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

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED: DECEMBER 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.)

            437 MADISON AVENUE, 33rd FLOOR, NEW YORK NEW YORK, 10022
           ----------------------------------------------------------
                    (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.)

              Indicate by check mark  whether the  registrant  (1) has filed all
reports required to be foiled 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___

                      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:  DECEMBER 31, 2000
33,410,258


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  sheet of  CathayOnline,  Inc.  (a
development  stage  company) as of December 31, 2000 and June 30, 2000,  and the
related  statements  of operations  for the three months and six months  periods
ended December 31, 2000 and 1999, and cash flows for the six month periods ended
December 31, 2000 and 1999. 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
February 14, 2001









<PAGE>


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




                                                 Unaudited
                                                December 31,         June 30,
                                                   2000               2000
                                                ------------       ------------
ASSETS
Current Assets:
   Cash & Cash Equivalents ...............      $     63,884       $    786,290
   Restricted Cash .......................            75,577             82,497

   Accounts receivable ...................           309,469               --
   Advances ..............................           535,987             22,122
   Prepaid expenses & Deposits ...........            89,577            325,387
                                                ------------       ------------

     Total Current Assets ................         1,074,494          1,216,296
                                                ------------       ------------

Fixed Assets:
   Office Equipment ......................           170,815            133,753
   Computer Equipment ....................         1,424,973          1,381,304
   Furniture & Fixtures ..................           159,787            168,563
   Leasehold Improvements ................           268,923            229,925
                                                ------------       ------------
                                                   2,024,498          1,913,545
Less Accumulated Depreciation ............          (515,072)          (321,126)
                                                ------------       ------------

     Net Fixed Assets ....................         1,509,426          1,592,419
                                                ------------       ------------
Other Assets:
   Intangible Assets .....................           144,943             84,962
   Condominium ...........................           230,476            230,476
   Available-for-sale Investments ........         4,156,250          7,000,000
                                                ------------       ------------

     Total Other Assets ..................         4,531,669          7,315,438
                                                ------------       ------------

Total Assets: ............................      $  7,115,589       $ 10,124,153
                                                ============       ============

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                             INTERIM BALANCE SHEETS
                                   (Continued)
<TABLE>
<CAPTION>

                                                                Unaudited
                                                                December 31,     June 30,
                                                                    2000            2000
                                                                ------------    ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
<S>                                                             <C>             <C>
   Accounts Payable & Accrued Expenses ......................   $  1,966,826    $  1,156,390
   Loans Payable ............................................        145,425            --
                                                                ------------    ------------
                                                                   2,112,251       1,156,390
   Convertible Notes payable ................................        250,000            --
                                                                ------------    ------------
     Total Liabilities ......................................      2,362,251       1,156,390
                                                                ------------    ------------

Stockholders' Equity:
   Common Stock, Par value $.001
      Authorized 100,000,000 shares,
      Issued and outstanding 33,410,258 and 28,979,201 shares
      at December 31, 2000 and June 30, 2000 ................         33,410          28,979
  Paid-In Capital ...........................................     12,259,546      11,337,437
  Stock Subscribed Receivable ...............................           --          (408,750)
  Accumulated Unrealized Gains/Losses
  On Available for Sale Investments .........................     (2,843,750)           --
  Deficit Accumulated During the
  Development Stage .........................................     (4,695,868)     (1,989,903)
                                                                ------------    ------------

     Total Stockholders' Equity .............................      4,753,338       8,967,763
                                                                ------------    ------------

     Total Liabilities and
       Stockholders' Equity .................................   $  7,115,589    $ 10,124,153
                                                                ============    ============

</TABLE>







                 See accompanying notes and accountants' report.
<PAGE>

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

<TABLE>
<CAPTION>

                                                                                               Cumulative
                                                                                                  since
                                                                                                inception
                                                                                                    of
                                        Three Months Ended            Six Months Ended
                                            December 31,                December 31,            development
                                    --------------------------    --------------------------
                                       2000            1999          2000            1999            stage
                                    -----------    -----------    -----------    -----------    -----------

<S>                                 <C>            <C>            <C>            <C>            <C>
Revenues: .......................   $   176,374    $      --      $   332,562    $      --      $   332,562

Cost of revenues ................        32,831           --           61,244           --           61,244
                                    -----------    -----------    -----------    -----------    -----------

Gross margin ....................       143,543           --          271,318           --          217,318
Expenses:
   General & Administrative .....       984,986        940,147      2,937,142      1,031,920      8,139,585
                                    -----------    -----------    -----------    -----------    -----------

     Net Operating Loss .........      (841,443)      (940,147)    (2,665,824)    (1,031,920)    (7,868,267)
                                    -----------    -----------    -----------    -----------    -----------

Other Income (Expense)
   Interest, Net ................           713         (2,347)        (1,891)        (2,347)        (3,682)
   Gain on Sale of Assets .......          --             --             --             --        5,238,394
   Loss on Abandonment of Assets           --             --             --             --          (94,063)
   Loss on Write Down of Goodwill       (38,250)          --          (38,250)    (1,335,000)    (1,968,250)
                                    -----------    -----------    -----------    -----------    -----------

     Net Other Income (Expense) .       (37,537)        (2,347)       (40,141)    (1,337,347)     3,172,399
                                    -----------    -----------    -----------    -----------    -----------

     Net Loss Before Taxes ......      (878,980)      (942,494)    (2,705,965)    (2,369,267)    (4,695,868)

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

     Net Loss ...................   $  (878,980)   $  (942,494)   $(2,705,965)   $(2,369,267)   $(4,695,868)
                                    ===========    ===========    ===========    ===========    ===========

Basic & Diluted loss per share      $     (0.03)   $     (0.06)   $     (0.09)   $     (0.15)
                                    ===========    ===========    ===========    ===========
</TABLE>

                 See accompanying notes and accountants' report.


<PAGE>


                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                        STATEMENT OF STOCKHOLDERS' EQUITY
           SINCE SEPTEMBER 20, 1995 (INCEPTION) TO DECEEMBER 31, 2000
<TABLE>
<CAPTION>

                                                                                          Accumulated                  Deficit
                                                                                          Unrealized                Accumulated
                                                                                Stock     Gains (Loss)                 During
                                             Common Stock          Paid-In    Subscribed       on     Comprehensive  Development
                                          Shares     Par Value     Capital    Receivable   Investments    Income        Stage
                                        ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                                    <C>          <C>          <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)
</TABLE>

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                        STATEMENT OF STOCKHOLDERS' EQUITY
           SINCE SEPTEMBER 20, 1995 (INCEPTION) TO DECEEMBER 31, 2000
                                   (Continued)
<TABLE>
<CAPTION>


                                                                                          Accumulated                  Deficit
                                                                                          Unrealized                Accumulated
                                                                                Stock     Gains (Loss)                 During
                                             Common Stock          Paid-In    Subscribed       on     Comprehensive  Development
                                          Shares     Par Value     Capital    Receivable   Investments    Income        Stage
                                        ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                                    <C>          <C>          <C>          <C>          <C>          <C>          <C>
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)
                                        ---------    ---------    ---------    ---------    ---------    ---------    ---------
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         --           --           --          --
</TABLE>

<PAGE>

                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                        STATEMENT OF STOCKHOLDERS' EQUITY
            SINCE SEPTEMBER 20, 1995 (INCEPTION) TO DECEMBER 31, 2000
                                   (Continued)
<TABLE>
<CAPTION>


                                                                                          Accumulated                  Deficit
                                                                                          Unrealized                Accumulated
                                                                                Stock     Gains (Loss)                 During
                                             Common Stock          Paid-In    Subscribed       on     Comprehensive  Development
                                          Shares     Par Value     Capital    Receivable   Investments    Income        Stage
                                        ---------    ---------    ---------    ---------    ---------    ---------    ---------
<S>                                    <C>          <C>          <C>          <C>          <C>          <C>          <C>
Issuance  of Stock to acquire  Lazzara
Financial Asset Recovery 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)
Issue of stock for cash .............    1,000,000       1,000        49,000         --          --           --          --
Issue of stock for services..........    3,056,057       3,056       775,234         --          --           --          --
Issue of Stock to acquire Torchnet...      150,000         150        59,850         --          --           --          --
Issue of stock for CMD...............      225,000         225        38,025         --          --           --          --
Collection of stock subscribed
  receivable ........................        --           --           --        408,750         --           --          --
Unrealized loss on investments ......        --           --           --           --     (2,843,750)  (2,843,750)       --
   Net loss for the period ..........        --           --           --           --           --     (2,705,965)  (2,705,965)
                                        ---------    ---------    ---------    ---------    ---------    ---------    ---------
Comprehensive Income
 Deptember 31, 2000 (Unaudited)                                                                        $(5,549,715)
                                                                                                       ===========
Balance at December 31, 2000
(Unaudited) .........................  33,410,258    $  33,410   $12,259,546   $    --    $(2,843,750)               $(4,695,868)
                                        =========    =========    =========    =========  ===========                 =========
</TABLE>

                 See accompanying notes and accountants' report.

<PAGE>




                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                   INTERIM STATEMENTS OF CASH FLOWS UNAUDITED
<TABLE>
<CAPTION>

                                                                              Cumulative
                                                                                Since
                                                                              Inception
                                                                                 of
                                             Six months ended December 31,    Development
                                                   2000           1999           Stage
                                                -----------    -----------    -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S>                                             <C>            <C>            <C>
Net Loss ....................................   $(2,705,965)   $(2,369,267)   $(4,695,868)
Adjustments to reconcile net loss to net cash
 used in operating activities:
   Depreciation and amortization ............       193,946           --          521,272

   Issuance of common stock for expenses ....       778,290        254,100      2,033,279
   Gain on Sale of Assets ...................          --             --       (5,238,394)
   Loss on Abandonment of Assets ............          --             --           94,063
   Loss on Write Down of Goodwill ...........        38,250      1,335,000      1,968,250
Change in operating assets and liabilities:
   Restricted cash ..........................         6,920           --          (75,577)
   Accounts receivable ......................      (309,469)        (9,080)      (309,469)
   Advances .................................      (513,865)          --         (535,987)
   Prepaid Expenses & Deposits ..............       235,810       (189,453)       (89,577)
   Accounts Payable & Accrued Expense .......       810,452        740,618      1,950,022
                                                -----------    -----------    -----------
Net Cash Used in Operating Activities .......    (1,465,631)      (238,082)    (4,377,986)
                                                -----------    -----------    -----------

CASH FLOWS FROM INVESTING
ACTIVITIES:
   Purchase of Fixed Assets .................      (110,953)    (1,373,400)    (2,349,217)
   Purchase of Intangible Assets ............          --             --          (60,400)
   Cash Payments for CMD ....................          --             --         (692,106)
   Cash Payment for Goodwill ................          --          (10,000)      (250,000)
   Investment in Subsidiaries ...............          --          204,546           --
                                                -----------    -----------    -----------
</TABLE>
<PAGE>

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

<TABLE>
<CAPTION>

                                                                              Cumulative
                                                                                Since
                                                                              Inception
                                                                                 of
                                             Six months ended December 31,    Development
                                                2000           1999           Stage
                                            -----------    -----------    -----------
<S>                                            <C>          <C>            <C>
Net Cash Used in Investing Activities          (110,953)    (1,178,854)    (3,351,723)
                                            -----------    -----------    -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Convertible Notes .......................       250,000           --          250,000
Proceeds from issuance of common stock ..        50,000        972,500      6,986,889
Stock subscribed receivable .............       408,750        (39,500)       408,750
Capital contributed by shareholder ......          --             --            2,526
Loans payable ...........................       145,428        451,000        145,428
                                            -----------    -----------    -----------
Net Cash Provided by Financing Activities       854,178      1,384,000      7,793,593
                                            -----------    -----------    -----------

Net (Decrease) Increase in
  Cash and Cash Equivalents .............      (722,406)       (32,936)        63,884
Cash and Cash Equivalents
  at Beginning of Period ................       786,290        164,982           --
                                            -----------    -----------    -----------
Cash and Cash Equivalents
  at End of Period ......................   $    63,884    $   132,046    $    63,884
                                            ===========    ===========    ===========

SUPPLEMENTAL  DISCLOSURE  OF CASH FLOW  INFORMATIOM  Cash paid during the period
for:
Interest                                         $3,764     $     -          $30,112
Income taxes                                $       --      $     -          $     -

SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES
Common Stock issued for Intangible Assets       $60,000     $     -          $80,562
Common Stock issued for Subsidiaries            $38,250    $1,322,000     $2,777,750
</TABLE>

                 See accompanying notes and accountants' report.


<PAGE>



                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE SIX MONTHS ENDED DECEMBER 31, 2000, AND 1999


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     This summary of accounting  policies for  CathayOnline  Inc 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 accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim  financial  information and pursuant to the rules and regulations of the
Securities  and Exchange  Commission.  Accordingly,  they do not include all the
information and footnotes required by generally accepted  accounting  principles
for  complete  financial  statements.  It is  recommended  that these  financial
statements be read in conjunction with the consolidated financial statements and
related notes of CathayOnline  Inc as reported on the Company's Annual Report on
form 10-K for the year ended June 30, 2000.

     In  the  opinion  for  management,  the  unaudited  condensed  consolidated
financial statements contain all adjustments consisting only of normal recurring
accruals  considered  necessary  to  present  fairly  CathayOnline  Inc.'s  (the
"Company")  financial  position at December 30, 2000,  the results of operations
and cash flows for the six months ended  December 31, 2000.  The results for the
period ended December 31, 2000 are not necessarily  indicative of the results to
be expected for the entire fiscal year ending June 30, 2001.

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
and December 31, 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 six months
ended  December  31, 2000  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.

         During  the  year  ended  June  30,  2000,  through  its  wholly  owned
subsidiary  CathayOnline  Technologies (Hong Kong) Ltd, the company acquired and
operated ten online lottery kiosks in



<PAGE>



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

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 during the year ended June 30,  2000,  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 six 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.

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  period-end  rate of  exchange  and
statement of operations  items are translated at the weighted  average  exchange
rates for the period. 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.


<PAGE>




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

         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  (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  reconciliation's  of the numerators and  denominators of the basic loss per
share computations are as follows:

<TABLE>
<CAPTION>

                                 Three months Ended             Six Months Ended
                              December 31,   December 31,   December 31,   December 31,
                                 2000            1999            2000         1999
                              ------------   ------------   ------------   ------------
<S>                           <C>            <C>            <C>            <C>
Loss                          $   (878,980)  $   (942,494)  $ (2,705,965)  $ (2,369,267)

Weighted average common share   33,324,595     17,085,063     31,633,519     15,769,691
                              ------------   ------------   ------------   ------------


Loss per common share               $(0.03)        $(0.06)        $(0.09)        $(0.15)
                              ============   ============   ============   ============
</TABLE>


         The  effect  of   outstanding   common  stock   equivalents   would  be
anti-dilutive for December 31, 2000, and 1999 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 a result of the sale of a subsidiary  as
disclosed in Note 3. These securities are restricted from resale for a period of
one year from their receipt. As of December 31, 2000, based on the closing price
of these securities, there was an unrealized loss of $2,843,750.



<PAGE>


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.

         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.  During the six months ended  December
31,  2000,  the Company  issued an  additional  225,000  shares  pursuant to the
original  April 1, 2000  purchase  agreement.  These shares were valued at their
market value when issued, and the amount ($38,250) has been written off.

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.

<PAGE>


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. The sublease was terminated effective December 31, 2000.

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

         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 - CONVERTIBLE NOTES PAYABLE

         By an agreement dated November 22, 2000 the Company issued  convertible
notes for an aggregate of $250,000  payable on November 30, 2001. The notes bear
interest at 10% per annum  commencing  from  December 12, 2000  payable  monthly
commencing  January 2, 2001. The notes and interest are convertible  into common
shares at the lower of 70% of the average  closing price for the five days prior
to the date of conversion or $0.06566 per share. The notes will automatically be
extended  for an  additional  eighteen  months  unless the holder  notifies  the
Company ten days before expiry that they will not be extended.

NOTE 8 - 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.

<PAGE>


NOTE 8 - COMMON STOCK TRANSACTIONS (continued)

         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.

         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.

         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.

<PAGE>

NOTE 8 - COMMON STOCK TRANSACTIONS (continued)

         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.

NOTE 9  - 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
May 27, 1999             May 27, 2002                            415,000       $0.25              -               -
October 26, 1999         October 26, 2001                     21,700,000       $0.33              -               -
February 1, 2000         January 31, 2001               10,000 per month       $1.00              -               -
February 3, 2000         February 3, 2005                      2,389,100       $0.70              -               -
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              -               -
May 1, 2000              May 1, 2002                              20,000       $1.30              -               -
June 1, 2000             June 1, 2003                             50,000       $1.00              -               -
June 1, 2000             June 1, 2003                             85,714       $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              -               -
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              -               -
December 12, 2000        December 13, 2005                     1,500,000       $0.09              -               -
December 13, 2000        December 13, 2005                     1,800,000       $0.25              -               -
</TABLE>

*Related consulting contracts were cancelled as of December 31, 2000.

         During April 1999,  the Company  issued an aggregate of 700,000  common
stock purchase  warrants to seven  investors,  including  50,000 warrants to the
Company 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  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.  The  Company  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.


<PAGE>


NOTE 9  - STOCK OPTIONS AND WARRANTS (continued)

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. Except as noted, 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 during the six months ended
December 31, 2000*                                                                    5,245,000                   -
2000



 2000

Option and warrant price granted subsequent to year end                           $0.09 - $1.00        $0.33 - .847
</TABLE>

*Includes 1,800,000 vested in monthly amounts of 150,000 commencing December 13,
2000 and on the first of each month thereafter.

NOTE 10 - 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.

During the six months ended December 31, 2000,  transactions  with directors and
officers were as follows:

     -    Salaries of $60,000 pursuant to an employment agreement.
     -    Salaries  of  $29,983  plus  50,000  shares  issued   pursuant  to  an
          employment agreement.
     -    Salaries of $60,000 pursuant to a management  agreement.  An amount of
          $10,500  included  in  accounts  payable is to be paid by the issue of
          145,539  shares.  During the period  190,872 shares were issued to pay
          $34,090 of the salary.
     -    Consulting  fees of $12,000 plus 12,000 shares  valued at $3,141.  The
          shares have not yet been issued.

<PAGE>

NOTE 10 - RELATED PARTY TRANSACTIONS (continued)

         During  the six months  ended  December  31,  2000,  a private  company
controlled by a relative of a director  incurred  consulting  fees of $34,000 of
which  $25,000  was paid by the issue of 185,185  shares.  During the six months
ended December 31, 2000, this private company loaned the Company $145,425 net of
repayments.  The amount bears  interest at 12% per annum.  During the six months
ended  December 31, 2000, the Company also paid $20,900 in rent for an apartment
occupied by the relative.

         During the six months ended  December 31, 2000 the Company had revenues
of $293,106 from another public company having  directors in common and revenues
of $31,363 from a private company  controlled by a director.  As at December 31,
2000,  $293,106 in accounts  receivable  and $489,612 in advances  were due from
this company.

NOTE 11 - SUBSEQUENT EVENTS

         Subsequent to December 31, 2000 the Company  issued  129,600 shares for
consulting fees of $6,480 included in accrued expenses at December 31, 2000, and
an additional  123,492 shares for consulting  fees of $7,780 incurred in January
2001.

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

FORWARD LOOKING STATEMENTS

This  Quarterly  Report  on  Form  10-Q  contains  forward-looking   statements,
particularly  with respect to the  Liquidity  and Capital  Resources  section of
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations. Additional written or oral forward-looking statements may be made by
the  Company  from time to time,  in  filings  with the SEC or  otherwise.  Such
forward-looking statements are within the meaning of that term in Section 27A of
the  Securities  Act of 1933 and Section 21E of the  Securities  Exchange Act of
1934.  Such  statements  may  include,  but not be limited  to,  projections  of
revenue,  income,  losses, cash flows,  capital  expenditures,  plans for future
operations,  financing needs or plans, plans relating to products or services of
operations,  financing needs or plans, plans relating to products or services of
the Company, estimates concerning the effects of litigation or other disputes or
other  disputes,  as well as assumptions  to any of the foregoing.  In addition,
when used in this  discussion  the words  "anticipate",  "estimates",  "expects,
"intends",  "plans", and variations thereof and similar expressions are intended
to identify forward looking statements.

Forward -looking  statements are inherently  subject to risks and uncertainties,
some of which cannot be predicted. Future events and actual results could differ
materially from those set forth in or underlying the forward-looking statements.
Readers  are  cautioned  not to  place  undue  reliance  on any  forward-looking
statements  contained  in this  report,  which speak only as of the date of this
report.  The Company undertakes no obligation to publicly publish the results of
any adjustments to these forward-looking  statements that may be made to reflect
events  on or after the date of this  report or to  reflect  the  occurrence  of
unexpected events.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999

Revenues were $176,374 for the three months ended  December 31, 2000 compared to
none for the three months ended December 31, 1999.  Revenues were the results of
utilizing our  technical  staff to provide web  development  services to another
public company having directors in common and to a private company controlled by
a director. Cost of revenues represents the direct labour costs of our technical
staff  utilized  for  this  project.  These  revenues  are not a  result  of the
Company's  planned  principle  operations nor are they  significant  compared to
existing  operating costs and accordingly the Company still considers  itself to
be in the development stage.

General  and  administrative  costs were $ 984,986  for the three  months  ended
December 31, 2000  compared to $940,147 for the three months ended  December 31,
1999.

Other  expenses  were  $37,537  for the three  months  ended  December  31, 2000
compared to $2,347 for the six months ended December 31, 1999. The other expense
for the three months ended  December 31, 2000  includes a write down of the cost
of additional shares issued as acquisition costs related to a previous agreement
for the purchase of CMD Capital Ltd.


<PAGE>


RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

Revenues  were  $332,562 for the six months ended  December 31, 2000 compared to
none for the six months ended  December 31, 1999.  Revenues  were the results of
utilizing our  technical  staff to provide web  development  services to another
public company having directors in common and to a private company controlled by
a director. Cost of revenues represents the direct labour costs of our technical
staff  utilized  for  this  project.  These  revenues  are not a  result  of the
Company's  planned  principle  operations nor are they  significant  compared to
existing  operating costs and accordingly the Company still considers  itself to
be in the development stage.

General and  administrative  costs  increased to  $2,937,142  for the six months
ended December 31, 2000 compared to $1,031,920 for the six months ended December
31, 1999.  The  increase  includes  depreciation  and  amortization  expenses of
$193,946 for the six months ended December 31, 2000 compared to none for the six
months ended December 31, 1999. The increase in depreciation and amortization is
a result of the  increase in fixed assets on hand,  most of which were  acquired
during the third and fourth  quarter  of the year  ended  June 30,  2000.  Other
general and  administrative  costs have  increased due to the increase in office
space and staffing  which  occurred  primarily  during the fourth quarter of the
year ended June 30, 2000,  increased  legal fees incurred in connection with the
Company's first 10-K filing, and increased consulting fees.

Other  expenses were $40,141 for the six months ended December 31, 2000 compared
to $1,335,000 for the six months ended  December 31, 1999. The previous  expense
was due to write down of the excess  purchase  price  over net  tangible  assets
acquired in connection with the Company's  purchase of Torchmail.com Inc on July
2, 1999. The current  expense  includes the cost of additional  shares issued in
connection with a previous acquisition agreement for the purchase of CMD Capital
Ltd.

LIQUIDITY AND CAPITAL RESOURCES

We have sustained net losses and negative cash flows from  operations  since our
inception.  As of  December  31,  2000  we  have  negative  working  capital  of
$1,037,757 and cash available of $63,884. Our ability to meet our obligations in
the  ordinary  course of business  is  dependent  upon our ability to  establish
profitable  operations or to obtain additional funding through public or private
equity  financing,  collaborative  or other sources.  We are seeking to increase
revenues through  continued  marketing of our services;  nonetheless  additional
funding will be required within the next quarter.

We are working to obtain  sufficient  working  capital from external  sources in
order  to  continue  operations.   There  is  however,  no  assurance  that  the
aforementioned  events,  including the receipt of additional funding, will occur
and be successful.

Net cash used in operating  activities  was  $1,465,631 and $238,082 for the six
months ending December 31, 2000 and 1999, respectively.  Cash used in operations
was primarily the result of consulting  fees and salaries of $1,387,461  for the
six months ended December 31, 2000 compared to $415,166 for 1999, legal expenses
of $421,354 for the six months ended  December 31, 2000 compared to $207,153 for
1999,  and travel and  promotion  expenses of $290,182  for the six months ended
December 31, 2000 compared to $219,814 for 1999.

Net cash used in investing  activities  was $110,953 and  $1,178,854 for the six
months ending December 31, 2000 and 1999,  respectively  and relates to purchase
of equipment and advances to subsidiaries.

Net cash provided by financing  activities  was $854,178 and  $1,384,000 for the
six months  ending  December 31, 2000 and 1999,  respectively.  Cash provided by
financing  activities  for the six months  ending  December 31, 2000 consists of
$145,428  in loans  from a related  party,  collection  of a stock  subscription
receivable  of  $408,750,  shares  issued for cash of  $50,000  and the issue of
convertible  notes  payable  totalling  $250,000.  Cash  provided  by  financing
activities  for the period  ending  December  31,  1999 is from the  issuance of
capital stock of $972,000 and $451,000 in loans from a related party.

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 December 31, 2000.


<PAGE>

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

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------

 We are not  exposed  to a  material  level of market  risks due to  changes  in
interest  rates.  Except for  convertible  notes  payable of $250,000 and a loan
payable of $145,425,  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 future  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 and the six months ended
December  31,  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.


                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Pursuant to a claim  filed  November  24,  2000 in the Supreme  Court of British
Columbia,  Canada by Totalplan, Inc. a judgement was awarded against the Company
in the amount of $17,700 for an unpaid  amount owing which had  previously  been
included in accounts payable.  Pursuant to the judgement a payment of $6,174 was
made and the balance due is included in accounts  payable at December  31, 2000.
The Company does not intend to dispute the balance claimed.

On  December  20,  2000 a claim  was filed in the  Supreme  Court of New York by
Schulte Roth & Zabel LLP against the Company for $ 281,543 in unpaid legal fees,
all of which are included in accounts  payable at December 31, 2000. The Company
has filed a response and intends to dispute this claim.

On January 31, 2001 a claim was filed in the Supreme Court of New York by Walker
Group/CNI,  Inc.  against the Company  for $59,697 in unpaid  fees.  The Company
believes  the claim was  incorrectly  filed and should  have been filed  against
CathayOne Inc,  another public company having  directors in common.  Accordingly
the amount has not been included in accounts payable at December 31, 2000.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

During the six months ended December 31, 2000, the Company issued 150,000 shares
at $0.40 each  pursuant to  Regulation S under the  Securities  Act of 1993,  as
amended (the "Securities Act"). The shares were issued for the acquisition of an
additional interest in a Sino Foreign joint venture held by the Company's wholly
owned subsidiary Torchmail.com Inc.
<PAGE>

During the six months  ended  December 31, 2000,  the Company  issued  3,056,057
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 $0.07 to $0.50 per shares.

During the six months  ended  December 31, 2000,  the Company  issued  1,000,000
shares at $0.05 each for cash pursuant to Regulation S under the  Securities Act
of 1993, as amended (the "Securities Act").

During the six months ended December 31, 2000, the Company issued 225,000 shares
pursuant to  Regulation  S,  promulgated  by the United  States  Securities  and
Exchange Commission. The shares were issued for amounts owing under the original
purchase agreement acquisition agreement for CMD Capital Ltd.

By an agreement dated November 22, 2000 the Company issued convertible notes for
an aggregate of $250,000  payable on November 30, 2001.  The notes bear interest
at 10% per annum  commencing from December 12, 2000 payable  monthly  commencing
January 2, 2001.  The notes and interest are  convertible  into common shares at
the lower of 70% of the  average  closing  price for the five days  prior to the
date of  conversion  or  $0.06566  per share.  The notes will  automatically  be
extended  for an  additional  eighteen  months  unless the holder  notifies  the
Company ten days before expiry that they will not be extended.

In connection with the convertible  notes disclosed above the Company issued for
services a warrant  entitling  the holder to  acquire up to  1,500,00  shares at
$0.0938  per share up to  December  12,  2005.  In the event that the Company is
unable to file and complete a  registration  statement  including the shares for
conversion  of the  notes and  interest  and the  warrants  to be  effective  by
February 15, 2001,  the exercise price of the warrants shall be reduced by $0.03
per share and  thereafter  $0.01 per share each month but in any event to be not
less than $0.05 per share.

During the period ended December 31, 2000 the Company  granted a warrant for the
acquisition  of up to 1,800,000  shares at $0.25 per share for five years ending
December 13, 2005. These warrants vest in monthly increments of 150,000 shares.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None.

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

The Company's  Annual Meeting of Shareholders was held on November 29, 2000. The
following proposals were introduced and voted upon:
<TABLE>
<CAPTION>

PROPOSAL NO. 1-- Election of Directors

NAME                                        VOTES FOR                       VOTES WITHELD
-------------------------------    -----------------------------    ------------------------------
-------------------------------    -----------------------------    ------------------------------

<S>                                         <C>                               <C>
Brian W. Ransom                             14,871,644                        2,135,170
Peter Lau                                   16,614,744                         392,070
Kenneth Levy                                16,604,644                         402,170
Jack Chin                                   16,605,744                         401,070
Owen Li                                     16,379,544                         390,070

PROPOSAL NO. 2 - Amendment to the Articles of Incorporation of the Company to increase the maximum number of
authorized common shares of the Company from 50,000,000 to 100,000,000:

FOR                                                                                                               15,964,131
AGAINST                                                                                                            1,043,275
ABSTENTIONS AND BROKER NON-VOTES                                                                                         200

PROPOSAL NO. 3 - Amendment of the Articles of Incorporation of the Company to authorize 10,000,000 shares of
preferred stock., the terms of the designations of which may be set by the board of directors at the time of
issuance. The proposal was defeated.

FOR                                                                                                                5,088,680
AGAINST                                                                                                            1,166,570
ABSTENTIONS AND BROKER NON-VOTES                                                                                      39,885
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

<S>                                         <C>                               <C>

PROPOSAL NO. 4 - Approval for a change in the Company's jurisdiction of Incorporation from Nevada to Delaware by
means of merger of the Company with and into a wholly-owned subsidiary of the Company to be established
specifically for such purpose. The proposal was defeated.

FOR                                                                                                                5,868,270
AGAINST                                                                                                              165,665
ABSTENTIONS AND BROKER NON-VOTES                                                                                     261,200
</TABLE>

The matters  listed above are  described in detail in the  Company's  definitive
proxy  statement  dated October 20, 2000 for the Annual Meeting of  Shareholders
held on November 29, 2000.


ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


(a)      Exhibits

     The following  Exhibits are  incorporated  herein by reference or are filed
with this report as indicated below.

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.
            (Filed as Exhibit 2.1 to the Company's  10-K report dated October 2,
            2000 and incorporated herein by reference)

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.
           (Filed as Exhibit 3.2 to the Company's 10-K report dated
           October 2, 2000 and incorporated herein by reference)

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.)
<PAGE>

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
             (Filed as Exhibit 10.9 to the  Company's  10-K report dated October
             2, 2000 and incorporated herein by reference)
<PAGE>

10.10        Cooperation  Agreement with the Second Institution of the Aerospace
             Machine & Electronic Group (Filed as Exhibit 10.10 to the Company's
             10-K  report  dated  October  2,  2000 and  incorporated  herein by
             reference)

10.11      Cooperation   Agreement   dated   February 16, 2000 between
           TorchMail.com, Inc.  and Digital Technology Co.  Ltd.  of National
           Library of China (Filed as Exhibit 10.11 to the Company's 10-K report
           dated October 2, 2000 and incorporated herein by reference)

10.12      Consulting agreement dated December 6, 2000 with Trueyou.com Inc.*


21.1              List of Subsidiaries
            (Filed as Exhibit 21.1 to the Company's 10-K report dated October 2,
            2000 and incorporated herein by reference)


27.1              Financial Data Schedule *


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


(b)      Reports on Form 8-K

         None.







                                   SIGNATURES

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

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


DATE:   FEBRUARY 14, 2000                        BY:    /S/ BRIAN W. RANSOM
       --------------------                       ----------------------
                                                     Brian W. Ransom
                                                     President and Director

DATE:   FEBRUARY 14, 2000                        BY:    /S/ GLENN OHLHAUSER
       --------------------                       ----------------
                                                     Glenn Ohlhauser
                                                     Chief Financial Officer and
                                    Secretary