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

                                   FORM 10-QSB

(Mark One)
              [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2000
                                               ----------------

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
                                  EXCHANGE ACT

                        For the transition period from to

                        COMMISSION FILE NUMBER 000-28705
                                               ---------

                               CATHAYONLINE, INC.
        (Exact name of small business issuer as specified in its charter)


             NEVADA                                               88-0346952
-------------------------------------------------------------------------------
   (State or other jurisdiction                                 (IRS Employer
of incorporation or organization)                            Identification No.)

           570 LEXINGTON AVENUE, 18TH FLOOR, NEW YORK NEW YORK, 10017
           ----------------------------------------------------------
                    (Address of principal executive offices)

                                 (212) 888-6822
                            Issuer's telephone number

(Former  name,  former  address and former  fiscal year,  if changed  since last
report.)

                      APPLICABLE ONLY TO CORPORATE ISSUERS

         State the number of shares  outstanding of each of the issuer's classes
of common equity, as of the latest practical date: MARCH 31, 2000 25,858,913
                                                  --------------------------

         Transitional Small Business Disclosure Format (check one).
YES      ;  NO   X
    ----       ---

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                         INDEPENDENT ACCOUNTANT'S REPORT



CathayOnline, Inc.
(a development stage company)

         We have reviewed the accompanying balance sheets of CathayOnline,  Inc.
(a development  stage company) as of March 31, 2000, and the related  statements
of  operations,  and cash flows for the three month  period  then  ended.  These
financial statements are the responsibility of the Company's management.

         We conducted our review in accordance with standards established by the
American  Institute  of  Certified  Public  Accountants.  A  review  of  interim
financial  information consists principally of applying analytical procedures to
financial  data and making  inquiries of persons  responsible  for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statement taken as a whole.
Accordingly, we do not express such an opinion.

         Based on our  review,  we are not aware of any  material  modifications
that should be made to the accompanying  financial  statements for them to be in
conformity with generally accepted accounting principles.

                                                    Respectfully submitted

                                                    /S/ ROBISON, HILL & CO.
                                                    Certified Public Accountants

Salt Lake City, Utah
May 12, 2000

<PAGE>

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




                                                    March 31,         June 30,
                                                      2000              1999
                                                  -----------       -----------
ASSETS
Current Assets:
Cash and cash equivalents ..................      $ 1,505,333       $   164,982
Restricted Cash ............................             --               6,920
Receivables ................................            2,500              --
Prepaid expense ............................          125,777              --
                                                  -----------       -----------

     Total Current Assets ..................        1,633,610           171,902
                                                  -----------       -----------

Property and equipment:
Equipment ..................................          711,341             3,680
Furniture & Fixtures .......................           30,395              --
Kiosks .....................................          477,165
Condominium ................................          115,238              --
Leasehold improvements .....................          189,528              --
                                                  -----------       -----------
                                                    1,523,667             3,680
Less accumulated depreciation ..............          (86,839)              (64)
                                                  -----------       -----------
                                                    1,436,828             3,616
                                                  -----------       -----------
Other Assets:
 Intangibles, Net ..........................        3,326,018           204,546
 Deposits ..................................           96,323              --
                                                  -----------       -----------

     Total Assets ..........................      $ 6,492,779       $   380,064
                                                  ===========       ===========













<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                                 BALANCE SHEETS
                                   (Continued)


                                                      March 31,        June 30,
                                                        2000            1999
                                                    -----------     -----------
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities .......    $    74,173     $    79,726
                                                    -----------     -----------

     Total Current Liabilities .................         74,173          79,726
                                                    -----------     -----------

STOCKHOLDERS EQUITY
Common Stock - $0.001 par value ................
 50,000,000 shares authorized ..................
 25,858,913 and 11,752,700 issued and
 outstanding March 31, 2000 and
 December 31, 1999 .............................         25,859          11,753
Additional paid-in capital .....................      9,783,422       1,043,373
Stock Subscribed Receivable ....................           --          (429,250)
Currency translation adjustment ................           --              --
Retained deficit ...............................     (3,390,675)       (325,538)
                                                    -----------     -----------

     Total Stockholders' Equity ................      6,418,606         300,338
                                                    -----------     -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .....    $ 6,492,779     $   380,064
                                                    ===========     ===========












                 See accompanying notes and accountants' report.


<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                            STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>


                              For the three months ended    For the nine months ended
                                       March 31,                     March 31,
                              ---------------------------   ---------------------------
                                  2000           1999           2000           1999
                              ------------   ------------   ------------   ------------

<S>                           <C>            <C>            <C>            <C>
Revenues ...................  $    232,044   $       --     $    241,996   $       --
Cost of Revenues ...........          --             --             --             --
                              ------------   ------------   ------------   ------------
Gross Margin ...............       232,044           --          241,996           --

Expenses

   General & Administrative      2,272,599         80,412      3,292,575        241,235
                              ------------   ------------   ------------   ------------

Net Loss from Operations ...    (2,040,555)       (80,412)    (3,050,579)      (241,235)
                              ------------   ------------   ------------   ------------

Other Income (Expense)
   Interest, Net ...........        (9,632)           (98)       (14,558)          (293)
   Currency Exchange, Net ..          --             --             --             --
                              ------------   ------------   ------------   ------------

Net Loss Before Income Taxes    (2,050,187)       (80,510)    (3,065,137)          (293)
Income Tax Expense .........          --             --             --             --
                              ------------   ------------   ------------   ------------

Net Loss ...................  $ (2,050,187)  $    (80,510)  $ (3,065,137)  $   (241,528)
                              ============   ============   ============   ============

Basic and Diluted

  LOSS PER COMMON SHARE ....  $      (0.12)  $      (0.01)  $      (0.21)  $      (0.05)
                              ============   ============   ============   ============

Weighted Average Number of

  Common Shares ............    17,534,602      8,334,156     14,664,567      4,493,818
                              ============   ============   ============   ============
</TABLE>







                 See accompanying notes and accountants' report.


<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                           For the nine months ended
                                                                    March 31,
                                                           -------------------------
                                                               2000          1999
                                                           -----------   -----------
Cash Flows From Operating Activities
<S>                                                        <C>           <C>
   Net loss for the period ..............................  $(3,065,137)  $  (241,528)
Adjustments to reconcile net loss to net cash
   Provided by operating activities
     Depreciation and Amortization ......................       87,275            48
     Issuance of stock for services .....................         --          42,105
     Decrease (Increase) in Restricted Cash .............        6,920          --
     Decrease (Increase) in Receivables .................       (2,500)         --
     Decrease (Increase) in prepaid expense .............     (125,777)         --
     Decrease (Increase) in Deposits ....................      (96,323)         --
     Decrease in accounts payable and accrued liabilities       (5,553)       (6,325)
                                                           -----------   -----------
Net Cash Provided by (Used in) Operating Activities .....   (3,201,095)     (205,700)
                                                           -----------   -----------

Cash Flows From Investing Activities
   Purchase of property and equipment ...................   (1,519,987)       (3,680)
   Purchase of intangibles ..............................   (3,121,972)     (204,546)
   Investment in subsidiaries ...........................         --            --
                                                           -----------   -----------
Net Cash Provided by Investing Activities ...............   (4,641,959)     (208,226)
                                                           -----------   -----------

Cash Flows From Financing Activities
   Proceeds from issuance of stock ......................    9,183,405          --
   Capital contributed by shareholder ...................         --           2,526
                                                           -----------   -----------

Net Cash Provided by Financing Activities ...............    9,183,405         2,526
                                                           -----------   -----------

Increase (Decrease) in Cash .............................    1,340,351          --
Cash at beginning of period .............................      164,982          --
                                                           -----------   -----------

Cash at End of Period ...................................  $ 1,505,333   $      --
                                                           ===========   ===========

Supplemental Disclosure of Interest and Income Taxes Paid
   Interest paid during the period ......................  $    14,558   $      --
                                                           ===========   ===========
   Income taxes paid during the period ..................  $      --     $      --
                                                           ===========   ===========
</TABLE>

Supplemental Disclosure of Non-cash Investing
 and Financing Activities:     None

                 See accompanying notes and accountants' report.

<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE NINE MONTHS ENDED MARCH 31, 2000


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         This summary of accounting policies for CathayOnline,  Inc. (formerly a
development stage company) 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.

         The  unaudited  financial  statements  as of March 31, 2000 and for the
nine months then ended reflect,  in the opinion of management,  all  adjustments
(which include only normal recurring  adjustments) necessary to fairly state the
financial  position and results of  operations  for the nine  months.  Operating
results for interim periods are not necessarily  indicative of the results which
can be expected for full years.

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, 1999
is in the development  stage, and has only recently  commenced planned principal
operations.

PRINCIPLES OF CONSOLIDATION

         The unaudited  consolidated financial statements for March 31, 2000 and
the nine months then ended  include the accounts of  Cathayonline,  Inc. and its
wholly-owned   subsidiaries,   CathayOnline   Ltd.,  a  British  Virgin  Islands
corporation,  CathayOnline  Technologies  (Hong  Kong)  Ltd.,  a British  Virgin
Islands  corporations,  TorchMail.com  Inc., a Turks & Caicos,  BWI corporation,
Sichuan  CathayOnline  Technologies Co. Ltd., a Chengdu (PRC)  corporation,  and
Lazarra Financial Asset Recovery,  Inc., a Nevada  corporation.  All significant
inter-company accounts and transactions have been eliminated.

NATURE OF BUSINESS

         ON THE 30TH of June the Company  announced  its  exclusive  partnership
with  Sichuan Guo Xun Xin ChanYe You Xian Gong Si, a licensed  Internet  Service
Provider  employing  28  industry   professionals,   through  its  wholly  owned
subsidiary Sichuan CathayOnline  Information  Technologies Co. Ltd., of Chengdu,
China.


<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE NINE MONTHS ENDED MARCH 31, 2000
                                   (Continued)

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

NATURE OF BUSINESS (CONTINUED)

         Subsequent  to June 30,  1999  CathayOnline,  through  a right to first
market partnership with USA.net,  launched its English version of TorchMail.com,
a web based  email and  advanced  messaging  service  for the  Chinese  speaking
markets, through its newly acquired wholly owned subsidiary, Torchmail.com, Inc.
These  markets  include but are not limited to Peoples  Republic of China,  Hong
Kong, Taiwan, Singapore, and Malaysia.

         Furthermore,   the  Company   through  its  wholly   owned   subsidiary
CathayOnline  Technologies (Hong Kong) Ltd., through a partnership with Wan Rong
Services Co. Ltd., became the operator of 10 online lottery kiosks in Guangzhou,
China.

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.

PERVASIVENESS OF ESTIMATES

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  required  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.

TRANSLATION OF FOREIGN CURRENCY

         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


<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE NINE MONTHS ENDED MARCH 31, 2000
                                   (Continued)

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

TRANSLATION OF FOREIGN CURRENCY (CONTINUED)

of the U.S.  operations,  and the gain or loss resulting from remeasuring  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 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 from 3
to 30 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.

         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  (undiscounted  and  without
interest  charges) is less than the carrying  amount of the asset, an impairment
loss is recognized.


<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE NINE MONTHS ENDED MARCH 31, 2000
                                   (Continued)

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

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 NINE MONTHS ENDED MARCH 31, 2000
                                       ----------------------------------------
Basic Loss per Share
Loss to common shareholders         $ (3,065,137)     14,664,567  $       (0.21)
                                    ============    ============  =============

                                       FOR THE NINE MONTHS ENDED MARCH 31, 1999
                                       ----------------------------------------
Basic Loss per Share
Loss to common shareholders         $   (241,528)      4,493,818  $       (0.05)
                                    ============    ============  =============

         The effect of outstanding common stock equivalents  including 9,874,289
and  2,990,000  as of March 31, 2000 and June 30, 1999,  respectively,  would be
anti-dilutive and are thus not considered.


<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE NINE MONTHS ENDED MARCH 31, 2000
                                   (Continued)


NOTE 2 - INCOME TAXES

         As of March 31, 2000, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $3,300,000 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 carry- forwards are offset by a valuation allowance of the same amount.

NOTE 3 - DEVELOPMENT STAGE COMPANY

         As of June 30, 1999, the Company has not begun principal operations and
as is common with a  development  stage  company,  the Company has had recurring
losses during its development stage.

NOTE 4 - COMMITMENTS

         As of March 31, 2000 all  activities of the Company have been conducted
by corporate  officers  from their  business  offices.  Currently,  there are no
outstanding  debts owed by the company for the use of these facilities and there
are no commitments for future use of the facilities.

NOTE 5 - PREFERRED STOCK

         The Board of Directors of the Company has the authority to determine by
resolution the number of preferred  shares to be issued by series,  the rate and
terms for payment of  cumulative or  non-cumulative  dividends,  the  conversion
features of the preferred stock, the redemption  rights and prices,  if any, the
terms of the sinking  fund,  if any, to be provided  for the shares,  the voting
powers of preferred  shareholders and any other special rights,  qualifications,
limitations, or restrictions.  As of March 31, 2000, no preferred stock had been
issued.

NOTE 6 - STOCK OPTIONS AND WARRANTS

         Employee and  Consultants  Warrants:  During  October 1999, the Company
issued to employees and consultants (or their  designees) in  consideration  for
services  rendered  warrants to purchase up to  21,700,000  shares of our common
stock.  The  warrants  are  exercisable  for a period of 3 years  commencing  on
October 26, 1999 at an  exercise  price of $.33 per share.  The shares of common
stock  issuable upon exercise of these warrants are subject to  registration  as
described below.  These warrants provide for cash-less  exercise by the holders.
These warrants are not redeemable. As of the date hereof, none of these warrants
have been exercised.


<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE NINE MONTHS ENDED MARCH 31, 2000
                                   (Continued)

NOTE 6 - STOCK OPTIONS AND WARRANTS (CONTINUED)

         Investor  Warrants:  During April and June 1999,  the Company issued an
aggregate  of  2,990,000  common  stock  purchase  warrants to eight  investors,
including 50,000 warrants to our President. These warrants are exercisable for a
period of 2 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, 200,000 warrants have been exercised.

         Regulation  S  Warrants:  During the first  quarter of 2000 the Company
sold and issued 6,884,289  redeemable Common Stock purchase warrants to purchase
a like number of shares of Common 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 $.77 per share.  We may redeem  these  warrants at a
price of US$.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.

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

                                                          March 31, December 31,
                                                             2000         1999
                                                          ---------    ---------
Options outstanding, beginning of year ...............    2,990,000         --
Granted ..............................................    6,884,289    2,990,000
Expired ..............................................         --           --
Exercised ............................................         --           --
                                                          ---------    ---------

Options and warrants outstanding, end of year ........    9,874,289    2,990,000
                                                          =========    =========


Price for options and warrants outstanding, end of year   $0.35-.77    $0.35-.07

<PAGE>

                               CATHAYONLINE, INC.
                     (Formerly a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                    FOR THE NINE MONTHS ENDED MARCH 31, 2000
                                   (Continued)

NOTE 7 - SUBSEQUENT EVENTS

         The Company  entered into a Cooperation  Agreement  effective March 29,
2000,  whereby  the  Company;  China  Aerospace  Machinery  and  Electric  Group
Institute;  and Qizhengton Scientific and Technological  Development Corporation
jointly agree to incorporate a Beijing  Company which will provide full Internet
Service Provider ("ISP") services to the existing customers and other customers.
As part of the agreement the Company will contribute  approximately  2.5 million
in the form of necessary  equipment and provision of operating  capital required
for marketing and development of the services.

         On April 1, 2000,  the Company,  through its wholly  owned  subsidiary,
CathayOnline Technologies (Hong Kong) Ltd., has acquired controlling interest in
CMD Capital Limited ("CMD"), a Hong Kong enterprise.  The purchase price for the
62.5% ownership was $4,280,200,  which is to be paid as follows: $1,000,000 cash
and  2,000,000  shares  valued at  $3,280,200  based on the closing price of the
Company's stock on April 3, 2000. As of March 31, 2000, the Company has advanced
$149,940 and 300,000 shares in connection with the acquisition agreement.

         CMD has entered  into a  cooperation  agreement  with China  Investment
Publishing House to manage the Hong Kong edition of the China Investment Journal
and to develop a financial Website,  WWW.PRCINVEST.COM.  Under the agreement the
parties agree to set up a joint  venture  limited  liability  company in Beijing
(the "Joint Venture  Company"),  which will require CMD to invest  approximately
$3,000,000 . The  Investment  is to be paid at various time from the date of the
agreement to within 280 days of the receipt of the business license. The Company
estimates  the business  license will be issued about June 2000. As of March 31,
2000 the  Company  has  advanced  $100,000 as  investment  in the Joint  Venture
Company.

         On  April 5,  2000,  the  Company  completed  a  private  placement  of
$6,820,000  ($2,001,000 subsequent to March 31, 2000) of 9,742,860 Units at $.70
per Unit,  consisting  of one share of common  stock and one  redeemable  common
stock purchase warrants.


<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

         The  following  discussion  should  be read  in  conjunction  with  the
Consolidated  Financial Statements and Notes thereto appearing elsewhere in this
Form 10-QSB. The following discussion contains forward-looking  statements.  Our
actual   results  may  differ   significantly   from  those   projected  in  the
forward-looking  statements.  Factors that might cause future  results to differ
materially from those projected in the forward-looking  statements include,  but
are not limited to,  those  discussed in "Risk  Factors"  and  elsewhere in this
document.

         Overview

         CathayOnline,  Inc. was  incorporated in September of 1995. In December
of 1998 the management of the Company  changed,  with the objective of analyzing
and  implementing a strategy with respect to the long term  opportunities in the
Internet  within  the  People's  Republic  of China and other  Chinese  speaking
markets including the Internet Service Providing market and collateral operating
and Web based services such as Web based e-mail,  advanced  messaging  services,
and   integration   of  Internet   services   with  other  forms  and  means  of
communication.  From January 2000 through March 2000,  the  Company's  operating
activities  consisted  primarily of  continuing  to  identifying  opportunities,
negotiating  Letters  of  Understanding  with  several  of those  opportunities,
planning and development of operations, planning corporate structure, recruiting
personnel,  raising capital and purchasing  operating  assets.  During this same
period we finalized a number of agreements including: the appointment of Mr. Ken
Levy as a Director of the Company;  the opening of an office in Beijing,  China;
the appointment of Mr. Keli Wu as Chairman of the Beijing operations; the launch
of the co-branded Website with register.com;  and, signing of the agreement with
the National Library of China by  TorchMail.com.  Subsequent to the end of March
2000 we announced:  the  acquisition  of a  controlling  interest in CMD Capital
Limited,  the parent  company of ChinaNet  Publishing Co. Ltd.; the closing of a
$6.82 million  financing;  the completed  construction  of our  state-of-the-art
Internet  facility  in Sichuan  Province;  the  appointment  of Mr.  David Ng as
Director of Corporate  Finance and Special  Projects;  an agreement with Sichuan
Famous Brand Product  Enterprises  to act as its exclusive  business-to-business
marketer for its Website and products online; and, 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. During the period of
January  through  March 2000,  we having  invested  over  $2,900,000  in our PRC
subsidiary,  Sichuan  CathayOnline  Technologies,  to provide  technological and
personnel support.

         Presently,  we  generate  insignificant  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 and, more specifically,  targeting and operating in the Greater China and
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.  With these requirements in mind, we finalized the raising
of $6.82 million to fund our anticipated  expenses and the growth of operations.
We will seek to raise  additional  funds in the near future to continue to build
upon our established  base of operations.  There is no guarantee that we will be
able to raise the funds and there


<PAGE>



are no  guarantees  that we will not be  required to raise  further  capital for
operations and expansion in the near future.

         We expect to expand our employee base,  from the existing 78 employees,
by an  additional  25  over  the  next 6  months,  including  sales,  marketing,
operational,  technical and customer support resources. In particular, we intend
to continue 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.  The  primary  targets of the ISP are medium to large sized
corporations  and government  institutions in the Sichuan  Province  desiring to
establish  or expand  their  online  presence.  We will also  provide  training,
service, technical support and Web site development to our growing client base.

         We  intend to  further  develop  existing  strategic  partnerships  and
identify new  opportunities to expand our  distribution  channels of the Chinese
language  Web based  e-mail  and  advanced  messaging  services  to the  Chinese
speaking markets, in particular  partnerships with ISP's,  portals,  Web hosting
companies and government  institutions in the People's  Republic of China,  Hong
Kong, Taiwan, Malaysia, Singapore and Indonesia.

         Currently,  our principal office is in New York. Our administrative and
accounting office is located in Vancouver,  Canada. Our operational  offices are
located in Chengdu, and Beijing, China.

         Additionally,  we have  entered  into a letter of intent with  CleanWay
Corp. Upon the finalization of this agreement, it will permit TorchMail to offer
live stock  quotes,  create its own  financial  Website on which  viewers  could
obtain  live  stock  quotes and have the first  right of refusal to provide  Web
based email to all other sites or companies using the live quotes as provided by
StockSecrets.  Though we are continuing the discussions  with CleanWay as to the
nature of a  definitive  agreement,  in addition  to  discussing  the  technical
aspects of implementing the service, no definitive  agreement has been concluded
and there can be no  assurance  that we will be able to offer these  services in
the near future.

         SICHUAN ISP PROJECT:

         On August 10, 1999,  we organized,  in accordance  with the laws of the
PRC, 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 (the "Agreement") with Sichuan Guo Xun Xin Xi Chan Ye You Xian Gong Si
("Sichuan  Guo  Xun"),  an 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 that  Agreement,  Sichuan
CathayOnline  and Guo Xun will work jointly in providing  Internet  services and
Sichuan  CathayOnline  is  entitled  to 90% of the  profit  generated  from such
services.

         In May we  announced  the signing of an agreement  with Sichuan  Famous
Brand Product Enterprises to act as its exclusive  business-to-business marketer
for its Website and products  online.  We, in conjunction  with Sichuan Guo Xun,
developed the Website for Sichuan Famous Brands,


<PAGE>



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 facilitate the provincial  economy by promoting  products in
the  international  market and to expand  sales of the  products  in the Chinese
market via the  Internet.  The Website 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 THE 27TH of April 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.  They currently  serve  approximately  70,000 telecom users. It is the
intention   of  the   cooperation   agreement  to  be  able  to  build  out  the
infrastructure  to be able to provide full  Internet  servers to their  existing
user base that they intend to expand.

         TORCHMAIL.COM, INC.

         CathayOnline,  through its wholly owned subsidiary TorchMail.com,  Inc.
and its partnership with USA.NET,  has budgeted to sell in excess of 360,000 Web
based  professional  advanced  messaging  services Seats to the Chinese speaking
markets  through  November 30, 2000.  During the ramp-up  period of reaching the
target,   the  costs  payable  to  USA.NET  drop   significantly  to  TorchMail,
substantially increasing the profit margin to our operations.  We intend to seek
out and train  strategically  located  sales  teams to promote  the  product and
services to the Chinese speaking markets in the People's Republic of China, Hong
Kong, Taiwan, Singapore, Indonesia, Malaysia and the Philippines.

         The  Company  recently  announced  a  partnership  agreement  to supply
co-branded Web-based e-mail services with the National Library of China ("NLC"),
the largest library in Asia and a national  general  repository of publications.
The NLC also provides  services for the central  government  priority readers in
research,  educational and production  institutions throughout China, as well as
the general  population.  The NLC 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 NLC Website 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.com  will  provide  the NLC  with  Web  Messaging  services  and  help
co-ordinate   additional   applications  with  the  objective  of  becoming  the
communication  portal for NLC  members on the Web by  integrating  e-mail,  fax,
voicemail,  calendars, address books and other related tools and services. It is
TorchMail.com'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 schools. We will also continue
to seek to acquire  strategic  businesses and technology that will help us serve
these markets.


<PAGE>

         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 March 31, 2000 the Company had 65 employees, in comparison with three full
time  employees  just one year earlier.  CathayOnline  does not believe that its
historical growth rates for revenues, expenses, capital investments or personnel
are indicative of future results.

         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, 1999
the  Company was in the  development  stage and as of March 31,  2000,  has only
recently commenced planned principal operations.

         Since inception,  we have incurred significant losses and, as of March,
2000,  had  an  accumulated  deficit  of  approximately  $3,391,000.  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.

INCOME TAXES

         No provision  for federal and state  incomes taxes has been recorded as
we have incurred net operating losses from inception  through March 31, 2000. As
of March 31,  2000,  we had  approximately  $3,300,000  of federal and state net
operation  loss  carryforwards  available to offset future  taxable income which
expire in varying amounts  beginning in 2010.  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 March 31, 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 its market
area.  Many of these firms have  long-standing  customer  relationships  and are
well-staffed  and well financed.  The Company  believes that  competition in the
Internet  industry  is based  on  competitive  pricing,  although  the  ability,
reputation and support of a marketing network is also  significant.  The Company
does not  believe  that any  recently  enacted  or  presently  pending  proposed
legislation will have a material adverse effect on its results of operations.

         FACTORS THAT MAY AFFECT FUTURE RESULTS

         Management's   Discussion   and   Analysis  and  other  parts  of  this
registration  statement contain  information  based on management's  beliefs and
forward-looking  statements that involve a number of risks,  uncertainties,  and
assumptions. There can be no assurance that actual results will not differ


<PAGE>



materially from the  forward-looking  statements as a result of various factors,
including but not limited to the following:

         The markets  for many of our product  offerings  are  characterized  by
rapidly  changing  technology,  evolving  industry  standards,  and frequent new
product introductions. Our operating results will depend to a significant extent
on our  ability to design,  develop,  or  otherwise  obtain  and  introduce  new
products,  services,  systems,  and  solutions  and to reduce the costs of these
offerings.  The success of these and other new  offerings  is  dependent on many
factors,  including  proper  identification  of  customer  needs,  cost,  timely
completion and introduction,  differentiation from offerings of our competitors,
and market  acceptance.  The ability to successfully  introduce new products and
services could have an impact on future results of operations.

         FLUCTUATIONS IN QUARTERLY RESULTS

         We have  incurred  operating  losses  since  inception,  and  cannot be
certain that we will achieve profitability on a quarterly or annual basis in the
future.  We believe that future  operating  results will be subject to quarterly
fluctuations due to a variety of factors, including, but not limited to:

         o        Continued growth of the Internet in China;
         o        Continued growth of the Internet and e-mail usage in Asia;
         o        Our  ability to  attract  and retain  customers  and  maintain
                  customer satisfaction;
         o        Technical difficulties or system outages;
         o        Government regulation surrounding the Internet;
         o        Fulfilling  contractual  obligations  under the agreement with
                  USA.NET;
         o        Pricing policies of competitors;
         o        Ability to attract and retain qualified personnel with Chinese
                  language  and  Internet  industry  expertise,   in  particular
                  technical, sales and marketing personnel;
         o        The  amount  and  timing  of   operating   costs  and  capital
                  expenditures   relating  to  expansion  of  our  business  and
                  infrastructure;
         o        The ability to upgrade,  develop and  maintain our systems and
                  infrastructure; and o Potential inability to increase sales.

         In addition to the factors set forth  above,  the  Company's  operating
results  will be  impacted by the extent to which the  Company  incurs  non-cash
charges  associated  with  stock-based   arrangements  with  the  employees  and
non-employees.

         LIQUIDITY AND CAPITAL RESOURCES

         Since  inception,  operations have been funded from the net proceeds of
the sale of  common  stock.  For the nine  months  ended  March 31,  1999,  cash
provided by financing  activities was approximately  $3,000. For the nine months
ended March 31, 2000,  cash provided by financing  activities was  approximately
$9,183,000.

We have no debt.

<PAGE>

         Our current cash  balances  will not be  sufficient to meet our working
capital  and  capital  expenditure  requirements  for the next 12 months.  It is
anticipated  that with the further  expansion  of the  operations  we will incur
negative  cash flows,  therefore  requiring us to seek  additional  financing 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 its 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.  There is no  guarantee  that we will be
able to raise the funds.  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.

         If we cannot obtain outside  financing,  we will consider  scaling back
our  expansion  plans  for  TorchMail  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
nominal  up to March 31,  2000.  Installation  of  infrastructure  equipment  in
Chengdu,  Vancouver  and NewYork,  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 the Company seeks to increase capacity and services.


<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2.  CHANGES IN SECURITIES

         During the first quarter of 2000 the Company sold and issued  6,884,289
redeemable Common Stock purchase warrants to purchase a like number of shares of
Common  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 $.77 per share.  We may redeem these  warrants at a price of US$.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.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

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

         None.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         The Company  filed a report on Form 8-K  reporting  "Item 1. Changes in
Control of the registrant " on April 3, 2000.


<PAGE>


                                   SIGNATURES

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

                               CATHAYONLINE, INC.
                               ------------------
                                  (Registrant)





DATE:     MAY 19, 2000                        BY:    /S/ BRIAN W. RANSOM
       --------------------                       ----------------------
                                                     Brian W. Ransom
                                                     President and Director

DATE:     MAY 19, 2000                        BY:    /S/ PETER LAU
       --------------------                       ----------------
                                                     Peter Lau
                                                     Chief Financial Officer and
                                                     Secretary