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
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(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
