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: SEPTEMBER 30, 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.)

     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: SEPTEMBER 3O, 2000 30,584,201
                                                -----------------------------

     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 September 30, 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
November 10, 2000


<PAGE>

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


                                                 Unaudited
                                               September 30,          June 30,
                                                    2000               2000
                                                ------------       ------------
ASSETS
Current Assets:
   Cash & Cash Equivalents ...............      $    140,480       $    786,290
   Restricted Cash .......................            82,497             82,497
   Accounts receivable ...................           156,188               --
   Advances ..............................           415,608             22,122
   Prepaid expenses & Deposits ...........           167,841            325,387
                                                ------------       ------------

     Total Current Assets ................           962,614          1,216,296
                                                ------------       ------------

Fixed Assets:
   Office Equipment ......................           155,670            133,753
   Computer Equipment ....................         1,383,438          1,381,304
   Furniture & Fixtures ..................           156,425            168,563
   Leasehold Improvements ................           268,246            229,925
                                                ------------       ------------
                                                   1,963,779          1,913,545
Less Accumulated Depreciation ............          (418,099)          (321,126)
                                                ------------       ------------

     Net Fixed Assets ....................         1,545,680          1,592,419
                                                ------------       ------------
Other Assets:
   Intangible Assets .....................           144,943             84,962
   Condominium ...........................           230,476            230,476
   Available-for-sale Investments ........        10,500,000          7,000,000
                                                ------------       ------------

     Total Other Assets ..................        10,875,419          7,315,438
                                                ------------       ------------

Total Assets: ............................      $ 13,383,713       $ 10,124,153
                                                ============       ============

<PAGE>


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

                                                    Unaudited
                                                  September 30,      June 30,
                                                       2000            2000
                                                   ------------    ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts Payable & Accrued Expenses .........   $  1,618,435    $  1,156,390
   Loans Payable ...............................        465,000            --
                                                   ------------    ------------

     Total Liabilities .........................      2,083,435       1,156,390
                                                   ------------    ------------

Stockholders' Equity:
   Common Stock, Par value $.001
      Authorized 50,000,000 shares,
      Issued 30,584,201 and 28,979,201 shares
      at September 30, 2000 and June 30, 2000 ..         30,584          28,979
  Paid-In Capital ..............................     11,995,332      11,337,437
  Stock Subscribed Receivable ..................       (408,750)       (408,750)
  Accumulated Unrealized Gains/Losses
    On Available for Sale Investments ..........      3,500,000            --
  Deficit Accumulated During the
  Development Stage ............................     (3,816,888)     (1,989,903)
                                                   ------------    ------------

     Total Stockholders' Equity ................     11,300,278       8,967,763
                                                   ------------    ------------

     Total Liabilities and
       Stockholders' Equity ....................   $ 13,383,713    $ 10,124,153
                                                   ============    ============









                 See accompanying notes and accountants' report.
<PAGE>

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



                                                                    Cumulative
                                                                       since
                                                                     inception
                                Three Months Ended September 30,        of
                                                                    development
                                      --------------------------
                                         2000           1999           stage
                                      -----------    -----------    -----------

Revenues: .........................   $   156,188    $      --      $   156,188
Cost of revenues ..................        28,413           --           28,413
                                      -----------    -----------    -----------

Gross margin ......................       127,775           --          127,775

Expenses:
   General & Administrative .......     1,952,156        101,773      7,154,599
                                      -----------    -----------    -----------

     Net Operating Loss ...........    (1,824,381)      (101,773)    (7,026,824)
                                      -----------    -----------    -----------

Other Income (Expense)
   Interest, Net ..................        (2,604)          --           (4,395)
   Gain on Sale of Assets .........          --             --        5,238,394
   Loss on Abandonment of Assets ..          --             --          (94,063)
   Loss on Write Down of Goodwill .          --       (1,325,000)    (1,930,000)
                                      -----------    -----------    -----------

     Net Other Income (Expense) ...        (2,604)    (1,325,000)     3,209,936
                                      -----------    -----------    -----------

     Net Loss Before Taxes ........    (1,826,985)    (1,426,773)    (3,816,888)

Income Taxes ......................          --             --             --
                                      -----------    -----------    -----------
     Net Loss .....................   $(1,826,985)   $(1,426,773)   $(3,816,888)
                                      ===========    ===========    ===========

Basic & Diluted loss per share ....   $     (0.06)   $     (0.10)
                                      ===========    ===========


                 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 SEPTEMBER 30, 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 SEPTEMBER 30, 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 SEPTEMBER 30, 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 services ......   1,455,000        1,455      598,045         --           --           --          --
   Issue of Stock to acquire Torchnet     150,000          150       59,850         --           --           --          --
Unrealized gain on investments ......        --           --           --           --      3,500,000    3,500,000        --
   Net loss for the period ..........        --           --           --           --           --     (1,826,985)  (1,826,985)
                                        ---------    ---------    ---------    ---------    ---------    ---------    ---------
Comprehensive Income
 September 30, 2000 (Unaudited)                                                                       $(1,670,015)
                                                                                                      ===========
Balance at September 30, 2000
(Unaudited) .........................  30,584,201    $  30,584   11,995,332    $(408,750)  $3,500,000               $(3,816,888)
                                        =========    =========    =========    =========    =========                 =========
</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
                                           Three months ended September 30,    Development
                                                    2000           1999          Stage
                                                -----------    -----------    -----------
<S>                                             <C>            <C>            <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss ....................................   $(1,826,985)   $(1,426,773)   $(3,816,888)
Adjustments to reconcile net loss to net cash
 used in operating activities:
   Depreciation and amortization ............        96,973            395        421,299
   Issuance of common stock for expenses ....       599,500         60,000      1,854,489
   Gain on Sale of Assets ...................          --             --       (5,238,394)
   Loss on Abandonment of Assets ............          --             --           94,063
   Loss on Write Down of Goodwill ...........          --        1,325,000      1,930,000
Change in operating assets and liabilities:
   Restricted cash ..........................          --             --          (82,497)
   Accounts receivable ......................      (156,188)          --         (156,188)
   Advances .................................      (393,486)        (2,500)      (415,608)
   Prepaid Expenses & Deposits ..............       157,546        (79,666)      (167,841)
   Accounts Payable & Accrued Expense .......       462,064         14,414      1,601,634
                                                -----------    -----------    -----------
Net Cash Used in Operating Activities .......    (1,060,576)      (109,130)    (3,975,931)
                                                -----------    -----------    -----------

CASH FLOWS FROM INVESTING
ACTIVITIES:
   Purchase of Fixed Assets .................       (50,234)        (8,451)    (2,288,498)
   Purchase of Intangible Assets ............          --             --          (60,400)
   Cash Payments for CMD ....................          --             --         (692,106)
   Cash Payment for Goodwill ................          --             --         (250,000)
   Investment in Subsidiaries ...............          --         (433,441)          --
                                                -----------    -----------    -----------
</TABLE>
<PAGE>

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

<TABLE>
<CAPTION>

                                                                               Cumulative
                                                                                 Since
                                                                               Inception
                                                                                   of
                                           Three months ended September 30,    Development
                                                    2000           1999          Stage
                                                -----------    -----------    -----------
<S>                                             <C>            <C>            <C>
Net Cash Used in Investing Activities .......       (50,234)      (441,892)    (3,291,004)
                                                -----------    -----------    -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock ......          --          468,750      6,936,889
Stock subscribed receivable .................          --          194,875           --
Capital contributed by shareholder ..........          --             --            2,526
Loans payable ...............................       465,000           --          465,000
                                                -----------    -----------    -----------
Net Cash Provided by Financing Activities ...       465,000        663,625      7,407,415
                                                -----------    -----------    -----------

Net (Decrease) Increase in
  Cash and Cash Equivalents .................      (645,810)       112,603        140,480
Cash and Cash Equivalents
  at Beginning of Period ....................       786,290        164,982           --
                                                -----------    -----------    -----------
Cash and Cash Equivalents
  at End of Period ..........................   $   140,480    $   277,585    $   140,480
                                                ===========    ===========    ===========

SUPPLEMENTAL  DISCLOSURE  OF CASH FLOW  INFORMATIOM  Cash paid during the period
for:
Interest ....................................   $     1,680    $      --      $    28,028
                                                ===========    ===========    ===========
Income taxes ................................   $      --      $      --             --
                                                ===========    ===========    ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES
Common Stock issued for Intangible Assets ...   $    60,000    $      --      $    80,562
                                                ===========    ===========    ===========
Common Stock issued for Subsidiaries ........   $      --      $ 1,322,000    $ 2,739,500
                                                ===========    ===========    ===========
</TABLE>

                 See accompanying notes and accountants' report.
<PAGE>
                       CATHAYONLINE, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE YEARS ENDED JUNE 30, 2000, AND 1999
                (References to September 30, 2000 are Unaudited)

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 September 30, 2000, the results of operations
and cash flows for the three months ended  September  30, 2000.  The results for
the period  ended  September  30,  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  September  30,  2000 is in the  development  stage,  and has not  commenced
planned principal operations.

Principles of Consolidation

     The  consolidated  financial  statements  for June 30,  2000 and the  three
months ended September 30, 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 three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.

Marketable Securities

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

Pervasiveness of Estimates

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

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 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:

                                                                     Per-Share
                                         Income         Shares        Amount
                                         ------         ------        ------
                                       (Numerator)   (Denominator)
                                   For the three months ended September 30, 2000
                                   ---------------------------------------------
Basic Loss per Share
Loss to common shareholders ........   $(1,826,985)    30,070,451   $     (0.06)
                                       ===========    ===========   ===========

                                   For the three months ended September 30, 1999
                                   ---------------------------------------------
Basic Loss per Share
Loss to common shareholders ........   $(1,426,773)    14,473,048   $     (0.10)
                                       ===========    ===========   ===========

     The effect of outstanding  common stock  equivalents would be anti-dilutive
for September 30, 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 of September  30, 2000,  based on the
closing price of these  securities,  there was an unrealized gain of $3,500,000.
Subsequent  to September  30, 2000,  the market  price of these  securities  has
declined.
<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.

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.
<PAGE>

NOTE 5 - DEVELOPMENT STAGE COMPANY

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

NOTE 6 - COMMITMENTS

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

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

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

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

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

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

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

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


NOTE 7 - COMMON STOCK TRANSACTIONS

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

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


NOTE 7 - 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.

<PAGE>

 NOTE 7 - COMMON STOCK TRANSACTIONS (continued)

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

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

NOTE 8  - STOCK OPTIONS AND WARRANTS

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

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

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

     During  February,  March and April of 2000,  the  Company  sold and  issued
9,751,407 redeemable Common Stock purchase warrants to purchase a like number of
shares of Common  Stock.  Each such warrant  entitles the holder to purchase one
share of Common Stock, subject to adjustment in the event of any stock dividend,
stock  split,  subdivision  or  combination,  or  any  reclassification  of  the
outstanding  shares  of  Common  Stock  at any time  after  issuance  until  the
expiration  of these  warrants,  a date two years  after the date upon which the
underlying shares of Common Stock are registered for resale under the Securities
Act of 1933,  at a price of $0.77 per share.  We may redeem these  warrants at a
price of US $0.10 per warrant  commencing  one year after the effective  date of
the  registration  statement  under  the  Securities  Act of 1933  covering  the
underlying Common Stock provided that (i) a registration  statement covering the
underlying common stock is then effective and (ii) the average closing bid price
per share of Common  Stock for the thirty  (30) day period  ending five (5) days
prior to the date of the redemption notice of the Warrants is at least $1.05 per
share.

<PAGE>

NOTE 8  - 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.  All  options  vest 100% at date of
grant.

                                                   2000                 1999
                                               ------------         -----------
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 three months ended
September 30, 2000                                3,150,000                   -

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

NOTE 9 - RELATED PARTY TRANSACTIONS

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

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

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

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

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

     During  the three  months  ended  September  30,  2000,  transactions  with
directors and officers were as follows:

-    Salaries of $30,000 pursuant to an employment agreement.
-    Salaries of $15,180  plus an  additional  amount of $11,440  pursuant to an
     employment agreement.  The issue of shares paid the $11,440 after September
     30, 2000.
-    Salaries  of  $30,000  pursuant  to a  management  agreement.  An amount of
     $10,500  included in accounts  payable is to be paid by the issue of 37,923
     shares.
-    Consulting  fees of $12,000 plus 9000 shares  valued at $2,814.  The shares
     have not yet been issued.

<PAGE>

NOTE 9 - RELATED PARTY TRANSACTIONS (continued)

     During  the three  months  ended  September  30,  2000,  a private  company
controlled  by a relative  of a director  incurred  consulting  fees of $14,000.
During the three months ended  September 30, 2000,  this private  company loaned
the Company  $465,000.  The  amount,  plus  additional  amounts  received  after
September 30, 2000 bear interest at 12% per annum. During the three months ended
September  30,  2000,  the  Company  also paid  $8,550 in rent for an  apartment
occupied by the relative.

     During the three months ended  September  30, 2000 the Company had revenues
of $156,888  from another  public  company  having  directors  in common.  As at
September  30, 2000,  $156,888 in accounts  receivable  and $364,707 in advances
were due from this company.

NOTE 10 - SUBSEQUENT EVENTS

     Subsequent  to  September  30, 2000 the Company  issued  50,000  shares for
accrued salaries of $11,440 included in accrued expenses at September 30, 2000.

<PAGE>

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 SEPTEMBER 30, 2000 AND 1999

Revenues were $156,188 for the period ended  September 30, 2000 compared to none
for the period ended September 30, 1999.  Revenues were the results of utilizing
our  technical  staff to provide  web  development  services  to another  public
company  having  directors  in common.  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 $1,952,156 for the three months
ended  September  30,  2000  compared  to $101,773  for the three  months  ended
September 30, 1999. The increase includes depreciation and amortization expenses
of $96,973 for the three months ended  September  30, 2000  compared to $395 for
the three months ended  September  30, 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.

<PAGE>

Other  expenses  were  $2,604 for the three  months  ended  September  30,  2000
compared to  $1,325,000  for the three months  ended  September  30,  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.

LIQUIDITY AND CAPITAL RESOURCES

We have sustained net losses and negative cash flows from  operations  since our
inception.  As of  September  30,  2000  we have  negative  working  capital  of
$1,120,821 and cash available of $140,480.  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 $1,060,576 and $109,130 for the three
months ending September 30, 2000 and 1999, respectively. Cash used in operations
was primarily the result of the net losses of $1,826,985  and $1,426,773 for the
three months ending September 30, 2000 and 1999 respectively.

Net cash used in  investing  activities  was $50,234 and  $441,892 for the three
months ending September 30, 2000 and 1999,  respectively and relates to purchase
of equipment and advances to subsidiaries.

Net cash  provided by  financing  activities  was  $465,000 and $663,625 for the
three months ending September 30, 2000 and 1999, respectively.  Cash provided by
financing  activities for the three months ending September 30, 2000 consists of
$465,000 in loans from a related  party.  Cash provided by financing  activities
for the period  ending  September 30, 1999 is from the issuance of capital stock
and collection of share subscriptions receivable.

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 September 30, 2000.

INFLATION AND REGULATION

Our  operations  have not  been,  and in the near term are not  expected  to be,
materially   affected  by  inflation  or  changing  prices.  We  will  encounter
competition  from a variety of firms  selling  Internet  services  in 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

<PAGE>

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.  We do not  have  outstanding  debt  instruments  and we do not
maintain a portfolio of interest-sensitive debt instruments. We expect to derive
a significant portion of revenues in the form of Renminbi and, therefore, may be
exposed to significant  foreign currency risks in the future.  During the fiscal
year ended June 30, 2000 and the three months ended  September  30, 2000, we did
not engage in hedging  activities  to mitigate  the impact of changes in foreign
exchange  rates.  We may in the future use  foreign  currency  forward  exchange
contracts as a vehicle for hedging purposes.


                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

During the three months ended  September 30, 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.

During the three months ended  September 30, 2000, the Company issued  1,455,000
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 $0.40 to $0.50 per shares.

During the three months ended  September 30, 2000 the Company  granted  warrants
for the  acquisition  of up to  150,000  shares at $1.00 each up to May 1, 2003,
2,500,000  shares at $0.40 each up to September 1, 2002,  and 500,000  shares at
$0.25 each up to September 1, 2003.


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


(a)      Exhibits

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

<PAGE>



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.)

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)

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)

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.

<PAGE>

                                   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:     NOVEMBER 13 , 2000                        BY:    /S/ BRIAN W. RANSOM
       --------------------                       ----------------------
                                                     Brian W. Ransom
                                                     President and Director

DATE:     NOVEMBER  13, 2000                        BY:    /S/ GLENN OHLHAUSER
       --------------------                       ----------------
                                                     Glenn Ohlhauser
                                                     Chief Financial Officer and
                                    Secretary