. 1 to the Company's  Current  Report on Form 8-K
                  dated January 18, 2000 and incorporated herein by reference.)

10.6              Co-Branded  Site  Services  Agreement  dated as of October 27,
                  1999 between register.com, inc. and TorchMail.com, Inc. (Filed
                  as Exhibit 10.11 to Amendment  No. 1 to the Company's  Current
                  Report on Form 8-K dated  January  18,  2000 and  incorporated
                  herein by reference.)

10.7              Lease  Agreement with Sichuan Dongfu Group Company.  (Filed as
                  Exhibit  10.12 to  Amendment  No. 1 to the  Company's  Current
                  Report on Form 8-K dated  January  18,  2000 and  incorporated
                  herein by reference.)

10.8              Lease Agreement with Beijing Tongkai Development Co., Ltd. for
                  Office  Space in Beijing,  China.  (Filed as Exhibit  10.14 to
                  Amendment  No. 1 to the Company's  Current  Report on Form 8-K
                  dated January 18, 2000 and incorporated herein by reference.)

10.9              Cooperation  Agreement  dated as of May 11,  2000  among  Wuyi
                  University of Jiangmen,  CathayOnline Technologies (Hong Kong)
                  Limited, and Sichuan Guo Xun Xin Xi Chan Ye You Xian Gong Xi *

10.10             Cooperation  Agreement  with  the  Second  Institution  of the
                  Aerospace Machine & Electronic Group *

10.11             Cooperation   Agreement   dated   February  16,  2000  between
                  TorchMail.com,   Inc.  and  Digital  Technology  Co.  Ltd.  of
                  National Library of China *

21.1              List of Subsidiaries  *

27.1              Financial Data Schedule *


-----------------------
  *  Filed with this report






     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

Signature                           Title                          Date


/s/ Brian W. Ransom
--------------------       Chairman of the Board,             September 29, 2000
Brian W. Ransom            President



/s/ Glenn R. Ohlhauser
--------------------       Chief Financial Officer            September 29, 2000
Glenn R. Ohlhauser


/s/ Peter S. Lau
--------------------       Director                           September 29, 2000
Peter S. Lau


/s/ Owen L. Li
--------------------       Director                           September 29, 2000
Owen L. Li


/s/ Kenneth M. Levy
--------------------       Director                           September 29, 2000
Kenneth M. Levy



<PAGE>

                               CATHAYONLINE, INC.
                                       AND
                                  SUBSIDIARIES

                          (A Development Stage Company)

                                       -:-

                          INDEPENDENT AUDITOR'S REPORT

                          JUNE 30, 2000, 1999 AND 1998







<PAGE>






                                    CONTENTS


                                                                          Page

Independent Auditor's Report..............................................F - 1

Consolidated Balance Sheets
  June 30, 2000, 1999 and 1998............................................F - 2

Consolidated Statements of Operations for the
   Years Ended June 30, 2000, 1999 and 1998...............................F - 4

Consolidated Statement of Stockholders' Equity
   Since September 20, 1995 (Inception) to June 30, 2000..................F - 5

Consolidated Statements of Cash Flows for the
   Years Ended June 30, 2000, 1999 and 1998...............................F - 7

Notes to Consolidated Financial Statements................................F - 9



<PAGE>







                          INDEPENDENT AUDITOR'S REPORT


CATHAYONLINE, INC. AND SUBSIDIARIES
(A Development Stage Company)


         We  have  audited  the  accompanying  consolidated  balance  sheets  of
CathayOnline, Inc. and subsidiaries (a development stage company) as of June 30,
2000 and 1999, and the related consolidated  statements of operations,  and cash
flows  for the  three  years  ended  June  30,  2000,  1999  and  1998,  and the
consolidated   statement  of  stockholders'  equity  since  September  20,  1995
(inception) to June 30, 2000. These financial  statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects,  the financial position of CathayOnline,  Inc.
and subsidiaries (a development stage company) as of June 30, 2000 and 1999, and
the results of its  operations and its cash flows for the three years ended June
30, 2000,  1999 and 1998,  in  conformity  with  generally  accepted  accounting
principles.

                                                    Respectfully submitted



                                                    /s/ Robison, Hill & Co.
                                                    Certified Public Accountants


Salt Lake City, Utah
September 27, 2000


                                      F - 1

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                                 BALANCE SHEETS





                                                           June 30,
                                                -------------------------------
                                                    2000               1999
                                                ------------       ------------
ASSETS
Current Assets:
   Cash & Cash Equivalents ...............      $    786,290       $    164,982
   Restricted Cash .......................            82,497              6,920
   Advances ..............................            22,122               --
   Prepaid expenses & Deposits ...........           325,387               --
                                                ------------       ------------

     Total Current Assets ................         1,216,296            171,902
                                                ------------       ------------

Fixed Assets:
   Office Equipment ......................           133,753              3,680
   Computer Equipment ....................         1,381,304               --
   Furniture & Fixtures ..................           168,563               --
   Leasehold Improvements ................           229,925               --
                                                ------------       ------------
                                                   1,913,545              3,680
Less Accumulated Depreciation ............          (321,126)               (64)
                                                ------------       ------------

     Net Fixed Assets ....................         1,592,419              3,616
                                                ------------       ------------

Other Assets:
   Intangible Assets .....................            84,962               --
   Condominium ...........................           230,476               --
   Available-for-sale Investments ........         7,000,000               --
   Investment in Subsidiaries ............              --              204,546
                                                ------------       ------------

     Total Other Assets ..................         7,315,438            204,546
                                                ------------       ------------

Total Assets: ............................      $ 10,124,153       $    380,064
                                                ============       ============








                                      F - 2

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                                 BALANCE SHEETS
                                   (Continued)





                                                             June 30,
                                                   ----------------------------
                                                       2000            1999
                                                   ------------    ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts Payable & Accrued Expenses .........   $  1,156,390    $     79,726
                                                   ------------    ------------

     Total Liabilities .........................      1,156,390          79,726
                                                   ------------    ------------

Stockholders' Equity:
   Common Stock, Par value $.001
      Authorized 50,000,000 shares,
      Issued 28,979,201 and 11,752,700 shares
      at June 30, 2000 and 1999 ................         28,979          11,753
   Paid-In Capital .............................     11,337,437       1,043,373
   Stock Subscribed Receivable .................       (408,750)       (429,250)
   Accumulated Unrealized Gains/Losses
      On Investments ...........................           --              --
  Deficit Accumulated During the
    Development Stage ..........................     (1,989,903)       (325,538)
                                                   ------------    ------------

     Total Stockholders' Equity ................      8,967,763         300,338
                                                   ------------    ------------

     Total Liabilities and
       Stockholders' Equity ....................   $ 10,124,153    $    380,064
                                                   ============    ============












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

                                      F - 3

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>


                                                                                 Cumulative
                                                                                   since
                                                                                  inception
                                               For the year ended                    of
                                                     June 30,                    development
                                    -----------------------------------------
                                        2000           1999           1998          stage
                                    -----------    -----------    -----------    -----------
<S>                                 <C>            <C>            <C>            <C>
Revenues: .......................   $      --      $      --      $      --      $      --

Expenses:
   General & Administrative .....     4,876,905        322,038          2,353      5,202,443
                                    -----------    -----------    -----------    -----------

     Net Operating Loss .........    (4,876,905)      (322,038)        (2,353)    (5,202,443)

Other Income (Expense)
   Interest, Net ................        (1,791)          --             --           (1,791)
   Gain on Sale of Assets .......     5,238,394           --             --        5,238,394
   Loss on Abandonment of Assets        (94,063)          --             --          (94,063)
   Loss on Write Down of Goodwill    (1,930,000)          --             --       (1,930,000)
                                    -----------    -----------    -----------    -----------

     Net Other Income (Expense) .     3,212,540           --             --        3,212,540
                                    -----------    -----------    -----------    -----------

     Net Loss Before Taxes ......    (1,664,365)      (322,038)        (2,353)    (1,989,903)

Income Taxes ....................          --             --             --             --

     Net Loss ...................   $(1,664,365)   $  (322,038)   $    (2,353)   $(1,989,903)
                                    ===========    ===========    ===========    ===========

Basic & Diluted loss per share ..   $     (0.08)   $     (0.06)   $      --
                                    ===========    ===========    ===========
</TABLE>






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

                                      F - 4

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                       -----------------------------------
                          (A Development Stage Company)
                        STATEMENT OF STOCKHOLDERS' EQUITY
              SINCE SEPTEMBER 20, 1995 (INCEPTION) TO JUNE 30, 2000

<TABLE>
<CAPTION>

                                                                                                  Deficit
                                                                                                Accumulated
                                                                                    Stock         During
                                              Common Stock            Paid-In     Subscribed    Development
                                          Shares       Par Value      Capital     Receivable       Stage
                                        ----------    ----------    ----------    ----------    ----------
<S>                                     <C>           <C>           <C>           <C>           <C>
Issuance of  Stock at formation to
  incorporators for services rendered        9,999    $      200    $     --      $     --      $     --
Sale of common stock ................       15,000         3,000          --            --            --
Effect of 44 for 1 stock split ......    1,074,957        (2,100)        2,100          --            --
Net Loss for the period .............         --            --            --            --            (507)
                                        ----------    ----------    ----------    ----------    ----------

Balances at June 30, 1996 ...........    1,099,956         1,100         2,100          --            (507)

Net loss for the year ...............         --            --            --            --            (640)
                                        ----------    ----------    ----------    ----------    ----------

Balance at June 30, 1997 ............    1,099,956         1,100         2,100          --          (1,147)

January 5, 1998 Issuance of Stock
   for services and payment of
   accounts payable .................    1,539,912         1,540        (1,240)         --            --
Net Loss for the year ...............         --            --            --            --          (2,353)
                                        ----------    ----------    ----------    ----------    ----------

Balance at June 30, 1998 ............    2,639,868         2,640           860          --          (3,500)

Cancellation of Officer Shares ......   (1,539,912)       (1,540)        1,540          --            --
Retroactive adjustment for 2.273
   to 1 stock split August 27, 1998 .    1,400,244         1,400        (1,400)         --            --
                                        ----------    ----------    ----------    ----------    ----------

Restated balance June 30, 1998 ......    2,500,200         2,500         1,000          --          (3,500)

Issuance of stock for cash ..........    5,785,000         5,785        52,065          --            --
Capital contributed by shareholder ..         --            --           2,526          --            --
Issuance of stock for payment of ....      202,500           203          (203)         --            --
accounts payable
Issuance of stock for payment of ....      475,000           475       118,275          --            --
accounts payable
Issuance of Stock for cash ..........      700,000           700       349,300          --            --
Issuance of  Stock for cash .........    2,090,000         2,090       520,410      (429,250)         --
Net Loss ............................         --            --            --            --        (322,038)
                                        ----------    ----------    ----------    ----------    ----------
</TABLE>

                                     F - 5
<PAGE>


                       CATHAYONLINE, INC. AND SUBSIDIARIES
                       -----------------------------------
                          (A Development Stage Company)
                        STATEMENT OF STOCKHOLDERS' EQUITY
              SINCE SEPTEMBER 20, 1995 (INCEPTION) TO JUNE 30, 2000
                                    Continued


<TABLE>
<CAPTION>

                                                                                                  Deficit
                                                                                                Accumulated
                                                                                    Stock         During
                                              Common Stock            Paid-In     Subscribed    Development
                                          Shares       Par Value      Capital     Receivable       Stage
                                        ----------    ----------    ----------    ----------    ----------

<S>                                     <C>           <C>           <C>           <C>           <C>
Balance at June 30, 1999 ............   11,752,700        11,753     1,043,373      (429,250)     (325,538)

Issuance of Stock to
   acquire Torchmail.com Ltd. .......    2,500,000         2,500     1,322,500          --            --
Issuance of Stock to acquire Lazzara
   Financial Asset Recovery Services
   Ltd ..............................      250,000           250       344,750          --            --
Issuance of Stock to
   acquire CMD Capital Ltd. .........      775,000           775     1,068,725          --            --
Issuance of Stock for cash ..........    2,500,000         2,500       935,000      (408,750)         --
Issuance of Stock for cash,
   net of issue costs $1,361,596 ....    9,751,407         9,752     5,454,637          --            --
Issuance of Stock on cashless
   exercise of warrant ..............      213,793           213        74,786          --            --
Issuance of Stock on exercise of
   warrants .........................      100,000           100        34,900          --            --
Issuance of Stock for services ......    1,136,301         1,136     1,058,766          --            --
Collection of Stock Subscribed
   Receivable .......................         --            --            --         429,250          --
Net Loss for the year ...............         --            --            --            --      (1,664,365)
                                        ----------    ----------    ----------    ----------    ----------

Balance at June 30, 2000 ............   28,979,201    $   28,979    $11,337,437   $ (408,750)   $(1,989,903)
                                        ==========    ==========    ===========   ==========    ===========

</TABLE>





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

                                      F - 6

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                       -----------------------------------
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                             Cumulative
                                                                                                Since
                                                                                              Inception
                                                            For the years ended                  of
                                                                  June 30,                   Development
                                                -----------------------------------------
                                                    2000           1999           1998          Stage
                                                -----------    -----------    -----------    -----------
<S>                                             <C>            <C>            <C>            <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss ....................................   $(1,664,365)   $  (322,038)   $    (2,353)   $(1,989,903)
Adjustments to reconcile net loss to net cash
 used in operating activities:
   Depreciation and amortization ............       321,062             64          2,053        324,326
   Issuance of common stock for expenses ....     1,114,339        140,350            300      1,254,989
   Gain on Sale of Assets ...................    (5,238,394)          --       (5,238,394)
   Loss on Abandonment of Assets ............        94,063           --             --           94,063
   Loss on Write Down of Goodwill ...........     1,930,000           --             --        1,930,000
Change in operating assets and liabilities:
   Restricted cash ..........................       (75,577)        (6,920)          --          (82,497)
   Advances .................................       (22,122)          --             --          (22,122)
   Prepaid Expenses & Deposits ..............      (325,387)          --             --         (325,387)
   Accounts Payable & Accrued Expense .......     1,062,844         79,726           --        1,142,570
                                                -----------    -----------    -----------    -----------
Net Cash Used in Operating Activities .......    (2,803,537)      (108,818)          --       (2,912,355)
                                                -----------    -----------    -----------    -----------

CASH FLOWS FROM INVESTING
ACTIVITIES:
   Purchase of Equipment ....................    (2,234,584)        (3,680)          --       (2,238,264)
   Purchase of Intangible Assets ............       (60,400)          --             --          (60,400)
   Cash Payments for CMD ....................      (692,106)          --             --         (692,106)
   Cash Payment for Goodwill ................      (250,000)          --             --         (250,000)
   Investment in Subsidiaries ...............       204,546       (204,546)          --             --
                                                -----------    -----------    -----------    -----------
Net Cash Used in Investing Activities .......    (3,032,544)      (208,226)          --       (3,240,770)
                                                -----------    -----------    -----------    -----------

CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock ......     6,457,389        479,500           --        6,936,889
Capital contributed by shareholder ..........          --            2,526           --            2,526
                                                -----------    -----------    -----------    -----------
Net Cash Provided by Financing Activities ...     6,457,389        482,026           --        6,939,415
                                                -----------    -----------    -----------    -----------
</TABLE>

                                      F - 7

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                       -----------------------------------
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS
                                   (Continued)

<TABLE>
<CAPTION>


                                                                                             Cumulative
                                                                                                Since
                                                                                              Inception
                                                            For the years ended                  of
                                                                  June 30,                   Development
                                                -----------------------------------------
                                                       2000           1999           1998          Stage
                                                -----------    -----------    -----------    -----------
<S>                                             <C>            <C>            <C>            <C>
Net (Decrease) Increase in
  Cash and Cash Equivalents .................       621,308        164,982           --          786,290
Cash and Cash Equivalents
  at Beginning of Period ....................       164,982           --             --             --
                                                -----------    -----------    -----------    -----------
Cash and Cash Equivalents
  at End of Period ..........................   $   786,290    $   164,982    $      --      $   786,290
                                                ===========    ===========    ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
  Interest ..................................   $    26,348    $      --      $      --      $    26,348
  Income taxes ..............................   $      --      $      --      $      --      $      --

SUPPLEMENTAL DISCLOSURE OF NON-
CASH INVESTING AND FINANCING
ACTIVITIES:
Common Stock issued for Intangible Assets ...   $    20,562    $      --      $      --      $    20,562
Common Stock issued for Subsidiaries ........   $ 2,739,500    $      --      $      --      $ 2,739,500

</TABLE>






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

                                      F - 8

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         This summary of accounting  policies for CathayOnline,  Inc.  (formerly
Kyocera Management,  Ltd.) is presented to assist in understanding the Company's
financial  statements.  The accounting  policies  conform to generally  accepted
accounting  principles and have been consistently  applied in the preparation of
the financial statements.

Organization and Basis of Presentation

         The Company was  incorporated  under the laws of the State of Nevada on
September  20,  1995 using the name of  Kyocera  Management,  Ltd.  The name was
changed  to  CathayOnline,  Inc.  on April 14,  1999.  The  Company  ceased  all
operating activities during the period from September 20, 1995 to January 6,1998
and was  considered  dormant.  On  January  6,  1998,  the  Company  obtained  a
Certificate of renewal from the State of Nevada. The Company as of June 30, 2000
is in the development stage, and has not commenced planned principal operations.

Principles of Consolidation

         The  consolidated  financial  statements for June 30, 2000 and the year
ended include the accounts of CathayOnline,  Inc. and the following wholly owned
subsidiaries:

*        CathayOnline Technologies (Hong Kong) Ltd, a Hong Kong corporation
*        CathayOnline (BVI) Ltd, a British Virgin Islands corporation
*        Torchmail.com Inc, a Turks & Caicos, BWI corporation
*        Sichuan  CathayOnline  Technologies  Co.  Ltd, a wholly  owned  foreign
         enterprise corporation, PRC
*        CathayOnline, Inc, a Canadian Corporation
*        China Lottery (Hong Kong) Limited, a Hong Kong corporation
*        Beijing  CathayOnline  Technologies  Co.  Ltd, a wholly  owned  foreign
         enterprise, PRC

Nature of Business

         Through its subsidiary  companies and exclusive  partnership  and joint
venture  arrangements  with  certain  Chinese  entities,  the Company will be an
Internet  Service  Provider and provides web based email and advanced  messaging
services for the Chinese speaking  markets,  principally in the areas of Sichuan
province,  Beijing  and  Guangdong.  During the year the  Company  has  incurred
expenditures  to build  its  required  infrastructure  and to  complete  various
strategic  cooperation  agreements for access to operating licenses and customer
base.


                                      F - 9

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

         During the year,  through  its  wholly  owned  subsidiary  CathayOnline
Technologies  (Hong Kong) Ltd,  the company  acquired  and  operated  ten online
lottery kiosks in Guangzhou,  China. The kiosk and lottery operations were to be
transferred to China Lottery (Hong Kong) Limited (China Lottery) and the Company
had entered into an agreement to sell China Lottery to an unrelated  third party
for $150,000.  The sale was not completed and the Company  abandoned the lottery
operations and wrote off the cost of the kiosks.

Cash and Cash Equivalents

         For purposes of the statement of cash flows, the Company  considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.

Marketable Securities

         The  Company's   securities   investments  that  are  bought  and  held
principally  for the purpose of selling them in the near term are  classified as
trading securities. Trading securities are recorded at fair value on the balance
sheet in  current  assets,  with the  change in fair  value  during  the  period
included in earnings.  Securities  investment  that the Company has the positive
intent and  ability  to hold to  maturity  are  classified  as  held-to-maturity
securities  and  recorded at  amortized  cost in  investment  and other  assets.
Securities  investments  not  classified as either  held-to-maturity  or trading
securities     are     classified     as     available-for-sale      securities.
Available-for-sale-securities  are  recorded  at fair value as  investments  and
other  assets on the  balance  sheet,  with the change in fair value  during the
period  excluded  from  earnings and recorded net of tax as a component of other
comprehensive income.

Pervasiveness of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.



                                      F - 10

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Translation of Foreign Currrency

         The Companies  functional  currencies  include U.S.  Dollars,  Canadian
Dollars and Chinese Renminbi.  All balance sheet accounts of foreign  operations
are translated into U.S.  dollars at the year-end rate of exchange and statement
of operations  items are translated at the weighted  average  exchange rates for
the year. The resulting translation  adjustments are made directly to a separate
component of the stockholders' equity. Certain foreign activities are considered
to be an extension of the U.S.  operations,  and the gain or loss resulting from
re-measuring these  transactions into U.S. dollars is included in income.  Gains
or losses from other foreign currency transactions, such as those resulting from
the  settlement  of  foreign  receivables  or  payables,  are  included  in  the
Statements of Operations.

Property and Equipment

         Property  and   equipment   are  stated  at  cost.   Depreciation   and
amortization  is  provided  for in  amounts  sufficient  to  relate  the cost of
depreciable assets to operations over their estimated service lives, principally
on a straight-line basis as follows:

         Office Equipment                   3-5      years
         Computer Equipment                 3-5      years
         Furniture & Fixtures               5-7      years
         Leasehold Improvements             7-10     years

         Upon sale or other disposition of property and equipment,  the cost and
related  accumulated  depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.

         Expenditures  for  maintenance  and  repairs  are charged to expense as
incurred.  Major overhauls and betterments are capitalized and depreciated  over
their useful lives.

         Intangible assets are amortized over useful life of 5 to 10 years.




                                     F - 11

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

         The Company has adopted the Financial  Accounting  Standards Board SFAS
No., 121,  "Accounting  for the  Impairment of Long-lived  Assets." SFAS No. 121
addresses  the  accounting  for (i)  impairment of  long-lived  assets,  certain
identified  intangibles and goodwill  related to assets to be held and used, and
(ii) long-live lived assets and certain identifiable  intangibles to be disposed
of.  SFAS No. 121  requires  that  long-lived  assets and  certain  identifiable
intangibles  be held and used by an entity be reviewed for  impairment  whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  If the sum of the expected  future cash flows from the
used of the  asset  and its  eventual  disposition  (un-discounted  and  without
interest  charges) is less than the carrying  amount of the asset, an impairment
loss is recognized.

Reclassifications

         Certain   reclassifications  have  been  made  in  the  1999  financial
statements to conform with the 2000 presentation.

Loss per Share

         The  reconciliations  of the numerators and  denominators  of the basic
loss per share computations are as follows:

                                                                   Per-Share
                                    Income          Shares           Amount
                                 -------------   -------------   --------------
                                  (Numerator)    (Denominator)

                                         For the year ended June 30, 1998
Basic Loss per Share
Loss to common shareholders      $      (2,353)      2,500,200   $        --
                                 =============   =============   ==============

                                         For the year ended June 30, 1999
Basic Loss per Share
Loss to common shareholders      $    (322,038)      5,748,248   $        (0.06)
                                 =============   =============   ==============

                                         For the year ended June 30, 2000
Basic Loss per Share
Loss to common shareholders      $  (1,664,365)     20,176,167   $        (0.08)
                                 =============   =============   ==============

                                     F - 12
<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

         The  effect  of   outstanding   common  stock   equivalents   would  be
anti-dilutive for June 30, 2000, 1999 and 1998 and are thus not considered.

Concentration of Credit Risk

         The  Company has no  significant  off-balance-sheet  concentrations  of
credit  risk such as foreign  exchange  contracts,  options  contracts  or other
foreign hedging arrangements.

NOTE 2 - INVESTMENT IN MARKETABLE EQUITY SECURITIES

         The Company's  investments in marketable equity securities are held for
an    indefinite    period    of   time    and   are    thus    classified    as
available-for-sale-securities.  Unrealized holding gains on such securities, are
added to stockholders'  equity. The Company's acquired  $7,000,000 in marketable
equity  securities  on June 30, 2000.  As of June 30, 2000 there are no gains or
losses, realized or unrealized on these securities.

NOTE 3 - ACQUISITION OF SUBSIDIARIES

         On  July  2,  1999  the   Company   completed   an   Acquisition   (the
"Acquisition")  in which it acquired 100% of the issued and outstanding  capital
stock of TorchMail.com  Inc., a Turks & Caicos,  BWI corporation in exchange for
$10,000 and  2,500,000  shares of the  Company's  $.001 par value common  stock,
valued at $0.53 per share comprising  approximately  15% of the Company's issued
and outstanding  common stock after giving effect to the  Acquisition.  Further,
upon the resale of 360,000 Seats (defined as a mailbox created within a Customer
Account for use of the Services by a User) the Company will issue an  additional
2,500,000  shares,  upon the  resale of  500,000  Seats the  Company  will issue
1,250,000  shares and upon the resale of 750,000  Seats the  Company  will issue
1,250,000  shares.  The transaction has been accounted for as a purchase.  As at
the date of acquisition,  Torchmail had not yet commenced  operations and had no
assets  or  liabilities  except  for an email  reseller  agreement.  The  excess
purchase  price paid of  $1,335,000  over the net tangible  assets  acquired was
recorded as goodwill and has been  written  off.  Ownership of Torchmail is held
through the Company's wholly owned subsidiary CathayOnline (BVI) Ltd.




                                     F - 13

<PAGE>
                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)


NOTE 3 - ACQUISITION OF SUBSIDIARIES (Continued)

         On  January  18,  2000  the  Company  acquired  all of the  issued  and
outstanding  shares of Lazzara  Financial  Asset  Recovery  Inc.  (Lazzara)  and
executed a merger  agreement  with  Lazzara.  Lazzara was  registered  under the
Securities  Exchange Act of 1934 (the  "Exchange  Act") and was required to file
reports under said  Exchange Act. The Company is the surviving  entity under the
merger  agreement  and  elected to  succeed  Lazzara's  reporting  requirements.
Consideration  for the  acquisition  was the issue of 25,000  shares of  Company
valued at $1.38 per share,  paid to the existing  shareholders of Lazzara,  plus
225,000  shares  valued at $1.38 per share and  $250,000  cash paid for services
rendered in connection  with the merger.  The transaction has been accounted for
as a purchase.  As at the date of the  acquisition  and  merger,  Lazzara had no
operations and no assets or liabilities.  The excess of total consideration paid
of $595,000 over the net tangible  assets  acquired was recorded as goodwill and
has been written off.

         On April 1, 2000 the  Company,  through  its wholly  owned  subsidiary,
CathayOnline  Technologies  (Hong  Kong) Ltd,  acquired  62.5% of the issued and
outstanding shares of CMD Capital Ltd (CMD), a Hong Kong company.  Consideration
is  $1,000,000  plus the issue of 2,000,000  shares of the Company to be paid as
follows:

         -        $500,000 and 1,000,000  shares within 30 days of executing the
                  agreement
         -        $500,000  and   1,000,000   shares   within  six  months  upon
                  completion  of certain  transactions  pursuant  to  underlying
                  agreements of CMD.

The  transaction  has  been  accounted  for as a  purchase.  As at the  date  of
acquisition,  CMD's only assets  included  70% of the common  stock of a Chinese
company,  whose  assets  included  100%  ownership  of a  website.  Pursuant  to
underlying agreements,  CMD is required to provide funding of $3,000,000 for the
Chinese  company for continued  development of the website.  Pursuant to another
underlying agreement CMD is required to provide $2,000,000 to be used to develop
a Hong Kong  version of the website.  As of June 30, 2000,  the Company had paid
$558,600 and had issued 775,000  shares valued at $1,069,500.  On June 30, 2000,
the Company sold all of its CMD shares to Cathay  Bancorp.com  Limited, a wholly
owned  subsidiary of CathayOne,  Inc.(formerly  Premier  Brands,  Inc.),  for an
agreed  upon value of  $10,500,000  which was paid by the  receipt of  1,750,000
shares of CathayOne,  Inc. which was valued for accounting  purposes at the June
30, 2000 market value of $4.00 per share.


                                     F - 14

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)

NOTE 4 - INCOME TAXES

         As of June 30, 2000, the Company had a net operating loss  carryforward
for income tax reporting purposes of approximately $1,990,000 that may be offset
against future taxable income through 2015. Current tax laws limit the amount of
loss  available to be offset  against  future  taxable income when a substantial
change in ownership  occurs.  Therefore,  the amount  available to offset future
taxable  income may be limited.  Accordingly,  the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same amount.

NOTE 5 - DEVELOPMENT STAGE COMPANY

         The Company is in the development  stage. The activities of the Company
as of June 30,  2000 have  consisted  primarily  of  identifying  opportunities,
negotiating  letters of  understanding  with  potential  partners,  planning and
developing the operations, recruiting personnel, raising capital, and purchasing
assets.  As is common  with a  development  stage  company,  the Company has not
generated  revenues  from planned  principal  operations  and has had  recurring
losses during its development stage.

NOTE 6 - COMMITMENTS

         During  the year  ended  June  30,  2000 the  Company  entered  into an
agreement to lease its Vancouver  office for a period ending April 30, 2005 at a
monthly rent cost of $6,818.

         Effective  July 1, 2000 the Company  entered into an agreement to lease
its New York office for a period  ending June 30, 2005 at a monthly rent cost of
$13,260.

         During  the year  ended  June  30,  2000 the  Company  entered  into an
agreement to lease its Chengdu,  Sichuan  office for a period  ending August 30,
2004 at a monthly rent cost of $7,300.

         During  the year  ended  June  30,  2000 the  Company  entered  into an
agreement  to lease its Beijing  office for a period  ending April 30, 2002 at a
monthly  rent  cost of  $6,311.  The  agreement  contains  a right for an annual
renewal up to an additional five years.

     Subsequent to June 30, 2000 the Company  subleased  additional  premises in
New York for a period ending December 31, 2001 at a monthly rent cost of $4,750.

         It is  expected  that in the normal  course of  business,  leases  that
expire will be renewed or replaced by leases on other properties.

                                     F - 15

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)


NOTE 6 - COMMITMENTS(Continued)

         The minimum  future lease payments under these leases for the next five
years are:


       Year Ended June 30,
---------------------------------
         2001                                               $         461,268
         2002                                                         420,146
         2003                                                         328,536
         2004                                                         328,536
         2005                                                         248,324
                                                            -----------------
         Total minimum future lease payments                $       1,786,810
                                                            =================

NOTE 7 - COMMON STOCK TRANSACTIONS

         The Company was initially  incorporated to allow for the issuance of up
to 25,000 shares of no par value common stock.  On January 5, 1998,  the Company
approved  the  amendment  of its  Articles  of  Incorporation  to allow  for the
issuance  of up to  50,000,000  shares of $0.001  par value  common  stock.  The
Amended Articles of  Incorporation  were filed with the State of Nevada on April
20, 1998. All amounts presented in the accompanying financial statements reflect
the  effect of this  change in the par  value of the  Company's  stock as of the
first day of the first period presented.

         On January 5, 1998, the Company's Board of Directors  approved a 44 for
1 forward stock split on its issued and outstanding common stock. All issued and
outstanding share and per share amounts in the accompanying financial statements
reflect the effect of this stock  split as of the first day of the first  period
presented.

         At inception,  the Company issued  approximately 9,999 shares of common
stock  (439,956  post split  shares) to its officers and  directors for services
performed and payments made on the Company's  behalf during its formation.  This
transaction  was  valued  at  approximately  $0.02  per  share  or an  aggregate
approximate $200.

         During 1996, to provide initial working capital,  the Company completed
a private  placement  sale of an aggregate  of  approximately  15,000  shares of
common stock (660,000 post split shares) at approximately $0.20 per share. These
sales  generated  approximately  $3,000 in proceeds to the  Company,  which were
primarily used to pay organizational expenses.



                                     F - 16

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)


NOTE 7 - COMMON STOCK TRANSACTIONS (Continued)

         On  January 5,  1998,  prior to the stock  split,  the  Company  issued
approximately  34,998  shares of common stock  (1,539,912  post split shares) to
officers and directors of the Company for  management  services  rendered to the
Company.  This transaction was valued at approximately  $300, which approximated
the fair value of the services  rendered to the Company.  On August 26, 1998 the
Officers surrendered these shares to the Company for cancellation.

         On August 27, 1998 the Board of Directors authorized 2.273 to 1 forward
stock split on its issued and  outstanding  common stock.  All references in the
accompanying  financial  statements to the number of common shares and per-share
amounts for 1998 and 1997 have been restated to reflect the stock split.

         During the year ended June 30, 1999 the Company issued 5,785,000 shares
pursuant to Rule 504 of Regulation D promulgated by the United States Securities
and  Exchange  Commission.  3,625,000  shares  were issued for cash at $0.01 per
share and 2,160,000 shares were issued for cash.

         During the year ended June 30,  1999 the  Company  completed  a private
placement  sale of an  aggregate  of  202,500  common  shares  being  issued for
payments made on the Company's behalf.

         During the year ended June 30,  1999 the  Company  completed  a private
placement  sale of an aggregate  of 475,000  shares of common stock for payments
made on the Company's behalf.

         During the year ended June 30, 1999 the Company  issued  700,000 shares
at $0.50  per  share  and  2,090,000  shares  at $0.25  per  share  pursuant  to
Regulation  S  promulgated   by  the  United  States   Securities  and  Exchange
Commission. The shares were issued for cash.

         During the year ended June 30, 2000 the Company issued 2,500,000 shares
pursuant  to  Regulation  S  promulgated  by the United  States  Securities  and
Exchange Commission. The shares were issued for the acquisition of Torchmail.com
Ltd at $0.53 per share.

         During the year ended June 30, 2000 the Company issued 2,500,000 shares
pursuant  to  Regulation  S  promulgated  by the United  States  Securities  and
Exchange Commission. The shares were issued for cash and at $0.375 per share.




                                     F - 17

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)


NOTE 7 - COMMON STOCK TRANSACTIONS (Continued)

         During the year ended June 30, 2000 the Company  issued  213,793 shares
pursuant  to  Regulation  S  promulgated  by the United  States  Securities  and
Exchange Commission.  The shares were issued for a cashless exercise of warrants
at $0.35 per share.

         During the year ended June 30, 2000 the Company  issued  100,000 shares
pursuant  to  Regulation  S  promulgated  by the United  States  Securities  and
Exchange Commission. The shares were issued for cash on the exercise of warrants
at $0.35 per share.

         During the year ended June 30, 2000 the Company  issued  250,000 shares
pursuant to Rule 701  promulgated  by the United States  Securities and Exchange
Commission.  The shares  were issued for the  acquisition  and merger of Lazzara
Financial Asset Recovery Inc. at $1.38 per share.

         During the year ended June 30, 2000 the Company  issued  775,000 shares
pursuant to Rule 701  promulgated  by the United States  Securities and Exchange
Commission.  The shares were issued for the  acquisition  of CMD Capital Ltd. at
$1.38 per share.

         During the year ended June 30, 2000 the Company issued 9,751,407 shares
pursuant  to  Regulation  S  promulgated  by the United  States  Securities  and
Exchange Commission. The shares were issued for cash and at $0.70 per share.

         During the year ended June 30, 2000 the Company issued 1,136,301 shares
pursuant to Regulation S, Rule 701 and Rule 144 promulgated by the United States
Securities and Exchange  Commission.  The shares were issued for services at the
market value of the shares at prices from $0.38 to $1.75 per shares.







                                     F - 18

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)


NOTE 8  - STOCK OPTIONS AND WARRANTS

         Employee and Consultants Warrants:  The Company has issued to employees
and  consultants (or their  designees) in  consideration  for services  rendered
warrants  to purchase  shares of the  Company's  common  stock.  These  warrants
provide for cashless exercise by the holders. These warrants are not redeemable.
Details of these warrants are as follows:

<TABLE>
<CAPTION>

   Granted              Expiry              Amount          Price    Exercised   Canceled
----------------   ----------------   ------------------   --------   -------    ---------
<S>                <C>                <C>                  <C>        <C>        <C>
March 9, 1999      March 9, 2002                 300,000   $   0.25   213,793       86,207
March 31, 1999     March 31, 2002              1,000,000   $   0.25   475,000      525,006
October 26, 1999   October 26, 2001           21,700,000   $   0.33      --           --
March 1, 2000      March 1, 2002      25,000 per quarter   $   1.50      --           --
March 15, 2000     March 15, 2002       10,000 per month   $   1.50      --           --
April 1, 2000      April 1, 2002        25,000 per month   $   1.50      --           --
June 1, 2000       June 1, 2003                   50,000   $   1.00      --           --
May 1, 2000        May 1, 2002                    20,000   $   1.30      --           --
June 1, 2000       June 1, 2003                   85,714   $   0.70      --           --
May 27, 1999       May 27, 2002                  415,000   $   0.25      --           --
February 1, 2000   January 31, 2001     10,000 per month   $   1.00      --           --
February 3, 2000   February 3, 2005            2,389,100   $   0.70      --           --
June 1, 2000       June 1, 2002                2,000,000   $   1.00      --           --
June 1, 2000       June 1, 2002                1,000,000   $   1.10      --           --
June 1, 2000       June 1, 2002                1,000,000   $   1.60      --           --
June 1, 2000       June 1, 2002                  800,000   $   3.00      --           --
</TABLE>

         During April 1999,  the Company  issued an aggregate of 700,000  common
stock purchase  warrants to seven  investors,  including  50,000 warrants to our
President.  These  warrants are  exercisable  for a period of two years from the
date of issuance at an exercise  price of $.60,  if  exercised  during the first
year after  issuance,  and $.70 if exercised in the second year after  issuance.
Theses  warrants  are not  redeemable.  As of the  date  hereof,  none of  these
warrants have been exercised.  During June 1999, the Company issued an aggregate
of  2,090,000  common  stock  purchase  warrants  to thirteen  investors.  These
warrants are  exercisable for a period of two years from the date of issuance at
an exercise price of $0.35 per share.  These warrants are not redeemable.  As of
the date hereof, 100,000 warrants have been exercised.

         During  February,  March and April of 2000, the Company sold and issued
9,751,407 redeemable Common Stock purchase warrants to purchase a like number of
shares of Common

                                     F - 19

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)


NOTE 8  - STOCK OPTIONS AND WARRANTS (Continued)

Stock.  Each such  warrant  entitles  the holder to purchase one share of Common
Stock,  subject to adjustment in the event of any stock  dividend,  stock split,
subdivision or combination, or any reclassification of the outstanding shares of
Common Stock at any time after issuance until the expiration of these  warrants,
a date two years after the date upon which the underlying shares of Common Stock
are  registered for resale under the Securities Act of 1933, at a price of $0.77
per  share.  We may redeem  these  warrants  at a price of US $0.10 per  warrant
commencing one year after the effective date of the registration statement under
the Securities  Act of 1933 covering the  underlying  Common Stock provided that
(i) a  registration  statement  covering  the  underlying  common  stock is then
effective  and (ii) the average  closing bid price per share of Common Stock for
the  thirty  (30) day  period  ending  five  (5)  days  prior to the date of the
redemption  notice of the Warrants is at least $1.05 per share. The Company also
granted an additional  250,000 common stock purchase  warrants,  having the same
terms as noted above, in consideration  for bridge  financing  provided prior to
the completion of a private placement.

         All options and warrants have been granted at exercise  prices  greater
than the market value on the date of granting.  All options vest 100% at date of
grant.

<TABLE>
<CAPTION>

                                                              2000           1999
                                                          -----------    -----------
<S>                                                       <C>            <C>
Options outstanding, beginning of year ................     3,893,793           --
  Granted .............................................    38,537,428      4,505,000
  Canceled ............................................          --         (611,207)
  Exercised ...........................................      (100,000)          --
                                                          -----------    -----------

Options and warrants outstanding, end of year .........    42,331,221      3,893,793
                                                          ===========    ===========

Price for options and warrants outstanding, end of year   $0.25 - $3.00  $0.25 - 0.70

Options and warrants granted subsequent to year end ...     3,150,000           --

Option and warrant price granted subsequent to year end   $0.25 - $1.00  $0.33 - .847

</TABLE>



                                     F - 20

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998
                                   (Continued)


NOTE 9 - RELATED PARTY TRANSACTIONS

         During the year ended June 30,  2000 a director of the company was paid
$60,000  pursuant to an employment  agreement and was issued  175,000  shares at
$1.38 per share for services rendered.

         During the year ended June 30,  2000 a director of the Company was paid
$36,000 and issued  27,000  shares  valued at $31,500  pursuant to a  consulting
agreement. An additional 125,000 shares were issued at $1.38 per share for other
services rendered.

         During the year ended June 30,  2000 a director of the Company was paid
$78,000 and issued 32,284 shares pursuant for a management  services  agreement.
An additional  120,000 shares at $0.50 and 50,000 shares at $1.38 per share were
issued for other services rendered.

         As discussed in note 3, the Company sold a subsidiary to another public
company having directors in common.

     During the year ended June 30,  2000,  a private  company  controlled  by a
relative of a director,  was paid $156,750 for consulting  services.  During the
year this private  company  loaned the Company  $790,000  which was repaid.  The
repayment  included  interest  of  $13,857.  Subsequent  to  June  30,  2000  as
additional  consideration  for the loan, the Company granted the private company
warrants to acquire up to 500,000  shares at $0.25 per share  exercisable  up to
September 1, 2003.  This relative of a director also  occupies  premises,  which
were leased by the Company subsequent to June 30, 2000 at a monthly rent cost of
$4,750.


NOTE 10 - SUBSEQUENT EVENTS

         Subsequent  to June  30,  2000 the  Company  granted  additional  stock
options and warrants to employees and consultants as follows:


    Granted                     Expiry               Amount              Price
-----------------          -----------------       -----------         --------
September 1, 2000          May 1, 2003                 150,000         $   1.00
September 1, 2000          September 1, 2002         2,500,000         $   0.40
September 1, 2000          September 1, 2003           500,000         $   0.25

         Subsequent to June 30, 2000 the Company  issued 175,000 shares at $0.50
per share and 1,280,000 shares at $0.40 per share for services.

         Subsequent to June 30, 2000 the Company collected $100,000 of the share
subscription receivable.



                                     F - 21