<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

(X)   QUARTERLY REPORT PURSUANT SECTION 13 OF 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2000.

( )   TRANSITION REPORT PURSUANT SECTION 13 OF 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 0-26573

                          PHYSICAL SPA & FITNESS, INC.
           (Exact name of small business as specified in its charter)


             Delaware                              98-0203281
      ----------------------                    ----------------
   (State or other jurisdiction                  (IRS Employer
   of incorporation or organization)             Identification No.)


                          12/F - 15/F Lee Theatre Plaza
                          99 Percival St., Causeway Bay
                                    Hong Kong
                    (Address of principal executive offices)

                              (011) (852) 2572-8888
                           (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.

                                    Yes X     No
                                       ----        ----

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable dated : September 30, 2000, 10,000,000
shares.

Transitional Small Business Disclosure Format (check one) :
                              Yes          No   X
                                  ----        ----



<PAGE>


                                TABLE OF CONTENTS



PART I  -  FINANCIAL INFORMATION                                    PAGE
                                                                    ----
   ITEM 1   -   FINANCIAL STATEMENTS

     Consolidated Statements of Income
     for the nine months ended September
     30, 2000 and 1999 (Unaudited)

     Consolidated Balance Sheets at September 30, 2000
     and December 31, 1999 (Unaudited)

     Consolidated Statements of Cash Flows for the nine
     months ended September 30, 2000 and 1999 (Unaudited)

     Notes to Consolidated Financial Statements

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


PART II  -   OTHER INFORMATION

   ITEM 1   -   LEGAL PROCEEDINGS

   ITEM 2   -   CHANGE IN SECURITIES

   ITEM 3   -   DEFAULTS UPON SENIOR SECURITIES

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

   ITEM 5   -   OTHER INFORMATION

   ITEM 6   -   EXHIBITS AND REPORTS ON FORM 8-K




<PAGE>

<TABLE>
                                     PHYSICAL SPA & FITNESS, INC., AND SUBSIDIARIES
                                     ----------------------------------------------
                                 CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
                                 -------------------------------------------------------
                             THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
                           (Amounts in thousands, except number of shares and per share data)
<CAPTION>

                                           Three months ended September 30      Nine months ended September 30
                                           1999        2000       2000           1999        2000         2000
                                        ----------  ----------  ----------    ----------  ----------  ----------
                                           HK$         HK$         US$            HK$         HK$         US$

<S>                                        <C>         <C>         <C>           <C>         <C>         <C>
Operating Revenues
Fitness service                            43,208      54,985       7,049       122,605      145,981      18,715
Beauty treatments                          21,070      28,132       3,607        57,025       77,253       9,904
Others                                          9           -           -            24            1           1
                                        ----------  ----------  ----------    ----------   ----------  ----------

Total operating revenues                   64,287      83,117      10,656       179,654      223,235      28,620
                                        ----------  ----------  ----------    ----------   ----------  ----------

Operating Expenses
Salaries and commissions                   20,553      23,666       3,034        53,836       64,822       8,311
Rent and related expenses                  17,865      18,341       2,351        44,756       51,942       6,659
Depreciation                                9,302      10,433       1,338        24,079       29,091       3,730
Other selling and administrative
expenses                                   14,055      23,308       2,988        38,835       56,097       7,191
                                        ----------  ----------  ----------    ----------   ----------  ----------

Total operating expenses                   61,775      75,748       9,711       161,506      201,952      25,891
                                        ----------  ----------  ----------    ----------   ----------  ----------

Income from operations                      2,512       7,369         945        18,148       21,283       2,729
                                        ----------  ----------  ----------    ----------   ----------  ----------

Non-operating (income) expenses

Other (income), net                           (47)       (124)        (16)         (280)        (597)        (77)
Interest expenses                             728         652          84         2,310        2,391         307
                                        ----------  ----------  ----------    ----------   ----------  ----------


Total non-operating (income) expenses         681         528          68         2,030        1,794         230
                                        ----------  ----------  ----------    ----------   ----------  ----------

Income before income taxes and
minority interests                          1,831       6,841         877        16,118       19,489       2,499

Provision for income taxes                  1,041       1,756         225         4,335        4,162         534
                                        ----------  ----------  ----------    ----------   ----------   ---------

Income before minority interests              790       5,085         652        11,783       15,327       1,965

Minority interests                             94         (97)        (12)          817          575          74
                                        ----------  ----------  ----------    ----------   ----------   ----------

Net income                                    696       5,182         664        10,966       14,752        1,891
                                        ==========  ==========  ==========    ==========   ==========   ==========

Earnings per common share                    0.07        0.52        0.07          1.10         1.48         0.19
                                        ==========  ==========  ==========    ==========   ==========   ==========

Number of shares outstanding (in
thousands)                                 10,000      10,000      10,000        10,000       10,000       10,000
                                        ==========  ==========  ==========    ==========   ==========   ==========
</TABLE>
Translation of amounts from Hong Kong Dollars ("HK$") into United States Dollars
("US$") for the convenience of the reader has been made at the exchange rate
quoted by Hong Kong Bank on September 30, 2000 of US$1.00 = HK$7.8. No
representation is made that the Hong Kong Dollar amounts could have been, or
could be, converted into United States Dollars, at that rate on September 30,
2000 or at any other certain rate.



<PAGE>
<TABLE>
                            PHYSICAL SPA & FITNESS INC. AND SUBSIDIARIES
                            --------------------------------------------
                                 AUDITED CONSOLIDATED BALANCE SHEET
                                 -----------------------------------
                                       AS OF DECEMBER 31, 1999
                                                 AND
                                UNAUDITED CONSOLIDATED BALANCE SHEET
                                ------------------------------------
                                        AS OF SEPTEMBER 30, 2000
                   (Amounts in thousands, except number of shares and share data)
<CAPTION>

                                                                                       As of
                                                               ---------------------------------------------
                                                               December 31, 1999          September 30, 2000
                                                                            HK$                HK$       US$
<S>                                                                     <C>                <C>        <C>
ASSETS

Current assets
Cash and cash equivalents                                                 2,896              4,628       593
Trade receivables                                                         3,895              4,229       542
Rental and utility deposits                                              11,654             13,146     1,685
Prepayments to vendors and suppliers and other current assets             7,727              9,096     1,166
Inventories                                                               2,551              2,552       328
Due from related companies                                                8,373              3,580       459
Due from a stockholder                                                    4,110                634        81
                                                                   -------------         ---------- ---------
Total current assets                                                     41,206             37,865     4,854
                                                                   -------------         ---------- ---------

Bank deposits, collateralized                                             3,522              3,522       452
Prepayments for construction-in-progress                                    467             11,984     1,537
Property, plant and equipment, net                                      140,936            140,450    18,006
                                                                   -------------         ---------- ---------

Total assets                                                            186,131            193,821    24,849
                                                                   =============         ========== =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Short-term bank loans                                                     8,606              4,313       553
Long-term bank loans - current portion                                    1,851              2,771       355
Accounts payable and accrued expenses                                    18,300             16,169     2,073
Obligations under finance leases - current portion                        4,747              4,482       575
Deferred income - current portion                                        22,828             31,908     4,091
Deferred liabilities - current portion                                    2,304              2,683       344
Income taxes payable                                                      5,991              4,908       629
Taxes other than income                                                   3,182              3,195       410
                                                                   -------------         ---------- ---------

Total current liabilities                                                67,809             70,429     9,030
                                                                   -------------         ---------- ---------
Deferred income - non-current portion                                       999                729        93
Deferred liabilities -  non-current portion                               5,533              3,593       461
Long-term bank loans -  non-current portion                               5,587              4,063       521
Loans from minority stockholders of subsidiaries                          4,200                  -         -
Obligations under finance leases - non-current portion                   12,114              9,931     1,273
Deferred taxation                                                         5,661              5,661       726
Minority interests                                                        5,721              6,109       783

Stockholders' equity:
Common stock, par value US$0.001 each,
   100 million shares of stock authorized;
   10 million shares of stock issued and outstanding                         78                 78        10
Cumulative translation adjustments                                          119                166        21
Retained earnings                                                        78,310             93,062    11,931
                                                                   -------------         ---------- ---------

Total stockholders' equity                                               78,507             93,306    11,962
                                                                   -------------         ---------- ---------
Total liabilities and stockholders' equity                              186,131            193,821    24,849
                                                                   =============         ========== =========
</TABLE>

Translation of amounts from Hong Kong Dollars ("HK$") into United States Dollars
("US$") for the convenience of the reader has been made at the exchange rate of
US$1.00 = HK$7.8. No representation is made that the Hong Kong Dollar amounts
could have been, or could be, converted into United States Dollars, at that rate
on September 30, 2000 or at any other certain rate.

<PAGE>
<TABLE>
                 PHYSICAL SPA & FITNESS, INC., AND SUBSIDIARIES
                 ----------------------------------------------
           CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
           -----------------------------------------------------------
                     NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
                             (Amounts in thousands)
<CAPTION>
                                                          1999            2000
                                                       ----------  ---------------------
                                                            HK$       HK$        US$
<S>                                                       <C>         <C>        <C>
Cash flows from operating activities:

Net income                                                 10,966      14,752      1,891

Adjustments to reconcile net income to net
 cash provided by operating activities:
Minority interests                                            817         575         74
Depreciation                                               24,079      29,091      3,730
Loss (Gain) on disposal of fixed assets                         -         486         62
Goodwill on acquisition of subsidiaries                         -       1,115        143

(Increase) Decrease in assets:
Trade receivables                                           (250)        (334)       (43)
Deposits, prepayments and other current assets            (1,289)      (2,861)      (366)
Inventories                                                  135           (1)        (1)
Due from related companies                                    50        4,793        614

Increase (Decrease) in liabilities:
Accounts payable and accrued expenses                      3,920       (2,131)      (273)
Deferred income                                            1,821        8,810      1,129
Deferred liabilities                                       5,445       (1,561)      (200)
Income taxes payable                                       3,015       (1,083)      (139)
Taxes other than income                                      (28)          13          2
Deferred taxation                                              -            -          -
                                                       ----------   ---------- ----------

Net cash provided by operating activities                 48,681       51,664      6,623
                                                       ----------   ---------- ----------

Cash flows from investing activities:
Prepayments for construction-in-progress                   1,025      (11,517)    (1,476)
Acquisition of property, plant and
  equipment                                              (43,237)     (31,081)    (3,985)
Acquisition of subsidiaries                                    -       (1,300)      (167)
Sales proceeds from disposal of property,
  plant and equipment                                         93        1,987        255
                                                       ----------   ---------- ----------

Net cash used in investing activities                    (42,119)     (41,911)    (5,373)
                                                       ----------   ---------- ----------

Cash flows from financing activities
Settlement of short-term bank loans                       (1,455)      (4,293)      (550)
Decrease in due from a stockholder                         1,046        3,476        445
Proceeds from long-term bank loans                         3,800        7,000        897
Repayment of long-term bank loans                         (1,809)      (7,604)      (975)
Assumption of finance lease obligations                      900        1,300        167
Capital element of finance lease rental payments          (3,866)      (3,747)      (480)
Repayment of loans from minority stockholders of
  subsidiaries                                                 -       (4,200)      (538)
                                                       ----------   ---------- ----------

Net cash used in financing activities                     (1,384)      (8,068)    (1,034)
                                                       ----------   ---------- ----------

Net increase in cash and cash
  equivalents                                              5,178        1,685        216


Cash and cash equivalents, at beginning of
year                                                       1,721        2,896        371

Cumulative translation adjustments                           (12)          47          6
                                                       ----------   ---------- ----------

Cash and cash equivalents, at end of year                  6,887        4,628        593
                                                       ==========   ========== ==========

</TABLE>
Translation of amounts from Hong Kong Dollars ("HK$") into United States Dollars

("US$") for the convenience of the reader has been made at the exchange rate
quoted by HongKong Bank on September 30, 2000 of US$1.00 = HK$7.8. No
representation is made that the Hong Kong Dollar amounts could have been, or
could be, converted into United States Dollars, at that rate on September 30,
2000 or at any other certain rate.



<PAGE>
                  PHYSICAL SPA & FITNESS INC. AND SUBSIDIARIES
                  --------------------------------------------

              NOTES TO UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
              ----------------------------------------------------
         FOR THE NINE MONTHS FROM JANUARY 1, 1999 TO SEPTEMBER 30, 1999
                    AND JANUARY 1, 2000 TO SEPTEMBER 30, 2000


1.       ORGANIZATION AND PRINCIPAL ACTIVITIES

         Physical Spa & Fitness Inc. ("the Company") was incorporated on
         September 21, 1988 under the laws of the United States of America under
         the name of Foreclosed Realty Exchange Inc. The Company was
         incorporated with a share capital of 100 million common stocks with par
         value of US$0.001 each. The Company is a U.S. public company listed on
         the National Association of Securities Dealers Over-the-Counter
         Bulletin Board.

         Physical Beauty & Fitness Holdings Limited ("Physical Holdings") was
         incorporated on March 8, 1996 under the laws of the British Virgin
         Islands ("BVI") with a capital of one common stock being held by a
         stockholder ("the Stockholder"). Physical Holdings has interests in
         various companies ("Operating Subsidiaries") operating fitness and
         beauty centres ("Fitness Centres") and other related businesses in Hong
         Kong ("HK") and the People's Republic of China ("PRC").

         Pursuant to a Share Exchange Agreement entered into between the Company
         and Physical Holdings on August 8, 1996, the Stockholder transferred
         his controlling interest in the outstanding stock of Physical Holdings
         in exchange for 80% of the outstanding common stocks of the Company.
         The transaction was completed on October 21, 1996 when the Company
         became the ultimate holding company of Physical Holdings and the
         Operating Subsidiaries.

         As part of the above transaction, certain stockholders of the Company
         also transferred 990,000 common shares to Goodchild Investments Limited
         ("Goodchild"). Accordingly, the Stockholder and Goodchild became the
         major shareholders of the Company. In February, 1998, Goodchild sold
         all its common shares of the Company in a private transaction to a
         Japanese institutional investor.

         On November 27, 1996, the Company changed its name to Physical Spa &
         Fitness Inc.

         The transfer of the Stockholder's interests in Physical Holdings and
         the Operating Subsidiaries was a reorganization of companies under
         common control and has been accounted for effectively as a pooling of
         interests, and the consolidated financial statements of the Company
         have been presented as if the Operating Subsidiaries had been owned by
         the Company since their date of incorporation or acquisition by the
         Stockholder whichever is later.

         The details of Physical Holdings and the Operating Subsidiaries and
         their principal activities as of the date of this report are summarized
         below:

<TABLE>
<CAPTION>
                                      DATE OF                             EQUITY INTEREST
                                      ACQUISITION /  PLACE OF              OWNED BY THE            PRINCIPAL
        NAME OF COMPANY               FORMATION      INCORPORATION            COMPANY              ACTIVITIES
                                                                       Direct        Indirect
                                                                       ------        --------
        <S>                           <C>               <C>             <C>            <C>          <C>

        Physical Holdings             March 8, 1996     BVI             100%             -          Investment
                                                                                                    holding

        Ever Growth Limited ("Ever    September 29,     HK                -            100%         Property holding
          Growth")                    1994

        Global Resources Limited      December 1,       HK                -            100%         Inactive
                                      1998

        Jade Regal Holdings           March 15, 1996    BVI               -            100%         Investment
          Limited                                                                                   holding

        Mighty System Limited         December 15,      BVI               -            100%         Provision of
                                      1994                                                          marketing
                                                                                                    services for
                                                                                                    cosmetics sales

</TABLE>


<PAGE>

1.       ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

<TABLE>
<CAPTION>
                                      DATE OF                              EQUITY INTEREST
                                      ACQUISITION /  PLACE OF                OWNED BY THE         PRINCIPAL
        NAME OF COMPANY               FORMATION      INCORPORATION             COMPANY            ACTIVITIES
                                                                         Direct       Indirect
                                                                         ------       --------

        <S>                           <C>               <C>                 <C>         <C>       <C>
        Physical Health Centre        March 15, 1996    HK                  -           100%      Investment
          (Dalian) Limited                                                                        holding
          ("Physical Dailan")

        Physical Health Centre        March 21, 1997    HK                  -           100%      Investment
          (Macau) Limited                                                                         holding

        Physical Health Centre        April 15, 1996    HK                  -           100%      Investment
          (Shenzhen) Limited                                                                      holding
          ("Physical Shenzhen")

        Physical Health Centre        November 18,      HK                  -           100%      Operating a
          (TST) Limited ("Physical    1998                                                        Fitness Centre
          TST")                                                                                   in Hong Kong

        Physical Health Centre        September 8,      HK                  -           100%      Operating a
          (Tsuen Wan) Limited         1997                                                        Fitness Centre
          ("Physical Tsuen Wan")                                                                  in Hong Kong

        Physical Health Centre        September 29,     HK                  -           100%      Will operate a
          (Tuen Mun) Limited          1994                                                        Fitness Centre
          ("Physical Tuen Mun")                                                                   in Hong Kong
          (formerly known as
          Physical Health Centre
          (Zhong Shan) Limited)

        Physical Health Centre        March 2, 1990     HK                  -          91.4%      Operating 5
          Hong Kong Limited                                                                       Fitness Centres
                                                                                                  in Hong Kong

        Proline Holdings Limited      September 28,     BVI                 -          92.5%      Investment
                                      1994                                                        holding

        Regent Town Holdings          September 20,     BVI                 -          92.5%      Investment
          Limited ("Regent Town")     1993                                                        holding

        Shanghai Physical Ladies'     September 28,     HK                  -          92.5%      Investment
          Club Company Limited        1994                                                        holding
          ("Physical Shanghai")

        Star Perfection Holdings      April 15, 1996    BVI                 -           100%      Investment
          Limited                                                                                 holding

        Supreme Resources Limited     September 29,     HK                  -            70%      Operating a
                                      1994                                                        beauty treatment
                                                                                                  centre in Hong
                                                                                                  Kong
</TABLE>

<PAGE>

1.      ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

        The Group also operates Fitness Centres in the PRC through some of its
        Operating Subsidiaries which are Sino-foreign joint ventures ("JV")
        established in the PRC. In the opinion of the directors, the Group is
        able to govern and control the financial and operating policies and the
        board of directors of the JV. Therefore, the JV have been accounted for
        as subsidiaries. Detailed information in connection with these JV is as
        follows:

         a)      Shanghai Physical Ladies' Club Co., Ltd., a Sino-foreign
                 co-operative JV ("the Shanghai JV"), was established on
                 September 7, 1993 in Shanghai, the PRC. The original total
                 investment and registered capital of the Shanghai JV was US$1
                 million each and was increased to US$2 million each in 1995.
                 The capital contributions were to be made in cash. The JV
                 period is for 10 years starting from the date of the business
                 licence issued on September 7, 1993.

                 According to the provisions of the JV contract, Physical
                 Shanghai contributed 100% of the registered capital of the JV
                 while the Chinese JV partner provided the premises in which the
                 Fitness Centres are located. Upon dissolution of the JV, all
                 the property, plant and equipment ("PPE") of Shanghai JV will
                 be taken over by the Chinese JV partner while the Group will
                 assume all the working capital, debts and outstanding
                 obligations and commitments.

                 For the first three years of the Shanghai JV, the Chinese JV
                 partner will be entitled only to a rent of RMB950,000 per
                 annum. Thereafter, the rental payment will be increased by 10%
                 per annum unless the inflation rate in the PRC is higher than
                 16%. The Chinese JV partner has no further entitlement to the
                 profits of the Shanghai JV.

         b)      Dalian Physical Ladies' Club Co., Ltd. is a Sino-foreign equity
                 JV ("the Dalian JV") established on April 11, 1995 in Dalian,
                 the PRC. The total registered capital of the Dalian JV was
                 Reminbi (RMB) 10 million. The JV period is 12 years from the
                 date of issue of the business license on April 11, 1995.
                 Physical Dalian held a 90% equity interest in the Dalian JV and
                 the profits or losses of the Dalian JV are to be shared by the
                 venturers in proportion to their equity interests in the JV.

                 Physical Dalian contributed its share of the registered capital
                 in the form of PPE and renovation materials and the Chinese
                 venturer contributed in cash. Both venturers had fulfilled
                 their respective capital contributions as of December 31, 1996.
                 The JV commenced operation in 1996.

         c)      Under the JV contract between Physical Shenzhen and a Chinese
                 enterprise, Physical Shenzhen is required to contribute
                 HK$4,140,000 in the form of cash and PPE as capital into
                 Shenzhen Physical Ladies' Club Co. Ltd. within six months from
                 the issuance of the business licence.

                 As of the date of this report, both JV partners have not
                 contributed the required capital according to the requirements
                 of the contract. Such default in the funding obligations will
                 require renegotiations between the two partners and may also
                 trigger default remedies as specified in the JV contract.
                 Further, a failure to meet regulatory time limits set by the
                 State Administration of Industry and Commerce for capital
                 contributions could result in the cancellation of the approval
                 of the JV's business license.

                 According to the directors, the Group is negotiating with the
                 Chinese enterprise to terminate the JV contract and the default
                 remedies are unlikely to be imposed on the Group.

         d)      Under the JV contract between Physical Health Centre (Zhong
                 Shan) Limited (former name of Physical Tuen Mun) and a Chinese
                 enterprise, Physical Zhongshan is required to contribute
                 US$500,000 in the form of cash and PPE as capital into the JV
                 within six months from the issuance of the business licence.

                 As of the date of this report, both JV partners have not
                 contributed the required capital according to the requirements
                 of the contract. Such default in the funding obligations will
                 require renegotiations between the two partners and may also


                 trigger default remedies as specified in the JV contract.
                 Further, a failure to meet regulatory time limits set by the
                 State Administration of Industry and Commerce for capital
                 contributions could result in the cancellation of the approval
                 of the JV's business license.

<PAGE>
                 According to the directors, the Group is negotiating with the
                 Chinese enterprise to terminate the joint venture contract and
                 the default remedies are unlikely to be imposed on the Group.

2.       BASIS OF PRESENTATION

         The financial statements are presented in Hong Kong dollars and have
         been prepared in accordance with generally accepted accounting
         principles in the United States of America. This basis of accounting
         differs from that used in the statutory financial statements of the BVI
         and Hong Kong Operating Subsidiaries and the PRC JV, which were
         prepared in accordance with generally accepted accounting principles in
         Hong Kong and the accounting principles and the relevant financial
         regulations applicable to enterprises with foreign investments as
         established by the Ministry of Finance of China respectively.

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a)       PRINCIPLES OF CONSOLIDATION
                  The consolidated financial statements include the financial
                  information of the Company, its majority-owned and controlled
                  subsidiaries and joint ventures. All material intercompany
                  balances and transactions have been eliminated on
                  consolidation.

         b)       CONTRACTUAL JOINT VENTURE
                  A contractual JV is an entity established between the Group
                  and one or more other parties with the rights and obligations
                  of the JV partners governed by a contract. In case the Group
                  owns more than 50% of the JV and is able to govern and control
                  its financial and operating policies and its board of
                  directors, such JV is considered as a de facto subsidiary and
                  is accounted for as a subsidiary.

         c)       STATEMENT OF CASH FLOWS
                  For the purposes of the statement of cash flows, the Company
                  considers all highly liquid debt instruments with an original
                  maturity within three months to be cash equivalents.

         d)       INVENTORIES
                  Inventories are stated at the lower of cost and net realizable
                  value. Cost, which comprises all costs of purchase and, where
                  applicable, costs of conversion and other costs that have been
                  incurred in bringing the inventories to their present location
                  and condition, is calculated using the first-in, first-out
                  method. Net realizable value represents the estimated selling
                  price in the ordinary course of business less the estimated
                  costs of completion and the estimated costs necessary to make
                  the sale.

         e)       PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
                  PPE is stated at cost less accumulated depreciation. The cost
                  of an asset consists of its purchase price and any directly
                  attributable costs of bringing the asset to its present
                  working condition and location for its intended use.
                  Expenditure incurred after the assets have been put into
                  operation, such as repairs and maintenance, is charged to the
                  statement of operations in the period in which it is incurred.
                  In situations where it can be clearly demonstrated that the
                  expenditure has resulted in an increase in the future economic
                  benefits expected to be obtained from the use of the assets,
                  the expenditure is capitalized.

                  When assets are sold or retired, their costs or valuation and
                  accumulated depreciation are removed from the accounts and any
                  gain or loss resulting from their disposal is included in the
                  statement of operations.

                  When assets are transferred between PPE and other classes of
                  assets, the cost of such an asset on transfer is deemed to be
                  the carrying amount of the asset as stated under its original
                  classification. Any previous revaluation reserve on the asset
                  is frozen upon the transfer until the retirement or disposal
                  of the asset. On the retirement or disposal of the asset, the
                  frozen revaluation reserve is transferred directly to retained
                  earnings.

                  Depreciation is calculated to write off the cost of PPE over
                  their estimated useful lives from the date on which they
                  become fully operational using the straight line method at the
                  following annual rates:


<PAGE>

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  Leasehold land held under long-term lease Over the lease term
                  Buildings 20 to 50 years Leasehold improvements Over the lease
                  term Machinery and equipment 5 to 10 years Furniture and
                  fixtures 5 years Computers 4 to 5 years Motor vehicles 4 to 5
                  years

                  The Group recognizes an impairment loss on PPE when evidence,
                  such as the sum of expected future cash flows (undiscounted
                  and without interest charges), indicates that future
                  operations will not produce sufficient revenue to cover the
                  related future costs, including depreciation, and when the
                  carrying amount of asset cannot be realized through sale.
                  Measurement of the impairment loss is based on the fair value
                  of the assets.

         f)       REVENUE RECOGNITION
                  Revenue represents membership fees and service income in
                  connection with the provision of physical fitness and beauty
                  treatment services and other related income, net of the
                  related sales tax, if any. The non-refundable admission fee is
                  recognized as revenue on a pro-rata basis over the estimated
                  membership term whereas the monthly dues, service income and
                  other related income are recognized as revenue when services
                  are rendered.

         g)       DEFERRED INCOME
                  Deferred income represents unamortized non-refundable
                  admission fees, membership fees, and service fees billed but
                  for which the related services, or portion of the services
                  have not yet been rendered.

         h)       FINANCE LEASES
                  Leases that substantially transfer to the Group all the
                  rewards and risks of ownership of assets, other than legal
                  title, are accounted for as finance leases.

                  PPE held under finance leases are initially recorded at the
                  present value of the minimum lease payments at the inception
                  of the leases, with equivalent liabilities categorized as
                  appropriate under current or non-current liabilities.

                  Depreciation is provided on the cost of the assets on a
                  straight line basis over their estimated useful lives as set
                  out in note 3(e) above. Finance charges implicit in the
                  purchase payments are charged to the statement of operations
                  over the periods of the contracts so as to produce an
                  approximately constant periodic rate of charge on the
                  remaining balances of the obligations for each accounting
                  period.

         i)       OPERATING LEASES
                  Leases where substantially all the rewards and risks of
                  ownership of assets remain with the leasing company are
                  accounted for as operating leases. Rentals payable under
                  operating leases are recorded in the statement of operations
                  on a straight-line basis over the lease term.

         j)       DEFERRED LIABILITIES
                  Deferred liabilities represent the benefit arose from the
                  rent-free period of the operating leases. The deferred
                  liabilities are amortized within the lease term, and the
                  amortization is recorded in the statement of operations.

         k)       INCOME TAXES
                  No provision for withholding or U.S. federal income taxes or
                  tax benefits on the undistributed earnings and / or losses of
                  the Company and its Operating Subsidiaries has been provided
                  as the earnings of the Operating Subsidiaries, in the opinion
                  of the management, will be reinvested indefinitely.

                  Provision for income and other related taxes have been
                  provided in accordance with the tax rates and laws in effect
                  in the various countries of operations.



<PAGE>

3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                  The Group provides for deferred income taxes using the
                  liability method, by which deferred income taxes are
                  recognized for all significant temporary differences between
                  the tax and financial statement bases of assets and
                  liabilities. The tax consequences of those differences are
                  classified as current or non-current based upon the
                  classification of the related assets or liabilities in the
                  financial statements. A valuation allowance is provided for
                  the portion of deferred tax assets that is not currently
                  realizable, since the realization of these benefits depends
                  upon the ability of the relevant entity to generate income in
                  future years.

         l)       FOREIGN CURRENCY TRANSLATION
                  The Company and its subsidiaries maintain their accounting
                  books and records in Hong Kong Dollars ("HK$"), except for the
                  PRC JV which maintain their accounting books and records in
                  RMB. Foreign currency transactions during the year are
                  translated to HK$ at the approximate rates of exchange on the
                  dates of transactions. Monetary assets and liabilities
                  denominated in foreign currencies at year end and translated
                  at the approximate rates of exchange ruling at the balance
                  sheet date. Non-monetary assets and liabilities are translated
                  at the rates of exchange prevailing at the time the asset or
                  liability was acquired. Exchange gains or losses are recorded
                  in the statements of operations.

                  On consolidation, the financial statements of the PRC JV are
                  translated into HK$ using the closing rate method, whereby the
                  balance sheet items are translated into HK$ using the unified
                  exchange rates at the respective balance sheet dates. The
                  share capital and retained earnings are translated at
                  historical unified exchange rates prevailing at the time of
                  the transactions while income and expenses items are
                  translated at the average unified exchange rate for the year.

                  All exchange differences arising on the consolidation are
                  recorded within equity. Historically, foreign exchange
                  transactions have not been material to the financial
                  statements.

                  For the purpose of these financial statements, the exchange
                  rate adopted for the presentations of financial information as
                  of and for the three months ended March 31, 2000 has been made
                  at HK$7.769 to US$1.00. No representation is made that the HK$
                  amount could have been, or could be, converted into United
                  States Dollars at that rate on March 31, 2000 or at any other
                  rates.

         m)       RELATED PARTIES
                  Parties are considered to be related if one party has the
                  ability, directly or indirectly, to control the other party,
                  or exercise significant influence over the other party in
                  making financial and operating decisions. Parties are also
                  considered to be related if they are subject to common control
                  or common significant influence.

         n)       EARNINGS PER SHARE
                  Earnings per share is based on net income attributable to
                  stockholders and the weighted average number of common shares
                  of stock outstanding during the year.

                  Diluted earnings per share is not shown because the impact of
                  any dilution is not material.

         o)       USES OF ESTIMATES
                  The preparation of the Company's financial statements in
                  conformity with generally accepted accounting principles
                  requires the Company's management to make estimates and
                  assumptions that affect the amounts reported in these
                  financial statements and accompanying notes. Actual amounts
                  could differ from those estimates.



<PAGE>

4.       SHORT-TERM BANK LOANS

         The short-term bank loans are collateralized and repayable within one
         year.

5.       LONG-TERM BANK LOANS

         The Group obtained various lines of credit under banking facilities
         from creditworthy commercial banks in HK to finance its operations.
         These loans were collateralized by certain of the assets of the Group
         and its stockholders. The collateral of the loans include:

         (i)      leasehold property in Hong Kong owned by Ever Growth;

         (ii)     fixed deposits owned by Physical TST and Physical Tsuen Wan;

         (iii)    leasehold property in Hong Kong owned by relatives of the
                  principal stockholders;

         (iv)     leasehold property in Hong Kong owned by a related company;
                  and

         (v)      personal guarantees from the principal stockholders.


6.       OBLIGATIONS UNDER FINANCE LEASES

         Physical HK leases fitness equipment and motor vehicles under several
         finance leases.


7.       DISTRIBUTION OF PROFIT

         In the opinion of management, any undistributed earnings of Physical
         Holdings and the Operating Subsidiaries will be reinvested
         indefinitely.

8.       STOCK OPTION PLAN

         The Company has a Stock Option Plan which was adopted by the Company's
         stockholders and its Board of Directors on April 23, 1997. Under the
         Plan, the Company may issue incentive stock options, non-qualified
         options, restricted stock grants, and stock appreciation rights to
         selected directors, officers, advisors and employees of the Company. A
         total of 500,000 shares of Common Stock of the Company are reserved for
         issuance under the Plan. Stock options may be granted as non-qualified
         or incentive options. Incentive stock options may not be granted at a
         price less than the fair market value of the stock as of the date of
         grant while non-qualified stock options may not be granted at a price
         less than 85% of the fair market value of the stock as of the date of
         grant. The plan will be administered by an Option Committee which is to
         be composed of two or more disinterested directors of the Board of
         Directors. The option can be exercised during a period of time fixed by
         the Committee except that no option may be exercised more than ten
         years after the date of grant of three years after death or disability,
         whichever is later. As of the date of this report, no stock options
         have been granted by the Company under the Plan.




<PAGE>


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


              PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 THE 1995 ACT SHAREHOLDERS AND
PROSPECTIVE SHAREHOLDERS SHOULD UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER
ANY FORWARD - LOOKING STATEMENT CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY
ONE OF THOSE FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED HEREIN. THESE FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES
RELATING TO THE PRODUCTS AND THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY.
ASSUMPTIONS RELATING TO THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG
OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE
BUSINESS DECISIONS, AND THE TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE
DEVELOPMENT PROJECTS, ALL OF WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT
ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE
COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING
STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE
INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE RESULTS
CONTEMPLATED IN ANY OF THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN WILL BE
REALIZED. BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENT, THE COMPANY MAY
ALTER ITS MARKETING, CAPITAL EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN
TURN AFFECT THE COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT
UNCERTAINTIES INHERENT IN THE FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE
INCLUSION OF ANY SUCH STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY
THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL
BE ACHIEVED.


Overview of Company's Business:

         The Company, through its predecessor companies and its subsidiaries,
has been an established commercial operator of fitness and spa centers in Hong
Kong and China since 1986. The Company currently operates eleven facilities:
eight in Hong Kong and three in China. Management believes that the Company is
one of the top providers of fitness facilities and spa and beauty treatment
services in Hong Kong and China, with approximately 55,000 members. The Company
offers to its customers, at each location, access to a wide range of U.S.-
styled fitness and spa services.

          The Company was incorporated on September 21, 1988 in the state of
Delaware under the name of "Foreclosed Realty Exchange, Inc", a development
stage company seeking acquisitions with no material assets or liabilities. Prior
to acquisition of Physical Beauty & Fitness Holdings Limited, a British Virgin
Islands corporation ("Physical Limited"), the Company had no revenue producing
operations, but planned to enter into joint ventures and/or acquisitions
originally in the area of real estate, to expand its operations. In October,
1996, the Company closed a transaction with Ngai Keung Luk (Serleo), a 100%
shareholder of Physical Limited, whereby the Company entered into a Share
Exchange Agreement with Ngai Keung Luk (Serleo), pursuant to which the Company
issued 8,000,000 pre-split (6,000,000 post-split) shares of its Common Stock to
Ngai Keung Luk (Serleo) in exchange for all of the outstanding shares of
Physical Limited (the "Closing"). At the Closing, the then current management of
the Company resigned and was replaced by the current management of the Company.
See "Management."

        The Company derives its revenues from two main lines of business:
fitness and spa services.



<PAGE>

RESULTS OF OPERATIONS

        The Company's revenues are derived from its two main lines of business
of fitness and spa services in three principal ways: sale of memberships to
fitness facilities, monthly membership fees and the sale of beauty treatments.
The sale of beauty products and exercise clothing also contributes an
insignificant amount to the total revenues. In respect to fitness services,
customers are invited to join as a member at a fee currently set at
HK$800(US$103) for one person. A monthly subscription fee of HK$299 (US$38) is
charged to each customer for the usage of the fitness center and spa area.

        In respect to beauty treatments, the customers may purchase single
treatments, or in packages of ten or more treatments, with quantity discounts
available. There is a wide range of beauty treatments available at prices
ranging from HK$400 (US$51) to HK$13,640 (US$1,749).

        The following table sets forth selected income data as a percentage of
total operating revenue for the periods indicated.


RESULTS OF OPERATIONS


                                                        Nine Months Ended
                                                           September 30
                                                       1999           2000
                                                       ----           ----

Operating Revenues                                    100.00%        100.00%

Total operating expenses                               89.90%         90.47%

Operating income                                       10.10%          9.53%

Income before income taxes and minority
interests                                               8.97%          8.73%

Provision for income and deferred taxes                 2.41%          1.86%

Minority interests                                      0.45%          0.26%

Net income                                              6.10%          6.61%
                                                     ========       ========


NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999 (UNAUDITED)
----------------------------------------------------------------------------

         OPERATING REVENUES. The Company's operating revenues showed the
continuous growth in the first nine months of 2000 as compared to the first nine
months of 1999. Operating revenues for the first nine months of 2000 totaled
HK$223,235,000 (US$28,620,000) compared to HK$179,654,000 (US$23,033,000) in the
first nine months of 1999, representing an increase of 24%. Operating revenues
derived by the Company's fitness services increased 19% to HK$145,981,000
(US$18,715,000) compared to HK$122,605,000 (US$15,719,000) in the first nine
months of 1999. Fitness revenues as a percentage of total revenues were 65% in
the first nine months of 2000 as compared to 68% in the first nine months of
1999.

         Operating revenues from the Company's beauty treatment business totaled
HK$77,253,000 (US$9,904,000) for the nine months period ended September 30, 2000
as compared to HK$57,025,000 (US$7,311,000) for the nine months period ended
September 30, 1999, representing an increase of 35%. Beauty treatment revenues
as a percentage of total revenues were 35% in the first nine months of 2000 as
compared to 32% in the first nine months of 1999.

         Operating revenues derived from the Company's Hong Kong locations
remain an important contributor to the Company's business, generating
HK$210,557,000 (US$26,995,000), or 94% of total operating revenues in the nine
months ended September 30, 2000 as compared to HK$167,890,000 (US$21,525,000) or
93% of total operating revenues in the nine months ended September 30, 1999.

         Operating revenues derived from the Company's China locations generated
HK$12,678,000 (US$1,625,000), or 6% of total operating revenues in the nine
months ended September 30, 2000 as compared to HK$11,764,000 (US$1,508,000) or
7% of total operating revenues in the nine months ended September 30, 1999.



<PAGE>

         OPERATING EXPENSES. The Company's operating expenses for the first nine
months of 2000 totaled HK$201,952,000 (US$25,891,000) compared to HK$161,506,000
(US$20,706,000) in the first nine months of 1999, representing an increase of
25%. This reflects the additional costs incurred by the Company in following its
business expansion plan. Total operating expenses, after taking into account all
corporate expenses, were effectively controlled at 90% of total operating
revenue, being the same level as 1999.

         Operating expenses associated with the Company's Hong Kong locations
were HK$186,006,000 (US$23,847,000) in the nine months ended September 30, 2000,
representing an increase of HK$39,644,000 (US$5,083,000) or 27% as compared to
HK$146,362,000 (US$18,764,000) in 1999. Hong Kong operating expenses represented
92% of total operating expenses in the nine months ended September 30, 2000 as
compared to 91% in 1999. The increase was primarily due to additional expenses
of HK$6,083,000 (US$780,000) incurred by a new branch in Tuen Mun, Hong Kong
which opened in July 2000 and an increase of HK$26,568,000 (US$3,406,000) in
operating expenses incurred by Sheraton Hotel center which opened in July 1999.

         Operating expenses associated with the Company's China locations were
HK$15,946,000 (US$2,044,000) in the nine months ended September 30, 2000,
representing an increase of 5% as compared to HK$15,144,000 (US$1,942,000) in
1999. The increase was primarily due to an additional expense of HK$943,000
(US$121,000) incurred by a new branch in Macau which opened in October 2000.
Operating expenses in China represented 8% of total operating expenses in the
nine months ended September 30, 2000 as compared to 9% in 1999.

         TOTAL NON-OPERATING EXPENSES (INCOME). Total non-operating expenses
(income) for the first nine months of 2000 totaled a net expense of HK$1,794,000
(US$230,000) compared to a net expense of HK$2,030,000 (US$260,000) in the first
nine months of 1999, representing a decrease of 12% due to an offset by
interests income earned on fixed deposit.

         PROVISION FOR INCOME TAXES. Provision for income taxes for the first
nine months of 2000 totaled HK$4,162,000 (US$534,000) compared to HK$4,335,000
(US$556,000) in the first nine months of 1999, representing a decrease of 4%.
The effective tax rate of operating income was 21% as compared to 27% of last
year.

         NET INCOME. The Company's net income for the first nine months of 2000
totaled HK$14,752,000 (US$1,891,000) compared to HK$10,966,000 (US$1,406,000)
for the first nine months of 1999, representing an increase of 35%. The net
income margin in the first nine months of 2000 was 7% which was higher than 6%
of last year. The increase reflected the additional contribution of Sheraton
Hotel center which opened in July 1999.


LIQUIDITY AND CAPITAL RESOURCES

         The Company has financed its operations primarily through cash
generated from operations, short-term bank credit, long-term bank loans,
advances from customers relating to prepaid fitness and spa income, and leasing
arrangements with financial institutions.

         Cash and cash equivalent balances for the respective periods ended
September 30, 2000 and December 31, 1999 were HK$4,628,000 (US$593,000) and
HK$2,896,000 (US$371,000), while total indebtedness at September 30, 2000 was
HK$25,560,000 (US$3,277,000) and HK$37,105,000 (US$4,757,000) at December 31,
1999.

         Net cash provided by operating activities were HK$42,618,000
(US$5,464,000) and 51,664,000 (US$6,623,000) for Fiscal Year 1999, and the
nine-month period ended September 30, 2000, respectively. The Company's
operating activities are historically financed by cash flows from operations.
Net cash used in investing activities were HK$44,612,000 (US$5,719,000) and
HK$41,911,000 (US$5,373,000) for Fiscal Year 1999 and the nine-month period
ended September 30, 2000, primarily as a result of expenditures for property,
plant and equipment. Net cash used in financing activities, which mainly include
proceeds from bank loans, net interest and repayment, were HK$3,166,000
(US$406,000) and HK$8,068,000 (US$1,034,000) in Fiscal Year 1999 and the
nine-month period ended September 30, 2000, respectively.



<PAGE>


         In the nine months ended September 30, 2000, the Company repaid the
term loan of HK$3,900,000 (US$500,000) originally granted by Shanghai Commercial
Bank Limited and the banking facilities in the amount of HK$11,000,000
(US$1,410,000) granted by the Kwangtung Provincial Bank. The Company replaced
the said facilities with new loans of HK$4,000,000 (US$513,000) and HK$4,500,000
(US$577,000)respectively obtained from the Hongkong and Shanghai Banking
Corporation Limited and East Asia Finance Company Limited.

         In July, 2000 the Company entered into a finance agreement with
Standard Chartered Bank for the purchase of a motor vehicle in the amount of
HK$1,300,000 (US$167,000). The loan is repayable by twenty-four (24) monthly
installments, commencing August, 2000.

         In September, 2000 the Company obtained new banking facilities to the
extent of HK$10,000,000 (US$1,282,000) from Shanghai Commercial Bank Limited for
the purchase of exercise equipment for the center in Macau. The facilities were
secured by a debenture incorporating fixed charge of the said equipment and
floating charge on the undertaking, other property and assets owned by one of
the Company's subsidiaries. In October, 2000, the Company drew down the loan
amount of HK$5,000,000 (US$641,000) which is repayable by twenty-four (24) equal
monthly installment payments commencing November, 2000.

         As of September 30, 2000, the Company has revolving lines of credit
with four banks - The Hongkong and Shanghai Banking Corporation Limited, Dao
Heng Bank, Shanghai Commercial Bank Limited, and the Bank of East Asia, Limited.
The Company has utilized HK$3,400,000 (US$436,000) of these lines of credit. The
Company draws down from the lines of credit primarily for general working
capital purposes.

         Consistent with the general practice of the fitness and spa industry,
the Company receives prepaid memberships to fitness facilities, which are
non-refundable, and spa treatment dues from its customers. This practice creates
working capital that the Company generally utilizes for working capital
purposes. However, the unused portion of the pre-paid membership and spa
treatment dues is characterized as deferred income, a liability, for accounting
purposes.

         The Company's trade receivable balance at September 30, 2000, was
HK$4,229,000 (US$542,000). The Company has never experienced any significant
problems with collection of accounts receivable from its customers.

         Capital expenditure for 1999, and the nine-month period ended September
30, 2000, were HK$44,863,000 (US$5,752,000) and HK$42,598,000 (US$5,461,000)
respectively. The Company believes that cash flow generated from its operations
and its existing credit facilities should be sufficient to satisfy its working
capital and capital expenditure requirements for at least the next 12 months.

        YEAR 2000 DISCLOSURE

         The Year 2000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Computer
programs that have sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.

         The Company underwent a system redevelopment project to improve the
efficiency of the system with respect to changing its computer programs to
properly identify a year in the year field. The new system which is year 2000
compliant was implemented by July 1, 1999.




<PAGE>

PART II - OTHER INFORMATION

ITEM 1   -   LEGAL PROCEEDINGS

             NONE

ITEM 2   -   CHANGES IN SECURITIES

             NONE

ITEM 3   -   DEFAULTS UPON SENIOR SECURITIES

             NONE

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

             NONE

ITEM 5   -   OTHER INFORMATION

             NONE

ITEM 6   -   EXHIBITS AND REPORTS ON FORM 8-K

             The Company did not file reports on FORM 8-K during the quarter
ending September 30, 2000.






<PAGE>

                                   SIGNATURES

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




                                    PHYSICAL SPA & FITNESS, INC.
                                    (Registrant)

Date: November 8, 2000               /S/ Ngai Keung Luk
                                    ----------------------------------
                                    Ngai Keung Luk,
                                    Chairman and Chief Executive Officer

Date: November 8, 2000               /S/ Robert Chui
                                    ----------------------------------
                                    Robert Chui,
                                    Chief Financial Officer