SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                             ----------------------

                                    FORM 6-K

                        REPORT OF FOREIGN PRIVATE ISSUER

                    Pursuant to Rule 13a-16 or 15d-16 of the
                         Securities Exchange Act of 1934

                         For the month of: December 2002

                                     QSC AG
                           -------------------------
               (Exact name of registrant as specified in charter)

                                    QSC Corp
                           -------------------------
                 (Translation of registrant's name into English)

                                     Germany
                           -------------------------
                         (Jurisdiction of organization)

               Mathias-Bruggen Strasse 55, 50829 Cologne, Germany
              ----------------------------------------------------
                    (Address of principal executive offices)

       Registrant's telephone number, international: +011-49-221-6698-837

Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.

                        Form 20-F  X       Form 40-F
                                  ---                ---

Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

                               Yes          No  X
                                   ---         ---

If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-________
<PAGE>

This Form 6-K consists of the following:

1.   Quarterly report of QSC AG (the "Company" or "QSC") for the quarter ended
     September 30, 2002.
<PAGE>

                                     QSC AG

              QUARTERLY REPORT FOR QUARTER ENDED SEPTEMBER 30, 2002

                                QSC AT A GLANCE

                                             01/01/-30/09/  01/01/-30/09/
                                                  2002           2001
------------------------------------------------------------------------------
All amounts in million EUR
------------------------------------------------------------------------------
Revenues                                          33.6           20.2

EBITDA (1)                                       -45.4          -64.6

EBIT (2)                                         -72.3          -83.7

Net loss                                         -74.9          -78.3
------------------------------------------------------------------------------
Net loss per common share (3) (in EUR)           -0.74          -0.77
------------------------------------------------------------------------------
Equity                                           171.3 (4)      240.0 (5)

Balance Sheet Total                              210.5 (4)      298.0 (5)

Equity ratio (in %)                               81.4           80.5
------------------------------------------------------------------------------
Capital Expenditure                                7.1           36.9

Liquidity                                        102.6 (4)      153.8 (5)
------------------------------------------------------------------------------
Share price as of 30/09/(in EUR)                  0.46           1.02

Number of shares as of 30/09/              105,008,714    105,008,714

Market capitalisation as of 30/09/                48.3          107.1

Employees                                          322 (4)        247 (6)
------------------------------------------------------------------------------

(1)  Earnings before interest, taxes, depreciation and amortization

(2)  Earnings before interest and taxes

(3)  basic and diluted

(4)  as of September 30, 2002

(5)  as of December 31, 2001

(6)  as of September 30, 2001

<PAGE>

                               TABLE OF CONTENTS

                                             Company Report

                                        03.  Business Development

               QSC's overview

11.  Statements of Operations

12.            Balance Sheets

14.   Statements of Cash Flow

16.      Statements of Equity

                                             Appendix

                                        18.  Notes

                                        25.  M D & A

                                        34.  Glossary

                                        37.  Calendar/Contacts


                             EXPERIENCED MANAGEMENT

Dr. Bernd Schlobohm           The engineering post graduate founded QSC and
                              heads engineering and strategy.

Gerd Eickers                  The experienced telecommunications specialist is
                              also a co-founder. He is responsible for customer
                              service, order management and regulatory affairs.

Markus Metyas                 The former investment banker is in charge of
                              finance, human resources and legal affairs.

Bernd Puschendorf             With many years of first hand sales experience, he
                              has assumed responsibility for the areas sales and
                              marketing in March 2002.



                                      -2-
<PAGE>

                                 COMPANY REPORT

     QSC  reduces  cash  burn  for the  sixth  time in a row.  In  spite  of the
difficult overall economic  environment,  QSC AG continued to improve its EBITDA
and cash flow in the third quarter of 2002.  During the third quarter,  which is
traditionally  weak due to the slow summer months, the Company was able to reach
a slight  revenue gain over the strong second quarter of 2002 (Q2 2002: EUR 12.0
million).  At EUR 12.1 million,  QSC grew its quarterly revenues by more than 50
percent  year-on-year  (Q3 2001:  EUR 7.8 million).  Revenues for the first nine
months of the current fiscal year totaled EUR 33.6 million, compared to EUR 20.2
million  during the  comparable  prior-year  period,  resulting  in a 66-percent
increase.

     The  percentage  of  higher-margin  revenues  from  business  customers and
project  businesses  continued  to rise during the third  quarter of 2002 with a
positive  impact on the  Company's  EBITDA.  In the third  quarter of 2002,  the
Company's  EBITDA  loss  declined  to EUR -14.2  million,  compared to EUR -18.9
million for the third  quarter of 2001.  This led to an EBITDA loss of EUR -45.4
million during the first nine months of the current fiscal year, compared to EUR
-64.6  million  for the same  period in 2001,  representing  a  reduction  of 30
percent.

     In line with its EBITDA  result,  the  liquidity  development  was improved
again,  with a quarterly cash burn being reduced for the sixth time in a row. In
the third  quarter of 2002,  net cash  outflow  reached  EUR -15.1  million,  as
opposed  to EUR -17.1  million  for the second  quarter of 2002.  For the coming
quarters,  QSC anticipates  that its net cash outflow will decline by an average
of around EUR 1.5 million per  quarter.  Cash and cash  equivalents  totaled EUR
102.6 million on September  30, 2002,  compared to EUR 153.8 million on December
31, 2001.

Revenues (in million EUR)
       0          2          4          6          8          10         12
       |----------|----------|----------|----------|----------|----------|

Q1/01  -------------------------------|
Q2/01  ----------------------------------------|
Q3/01  -------------------------------------------|
Q4/01  ----------------------------------------------------|
Q1/02  ------------------------------------------------------|
Q2/02  ------------------------------------------------------------------|
Q3/02  -------------------------------------------------------------------|



Cash outflow (in million EUR)
       0        8       16       24       32       40       48
       |--------|--------|--------|--------|--------|--------|

Q1/01  --------------------------------------------------|
Q2/01  --------------------------------------------|
Q3/01  ---------------------------------------|
Q4/01  -------------------------|
Q1/02  ---------------------|
Q2/02  -------------------|
Q3/02  -----------------|

                                      -3-
<PAGE>
     Focus on project  business.  Its  powerful  broadband  network in all major
German business centers as well as a portfolio of products and services that are
tailored  to the needs of business  customers  make QSC an  attractive  business
partner for  organizations  of every size. After signing up Kaufhof retail group
in the summer of 2002, QSC won further  interesting  project business  contracts
this fall. Since mid November 2002 - following an installation phase of only six
weeks-QSC has connected 103 Q2 shops in Germany over Q-DSL.

     Building  upon  its  fast  broadband  access,  QSC is able to  offer  major
corporations  one-stop  shopping for end-to-end  communication  solutions.  This
enables  the swift  implementation  of virtual  private  networks  (VPN) and the
efficient installation of special security solutions. Aside from its tailor-made
project  business,   QSC's  Q-VPN  and  Q-Security   products  offer  small  and
medium-size  companies  cost-effective and standardized options for implementing
end-to-end VPN and security solutions with a minimum of effort.

     In addition to its solutions and project business,  QSC is also focusing on
selling its Q-DSL  business  and Q-DSL office  products for business  customers.
Thanks to  positive  response  on the part of small and  medium-size  companies,
these products are accounting for a growing share of QSC's revenues. The Company
is also currently  benefiting from the weak position of some of its competitors.
During the third quarter of 2002, QSC migrated well over 100 business  customers
to its network from Internet service provider Energis-Ision.

     Since the third quarter of 2002,  QSC has begun to use its Q-Voice  product
to bundle its Q-DSL business product for business customers with a digital voice
solution.  In addition to  familiar  ISDN  convenience  and  security  features,
Q-Voice also offers up to eight  parallel  voice  channels on one broadband line
which  is  based  upon  digital  network  standards  (e.g.  ATM)  of the  latest
generations.  This enables QSC to offer  attractive and innovative  tariffs that
include,  for example,  1,000 free minutes per month of local calls and calls to
other Q-Voice customers.  Q-Voice is making the Company an integrated data/voice
telecommunication  provider for  business  customers.  With its current  product
offering, QSC views itself as being well positioned to meet the continued growth
in demand for broadband solutions from business customers.

     Business  with  resellers,  on the other hand,  essentially  consisting  of
Internet  service  providers  (ISP) to whom QSC  supplies  DSL  lines,  declined
moderately as a result of continuing  consolidation  in the ISP sector.  Against
this backdrop,  the Company's decision to launch its own Q-DSL product family in
the spring of 2001, in addition to the speedw@y-DSL  reseller product,  has been
fully  vindicated.  Nevertheless,  the reseller  business with reliable and well
performing  partners  continues to remain an important element of QSC's business
model.

                                      -4-
<PAGE>

     Optimizing the distribution channels. QSC took advantage of the slow summer
months to push the  introduction  of its new sales model both  internally and in
close coordination with partners.  Today, key account managers serve project and
larger business  customers,  while  independent  sales teams target companies in
broadband-related  areas such as the film and media  industries,  the CAD sector
and, to an increasing extent, the healthcare industry as well.

     Sales  activities were supported by the Company's  marketing  offensive for
its QSC products and solutions.  This includes  pinpointed  advertising  for the
Q-DSL product family, as well as efficient communication between QSC and opinion
leaders,  in  particular  the press.  The media are  increasingly  including QSC
products in their technology and pricing comparisons.  In one test, for example,
the IT magazine Network World evaluated the outstanding  price-performance ratio
of Q-DSL business by comparison with dedicated leased lines.

     QSC  places  a  great  deal  of  emphasis  on  continuously  reviewing  the
effectiveness of these kinds of communication  activities.  A marketing campaign
that focused on the Cologne and Frankfurt  metropolitan  areas and was supported
by accompanying advertisements in business and IT magazines as well as in online
media  produced a  quantifiable  increase in the brand  awareness of QSC and the
Q-DSL product family.

     The  Company's  focus  on  the  business  customer  segment  also  led to a
realignment  of its  consumer  business  during the third  quarter of 2002.  The
establishment  of an  independent  business  unit  went  hand in hand  with  the
creation of a separate Internet and marketing presence (www.q-dsl-home.de).  QSC
is now  selling  more  than 90  percent  of its Q-DSL  home  lines  through  the
Internet.


                                      -5-

<PAGE>

     Rigorous cost  management  bearing fruit.  For the sixth time in a row, QSC
lowered its quarterly net cash outflow, while further improving its EBITDA. This
development  is  primarily  attributable  to  the  Company's  growing  share  of
higher-margin direct revenues with business customers which added to the effects
of an ongoing efficiency improvement program and a rigorous cost management.

     At EUR 14.4 million,  network  expenses,  which are reported  under cost of
revenues,  continued to remain the largest expense item during the third quarter
of 2002. Year-on-year, network expenses declined 25 percent in the third quarter
of 2002 (Q3 2001: EUR 19.1  million),  in spite of revenue growth of 55 percent.
This significant  improvement is directly  attributable to measures initiated by
QSC to optimize its network  operations and underscores the potential offered by
the scalability of the Company's business model.

     Sales and marketing  expenses  totaled EUR 8.9 million in the third quarter
of 2002. This year-on-year rise (Q3 2001: EUR 4.9 million) is a manifestation of
QSC's strongly growing business activities. General administration costs, on the
other  hand,  remained  virtually  unchanged  at EUR 2.8  million  for the third
quarter of 2002,  compared  to EUR 2.5  million  for the third  quarter of 2001.
Right from the start,  QSC AG has  positioned  itself in a way that  enables the
Company to cope with a growing volume of business without the need for any major
capital investments or additional expenses.

     QSC's EBITDA loss for the third quarter of 2002 stood at EUR -14.2 million,
compared to EUR -18.9 million for the third quarter of 2001.  This  represents a
further  improvement over the strong second quarter of 2002, with an EBITDA loss
of EUR -14.9 million.

     During the first nine months of the current fiscal year, QSC recorded a net
loss of EUR -74.9  million,  compared to EUR -78.3 million during the prior-year
period. There was a EUR -27.3 million net loss for the third quarter of 2002 (Q3
2001: EUR -23.6  million).  This includes a full  write-off on QSC's  25-percent
strategic  investment  in Netchemya  S.p.A.  of Milan,  Italy.  During the third
quarter  of  2002,  one of  Netchemya's  shareholders,  TISCALI  S.p.A.,  made a
strategic   decision  to  no  longer  serve  as  a  reseller   for   Netchemya's
network-based  services.  Since  this  meant it would no longer be  possible  to
assure that the  Company's  business  plan could be financed and  executed,  the
shareholders  resolved to liquidate Netchemya.  Consequently,  QSC wrote off the
net book value of EUR 4.1 million in full.

                                      -6-
<PAGE>

     Sufficient  headcount for further growth.  In connection with the merger of
its two wholly owned  subsidiaries  GINKO AG and COMpoint  GmbH with QSC AG, the
size of the Company's  workforce again rose moderately  during the third quarter
of 2002.  With a headcount of 322 people,  the workforce was five percent larger
than its level on June 30,  2002.  The  increase  of 75 people over the level on
September  30, 2001,  reflects the changes the Company is undergoing as it moves
from being a pure infrastructure  vendor to a solutions-driven  service provider
for business customers.

     This  necessitated  an  increase  in  human  resources,  especially  in the
Company's  customer-related  service  areas,  as well as in sales and marketing.
Over  one half of the  workforce  is now  active  in these  fields.  To  further
heighten the  Company's  focus on the needs of its  customers,  QSC is presently
concentrating  on customer  relationship  management  and  customer  care in its
ongoing in-house training program. By the beginning of next year, each and every
employee - from the  receptionist  right through to the CEO - will have attended
workshops dealing with these training areas.

     The reorganization and strengthening of the sales organization,  as well as
the  integration of the teams from GINKO and COMpoint,  went hand in hand with a
realignment  of marketing  activities  at QSC during the third  quarter of 2002.
Product   Management   and  Marketing,   which  had  previously   been  separate
departments,  were consolidated and are now collaborating  even more closely and
efficiently.

     Engineering serves as the second major element in QSC's business model. 102
engineers  and  technicians  are working to assure  smooth  operation of the DSL
network.

     At the  close of the  third  quarter  of 2002,  QSC had a  well-positioned,
qualified and motivated team in place that will be able to achieve the Company's
anticipated growth with the available resources.

Workforce structure

     4.0%      Board, Strategic Planning, Business Development

    31.7%      Engineering

    12.4%      Finance/Administration

    27.0%      Sales and Marketing

    24.9%      Customer Care

                                      -7-
<PAGE>

     QSC banking on transparency and quality.  During the third quarter of 2002,
capital  markets  around the world  continued to slide,  with concerns about the
value of business models increasingly extending to mature industrial and service
companies.  The telecommunication  sector was especially hard-hit by discussions
about the strategic  positioning and  survivability  of companies in the sector,
including some of the largest telecommunications  companies in the world. At the
outset of the fourth  quarter of 2002, it would appear that the situation in the
capital markets is beginning to calm down a bit, in spite of a persistently weak
economy.  Regardless of the unsatisfactory  share price level, QSC is sustaining
its policy of providing open and comprehensive information to all capital market
participants.

     QSC AG views itself as being well  positioned  for the new so-called  Prime
Standard that was presented by Deutsche Borse in the autumn of 2002. The Company
has high hopes  that the  dissolution  of the  private-sector  Neuer  Markt will
tighten quality requirements in this premium segment, which could offset some of
the  confidence  lost over the  course of the past two years in the Neuer  Markt
segment.  QSC views its ability to continuously  satisfy the expectations of the
capital market as being its most important confidence building measure.

     In numerous  personal meetings with opinion leaders,  management  explained
its  successes in  executing  the  Company's  business  model and the  sustained
improvement  of its liquidity and results  developments.  QSC also  communicates
actively with retail investors via e-mail and telephone.

Ownership structure

     30.0%     Founders, Management, Employees, Supervisory Board

     37.7%     Free Float

     32.3%     Baker Communications Fund

                                      -8-
<PAGE>

     Outlook:  QSC confirms earnings forecast for 2002. The economic environment
in Germany  turned even more dismal during the third  quarter of 2002.  Economic
researchers  now  anticipate  almost no growth for the  current  year and a very
hesitant  recovery for the coming  year.  QSC is doing a good job of holding its
own in this environment.  Its offerings of broadband telecommunication solutions
are  meeting  strong  interest  from  business  customers,  and QSC's  swift and
efficient  implementation of these solutions is forging the foundation for trust
based, long-term customer relationships.

     Consequently,  the Company is continuing to rigorously  expand its directly
addressable  business customer segment,  and is systematically  rounding out its
portfolio of products and solutions in this segment.  The nationwide  rollout of
Q-VPN,  which enables virtual private  networks to be created,  is making QSC an
interesting  partner for enterprises with multiple branch operations in Germany.
Q-VPN allows them to build self-contained  enterprise networks without having to
invest in costly  hardware and  software.  The QSC network  enables  every Q-VPN
location to operate as if it were at  headquarters,  to utilize all applications
and access all data in the Q-VPN group.  This means that  businesses can easily,
cost-effectively and securely set up telecommuting workplaces or combine working
groups in various  locations  into virtual teams - two issues that are playing a
steadily growing role in today's corporate routine.

     Q-Voice,  which was  launched  in six  cities,  for the first time  enables
business  customers  to cover all of their  telecommunication  needs with QSC as
their partner.  They can send and receive  broadband data over a single DSL line
from QSC and at the same time conduct up to eight  simultaneous  ISDN  telephone
calls.

     The positive response to these new products on the part of QSC's customers,
as well as the  Company's  positioning  as a provider of  integrated  data/voice
solutions for broadband communication, are strengthening QSC's conviction in its
February 2002 forecast that - in spite of the extremely  difficult  economy - it
would  reduce its EBITDA  loss from EUR -85.4  million in 2001 to EUR -60 to -70
million in 2002. As things stand today, QSC anticipates that its annual revenues
will come in at around the lower end of its projected revenue range of EUR 46 to
54 million. The Company continues to plan on reaching the EBITDA breakeven point
during the course of 2003 and the cash flow breakeven point during the course of
2004.

                                      -9-
<PAGE>
                        [Page Intentionally Left Blank]

                                      -10-

<PAGE>

                            STATEMENTS OF OPERATIONS

Consolidated Statements of Operations (unaudited)
     (EUR amounts in thousands (TEUR), except for per share amounts)

<TABLE>
<CAPTION>
                                                         for the three months ended         for the nine months
                                                               September 30,                ended September 30,
                                                            2002            2001            2002            2001
                                                          in TEUR         in TEUR         in TEUR         in TEUR
------------------------------------------------------ --------------- --------------- --------------- ---------------
<S>                                                           <C>            <C>             <C>             <C>
Net revenues                                                   12,125           7,784          33,648          20,201
------------------------------------------------------
  Cost of revenues                                             14,418          19,100          45,726          61,493
Gross loss                                                    (2,293)        (11,316)        (12,078)        (41,292)
------------------------------------------------------
  Selling and marketing expenses                                8,864           4,865          23,047          14,494
  General and administrative expenses                           2,797           2,503           9,422           7,896
  Research and development expenses                               290             234             877             942
  Amortization of goodwill                                          -              90               -             174
  Depreciation and amortization                                 9,632           7,297          26,865          18,853
    (including TEUR 5,256 in non-cash
    Compensation in the 9 months ended
    September 30, 2002; 9 months ended September 30,
    2001: TEUR 3,795)
    Operating loss                                           (23,876)        (26,305)        (72,289)        (83,651)
------------------------------------------------------
Other income (expenses)
  Interest income                                               1,140           3,098           3,084           7,650
  Interest expense                                                (5)            (85)           (105)           (216)
  Share of post acquisition losses of equity
    method investees                                          (4,570)           (309)         (5,431)         (2,120)
  Other non-operating income (loss)                              (11)               4           (138)              32
Net loss before income taxes                                 (27,322)        (23,597)        (74,879)        (78,305)
------------------------------------------------------
  Income taxes                                                      -               -               -               -
Net Loss                                                     (27,322)        (23,597)        (74,879)        (78,305)
------------------------------------------------------
  Net loss per common share (basic and diluted)                (0.27)          (0.23)          (0.74)          (0.77)
  Weighted average shares outstanding
    (basic and diluted)                                   101,134,647     101,134,647     101,134,647     101,134,647
------------------------------------------------------ --------------- --------------- --------------- ---------------
</TABLE>

      The accompanying notes to unaudited consolidated financial statements
                   are an integral part of these statements.

                                      -11-
<PAGE>

                                 BALANCE SHEETS

Consolidated Balance Sheets (unaudited)
     (EUR amounts in thousands (TEUR))

<TABLE>
<CAPTION>
                                                                            as of
                                                              Sept. 30, 2002      Dec. 31, 2001
                                                                  in TEUR            in TEUR
------------------------------------------------------------ ------------------ -----------------
ASSETS
------------------------------------------------------------
<S>                                                                    <C>               <C>
Current assets
  Cash and cash equivalents                                             60,717           153,776
  Held-to-maturity securities                                           41,899                 -
  Trade accounts receivable, net                                        12,176            15,581
  Trade accounts receivable due from related parties                       336               681
  Unbilled receivables                                                     199             7,256
  Other receivables                                                      8,890            17,430
  Prepayments and other current assets                                   4,569             2,316
Total current assets                                                   128,786           197,040
------------------------------------------------------------
Non-current assets
  Property, plant and equipment, net
     Networking equipment and plant                                     67,726            82,096
     Operational and office equipment                                    6,962             7,576
  Total property, plant and equipment, net                              74,688            89,672
  Intangible assets, net
     Licenses                                                            1,990             2,205
     Software                                                            1,790             2,043
     Goodwill                                                            2,393             1,407
     Others                                                                  6                 8
  Total intangible assets, net                                           6,179             5,663
  Investment in equity method investees                                    301             4,996
  Other non-current assets                                                 578               603
Total non-current assets                                                81,746           100,934
------------------------------------------------------------
Total assets                                                           210,532           297,974
------------------------------------------------------------
</TABLE>

                                      -12-
<PAGE>

Consolidated Balance Sheets (unaudited)
(EUR amounts in thousands (TEUR))

<TABLE>
<CAPTION>
                                                                            as of
                                                              Sept. 30, 2002      Dec. 31, 2001
                                                                  in TEUR             in TEUR
------------------------------------------------------------ ------------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------------------------------ ------------------ -----------------
<S>                                                                     <C>               <C>
LIABILITIES
Current liabilities
  Short-term debt and current portion of long-term debt                      -               357
  Trade accounts payable                                                19,518            23,591
  Trade accounts payable due to related parties                            220            13,199
  Accrued liabilities                                                   15,722            18,769
  Deferred revenues                                                      2,408               883
  Other current liabilities                                              1,090               807
Total current liabilities                                               38,958            57,606
Non-current liabilities
     Convertible bonds                                                      50                39
     Accrued pensions                                                      186               162
     Other non-current liabilities                                           -               201
 Total non-current liabilities                                             236               402
 Total liabilities                                                      39,194            58,008
------------------------------------------------------------
 Shareholders' Equity
     Share capital                                                     105,009           105,009
     Additional paid-in capital                                        473,465           473,480
     Treasury stock                                                      (266)           (3,312)
     Deferred compensation                                             (6,739)          (12,086)
     Receivables due from shareholders                                     (1)               (1)
     Accumulated deficit                                             (400,130)         (323,124)
 Total Shareholders' Equity                                            171,338           239,966
------------------------------------------------------------
 Total liabilities and Shareholders' Equity                            210,532           297,974
-------------------------------------------------------------------------------------------------
</TABLE>

      The accompanying notes to unaudited consolidated financial statements
                   are an integral part of these statements.

                                      -13-
<PAGE>

                             STATEMENTS OF CASH FLOW

Consolidated Balance Sheets (unaudited)
     (EUR amounts in thousands (TEUR))

<TABLE>
<CAPTION>
                                                                                   for the nine months
                                                                                   ended September 30,
                                                                                   2002            2001
                                                                                 in TEUR          in TEUR
---------------------------------------------------------------------------- ----------------- --------------
<S>                                                                             <C>                <C>
Cash flow from operating activities
Net loss                                                                        (74,879)          (78,305)
Adjustments to reconcile net loss to cash used in operating activities
    Non-cash compensation charge                                                  5,256             3,795
    Depreciation and amortization                                                21,609            15,232
    Gain on sale of equipment                                                       (70)               (4)
    Share of post acquisition losses of equity method investees                   5,431             2,120
    Non-cash interest expense                                                        82               136
    Change in operating assets and liabilities
    Decrease in accounts receivable, net                                          3,405             2,897
    Decrease in accounts receivable due to related parties                          345               954
    Decrease in unbilled receivables                                              7,057             4,584
    Decrease/(Increase) in other receivables                                      8,540            (2,822)
    Increase in prepayments and other current assets                             (2,253)           (1,647)
    Decrease/(Increase) in other non-current assets                                  25              (280)
    Decrease in trade accounts payable                                          (17,052)           (7,777)
    Decrease in accrued liabilities                                              (3,047)          (20,039)
    Increase in deferred revenues                                                 1,525               199
    Decrease in accrued taxes                                                         -               (56)
    Increase/(Decrease) in other current liabilities                                283              (169)
    Increase in accrued pensions                                                     24                23
Net cash used in operating activities                                           (43,719)          (81,159)
---------------------------------------------------------------------------- ----------------- --------------
</TABLE>

                                      -14-
<PAGE>

<TABLE>
<CAPTION>
                                                                                   for the nine months
                                                                                   ended September 30,
                                                                                   2002            2001
                                                                                 in TEUR          in TEUR
---------------------------------------------------------------------------- ----------------- --------------
<S>                                                                               <C>             <C>
Cash flow from investing activities
    Purchases of held-to-maturity securities                                      (41,899)              -
    Acquisition of business, net of cash acquired                                  (1,001)         (1,760)
    Purchases of intangible assets                                                   (357)         (1,262)
    Purchases of plant and equipment                                               (5,969)        (33,877)
    Proceeds from sale of equipment                                                   231               9
Net cash used in investing activities                                             (48,995)        (36,890)
----------------------------------------------------------------------------
Cash flow from financing activities
    Payment in short-term debt and current portion                                   (357)           (384)
      of long-term debt
    Issuance/(Redemption) of convertible bonds                                         12              (1)
    Purchases of treasury stock                                                         -            (402)
Net cash used in financing activities                                                (345)           (787)
----------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                         (93,059)       (118,836)
    Cash and cash equivalents at beginning of year                                153,776         294,780
Cash and cash equivalents at end of period                                         60,717         175,944
----------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the period for
    Interest expense                                                                   23              80
    Income taxes                                                                        -               -
---------------------------------------------------------------------------- ----------------- --------------
</TABLE>

     The accompanying notes to unaudited consolidated financial statements
                   are an integral part of these statements.

                                      -15-
<PAGE>

                              STATEMENTS OF EQUITY

Consolidated Statements of Shareholders' Equity from January 1, 2001 to
   September 30, 2002 (unaudited) (EUR amounts in thousands (TEUR), except for
   per share amounts)

<TABLE>
<CAPTION>
                                             ---------------------- --------------------- ------------ ----------- -----------
                                                                                                       Deferred
                                                                                          Additional   Compen-
                                                Ordinary Shares       Treasury Shares       Paid-in    satio        Accumu.
                                                    Amount                 Amount           Capital     Account     Deficit
                                             ---------------------- --------------------- ------------ ----------- -----------
                                                Shares      TEUR      Shares      TEUR       TEUR         TEUR        TEUR
-------------------------------------------- ------------- -------- ----------- --------- ------------ ----------- -----------
<S>                 <C>                       <C>          <C>         <C>       <C>          <C>        <C>        <C>
 Balance at January 1, 2001                   105,008,714  105,009     934,954   (4,125)      477,304    (21,515)   (217,532)
-------------------------------------------- ------------- -------- ----------- --------- ------------ ----------- -----------
    Purchase of treasury stock (January 1,                              88,512      (66)        (890)         890
    2001)

    Convertible bonds forfeited due to                                                           (23)          23
    termination of employment (January 1,
    2001)

    Purchase of treasury stock (May 1,                                 366,052     (286)      (3,674)       3,674
    2001)

    Convertible bonds forfeited due to                                                          (136)         136
    termination of employment (May 1, 2001)

    Initial deferred compensation recorded                                                        441       (441)
    (July 1, 2001)

    Purchase of treasury stock (July 1,                                  9,126      (50)         (68)          68
    2001)

    Reissue of treasury  stock  (October 1,                          (273,171)     1,215
    2001)

    Initial deferred  compensation recorded                                                       526       (526)
    (October 1, 2001)

    Amount amortized during the period                                                                      5,605       (691)
    Net loss                                                                                                        (104,901)

 Balance at December 31, 2001                 105,008,714  105,009   1,125,473   (3,312)      473,480    (12,086)   (323,124)
-------------------------------------------- ------------- -------- ----------- --------- ------------ ----------- -----------
</TABLE>

<TABLE>
<CAPTION>
                                              ------------ -------------------------------------
                                               Receivab.         Total Shareholders' Equity
                                               Due from
                                              Shareholders'
                                              ------------ -------------------------------------
                                                 TEUR                      TEUR
--------------------------------------------  ------------ -------------------------------------
<S>                 <C>                               <C>                               <C>
 Balance at January 1, 2001                           (1)                               339,140
--------------------------------------------  ------------ -------------------------------------
    Purchase of treasury stock (January 1,                                                 (66)
    2001)

    Convertible bonds forfeited due to                                                        -
    termination of employment (January 1,
    2001)

    Purchase of treasury stock (May 1,                                                    (286)
    2001)

    Convertible bonds forfeited due to                                                        -
    termination of employment (May 1, 2001)

    Initial deferred compensation recorded                                                    -
    (July 1, 2001)

    Purchase of treasury stock (July 1,                                                    (50)
    2001)

    Reissue of treasury  stock  (October 1,                                               1,215
    2001)

    Initial deferred  compensation recorded                                                   -
    (October 1, 2001)

    Amount amortized during the period                                                    4,914
    Net loss                                                                          (104,901)

 Balance at December 31, 2001                         (1)                               239,966
--------------------------------------------  ------------ -------------------------------------
</TABLE>

                                      -16-
<PAGE>

<TABLE>
<CAPTION>
                                             ---------------------- --------------------- ------------ ----------- -----------
                                                                                                       Deferred
                                                                                          Additional   Compen-
                                                Ordinary Shares       Treasury Shares       Paid-in    satio        Accumu.
                                                    Amount                 Amount           Capital     Account     Deficit
                                             ---------------------- --------------------- ------------ ----------- -----------
                                                Shares      TEUR      Shares      TEUR       TEUR         TEUR        TEUR
-------------------------------------------- ------------- -------- ----------- --------- ------------ ----------- -----------
<S>                 <C>                       <C>          <C>         <C>       <C>          <C>        <C>        <C>
    Reissue of treasury  stock  (January 1,                          (575,000)     2,869                              (2,127)
    2002)
    Convertible   bonds  forfeited  due  to                                                      (45)          45
    termination  of employment  (January 1,
    2002)
    Reissue  of  treasury  stock  (April 1,                          (191,726)       177           76
    2002)
    Convertible   bonds  forfeited  due  to                                                      (46)          46
    termination  of  employment  (April  1,
    2002)
    Amount amortized during the period                                                                      5,256
    Net loss                                                                                                         (74,879)
 Balance at September 30, 2002                105,008,714  105,009     358,747     (266)      473,465     (6,739)   (400,130)
-------------------------------------------- ------------- -------- ----------- --------- ------------ ----------- -----------
</TABLE>

<TABLE>
<CAPTION>
                                              ------------ -------------------------------------
                                               Receivab.         Total Shareholders' Equity
                                               Due from
                                              Shareholders'
                                              ------------ -------------------------------------
                                                 TEUR                      TEUR
--------------------------------------------  ------------ -------------------------------------
<S>                 <C>                               <C>                               <C>
    Reissue of treasury  stock  (January 1,                                                 742
    2002)
    Convertible   bonds  forfeited  due  to                                                   -
    termination  of employment  (January 1,
    2002)
    Reissue  of  treasury  stock  (April 1,                                                 253
    2002)
    Convertible   bonds  forfeited  due  to                                                   -
    termination  of  employment  (April  1,
    2002)
    Amount amortized during the period                                                    5,256
    Net loss                                                                           (74,879)
 Balance at September 30, 2002                        (1)                               171,338
--------------------------------------------  ------------ -------------------------------------
</TABLE>

     The accompanying notes to unaudited consolidated financial statements
                   are an integral part of these statements.

                                      -17-
<PAGE>

               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

         (EUR amounts in thousands (TEUR), except for per share amounts)

1.   Organization and basis of presentation

     (a)  Organization.  QSC AG (in the  following  referred  to as  "QSC")  was
     incorporated in January 1997 as a limited  liability company under the name
     QS  Communication  Service  GmbH.  In  the  second  half  of  1999,  it was
     registered as a  joint-stock  company in Cologne,  North-Rhine  Westphalia,
     Germany,  under the name QS  Communications  AG. The annual general meeting
     held on May 17, 2001 resolved that the Company  changes its corporate  name
     from "QS Communications AG" to "QSC AG".

     QSC  offers its  business  and  residential  customers  DSL-based  (Digital
     Subscriber Line) broadband "always-on" connections to the Internet, with up
     and downstream  data transfer rates going up to 2.3 Mbit/s.  DSL-technology
     makes  efficient  use of the last  mile on the basis of  unbundled  network
     access,  thus  multiplying data traffic speeds by a factor of several times
     compared with standard  subscriber  connections.  The QSC broadband network
     covers the 40 largest  cities in Germany and  reaches  more than 20 million
     potential users.  QSC provides its services through sales partners,  mainly
     Internet  service  providers  acting  as  resellers.  QSC also  serves  the
     end-user  market selling its products and services either direct or through
     retail and distribution partners.

     (b) Basis of presentation. The interim consolidated financial statements of
     QSC are  unaudited  and have been  prepared in  accordance  with  generally
     accepted accounting principles in the United States ("US GAAP") for interim
     financial reporting.  Certain information and footnote disclosures normally
     included in financial  statements  prepared in accordance with US GAAP have
     been condensed or omitted  pursuant to such rules and  regulations.  In the
     opinion of management, the financial statements reflect all adjustments (of
     a normal and recurring  nature)  which are necessary to present  fairly the
     financial  position,  results of operations  and cash flows for the interim
     periods.  The financial  statements  should be read in conjunction with the
     audited consolidated financial statements as of December 31, 2001 and 2000.
     The  results for the nine month  period  ended  September  30, 2002 are not
     necessarily  indicative  of the results  that may be expected  for the year
     ending December 31, 2002.

     All amounts except per share amounts are in thousands of EUR (TEUR).

                                      -18-
<PAGE>


     (c) Principles of  consolidation.  The  consolidated  financial  statements
     include  the  accounts  of  QSC  and  its  subsidiaries.   All  significant
     inter-company  transactions have been eliminated in the consolidation.  The
     equity method of accounting is used for companies and other  investments in
     which QSC has significant influence. Generally this represents ownership of
     at least 20% and not more than 50%.

2.   Significant accounting policies

     (a) Recently issued statements of financial accounting  standards.  In July
     2001, the Financial Accounting Standards Board ("FASB") issued Statement of
     Financial  Accounting  Standards ("SFAS") 141, "Business  Combinations" and
     SFAS 142,  "Goodwill and Other Intangible  Assets".  SFAS 141 requires that
     all business  combinations  initiated  after June 30, 2001 be accounted for
     under the  purchase  method  and  addresses  the  initial  recognition  and
     measurement of goodwill and other intangible  assets acquired in a business
     combination.  SFAS 142 addresses the initial recognition and measurement of
     intangible  assets  acquired  outside  of a  business  combination  and the
     accounting  for goodwill and other  intangible  assets  subsequent to their
     acquisition.  SFAS 142 provides that  intangible  assets with finite useful
     lives be amortized and that goodwill and intangible  assets with indefinite
     lives  not  be  amortized,  but,  rather,  tested  at  least  annually  for
     impairment.  Under US GAAP, we adopted SFAS 142 as of January 1, 2002,  and
     stopped,  at that time,  amortizing  goodwill  that  resulted from business
     combinations  completed prior to the adoption of SFAS 141. On adoption, the
     Company  concluded  that no  intangible  assets  other then  goodwill  have
     indefinite lives.

     SFAS  142  requires  that  the  Company  completes  a  first  phase  of the
     impairment  review for goodwill and intangible assets with indefinite lives
     by June 30, 2002. The impairment test  demonstrated  that the fair value of
     the  business  exceeds  its  carrying  amount  and  had  no  impact  on our
     consolidated  financial  statements.  In the first nine months of 2002, QSC
     recorded  no goodwill  amortization  charge.  Had QSC  adopted  SFAS 142 on
     January l, 2001. QSC would not have recorded a goodwill amortization charge
     of TEUR 84 for the first six months  ended  June 30,  2001.  Therefore  the
     adjusted net loss for the first six

                                      -19-

<PAGE>

     months of 2001  would  have been TEUR  54,624.  The  adjusted  net loss per
     common share would not have been  different  from the reported net loss per
     common share.

     In June 2001, the FASB issued SFAS 143,  "Accounting  for Asset  Retirement
     Obligations".  SFAS 143 requires  that the fair value of a liability for an
     asset  retirement  obligation  be  recognized  in the period in which it is
     incurred if a reasonable estimate of fair value can be made. The associated
     asset  retirement  costs are  capitalized as part of the carrying amount of
     the  long-lived  asset.  SFAS 143 is effective  for fiscal years  beginning
     after June 15, 2002. Currently, QSC does not anticipate any material impact
     on its results of  operation  or its  financial  position  arising from the
     adoption of SFAS 143.

     In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
     Disposal of Long-Lived  Assets".  SFAS 144 establishes a single  accounting
     model for long-lived  assets to be disposed of by sale  consistent with the
     fundamental  provisions  of SFAS 121,  "Accounting  for the  Impairment  of
     Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS 144 is
     effective for fiscal years  beginning  after  December 15, 2001 and interim
     periods within those fiscal years, with early application  encouraged.  The
     provisions of the statement are generally to be applied prospectively.  QSC
     currently does not intend to dispose of any operation and accordingly, does
     not anticipate that adoption of SFAS 144 will have a material impact on its
     results of operations or its financial  position.  In April 2002,  the FASB
     issued SFAS 145 "Rescission of FASB Statements No. 4, 44 and 64,  Amendment
     of FASB Statement No. 13 and Technical  corrections".  The principal change
     is that gains or losses from extinguishment of debt which are classified as
     extraordinary  items by SFAS 4 will no longer be  classified  as such.  The
     provisions of SFAS 145 are effective for fiscal years  beginning  after May
     15,  2002  although  early  application  of the  Statement  related  to the
     rescission  of SFAS 4 is  encouraged.  QSC plans to adopt  SFAS 145 for the
     fiscal year ending December 31, 2003.

     In June 2002,  the FASB issued SFAS 146  "Accounting  for costs  associated
     with  disposal or exit  activities".  This  Statement  addresses  financial
     accounting  and  reporting  for  costs  associated  with  exit or  disposal
     activities and nullifies  Emerging  Issues Task Force (EITF) Issue No. 94-3
     "Liability  Recognition for Certain Employee Termination Benefits and Other
     Costs  to  Exit  an  Activity   (including  Certain  Costs  Incurred  in  a
     Restructuring)".  This  Statement  requires  that  a  liability  for a cost
     associated  with  an exit or  disposal  activity  be  recognized  when  the
     liability  is incurred.  Under Issue 94-3, a liability  for an exit cost as
     defined in Issue 94-3 was recognized at the date of an entity's  commitment
     to an exit plan. However,  this standard does not apply to costs associated
     with exit activities involving

                                      -20-

<PAGE>

     entities  acquired  under  business  combinations  or  disposal  activities
     covered under SFAS 144. QSC does not  anticipate  that adoption of SFAS 146
     will have a material  impact on its results of  operations or its financial
     position.

     (b) Use of estimates in the  preparation of the financial  statements.  The
     preparation  of the  financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported  amounts and disclosure 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.

     (c) Cash, cash equivalents and  held-to-maturity  securities.  The cash and
     cash equivalents consist of bank balances, cash on hand and debt securities
     with  an  original  term  of  three  months  maximum.  The  securities  are
     held-to-maturity  securities  and in  accordance  with SFAS 115 reported at
     amortized cost.

     (d) Loss per share. Under SFAS 128 "Earnings per share",  loss per share is
     computed by dividing loss applicable to common stockholders by the weighted
     average  number of shares of QSC's  common stock  outstanding  exclusive of
     shares subject to repurchase if specified  conditions are not met.  Diluted
     earnings per share are calculated in the same manner except that the number
     of shares is  increased  assuming  exercise of dilutive  stock  options and
     conversion of convertible preferred stock where these are dilutive.

     For the nine months ended  September 30, 2001 and 2002, the dilutive effect
     of options and preferred stock was not considered  because QSC recorded net
     losses and the impact of their assumed exercise would be anti-dilutive.

     The loss per share  calculation does not include 3,874,067 shares issued to
     employees through the exercise of convertible  bonds,  which are subject to
     forfeiture,  nor does it include the effect of the possible  conversion  of
     convertible  bonds into 5,073,733  shares of QSC common stock. The loss per
     share  calculation  does not include  47,484,647  preferred  shares for the
     period January l, 2000 to May 4, 2000. The 47,484,647 preferred shares were
     converted  into  47,484,647  ordinary  shares of QSC on May 5, 2000,  as of
     which date they were included in the loss per share computation.

                                      -21-
<PAGE>

     (e) Goodwill.  Goodwill consists of the excess purchase price over the fair
     value of the identifiable net assets acquired in acquisitions. Such amounts
     were amortized using the straight-line  method over 4 years, until December
     31, 2001. With the adoption of SFAS 142 as of January l, 2002,  goodwill is
     no longer amortized,  but, rather, tested at least annually for impairment.
     We  refer  to  a)  "Recently  issued  statements  of  financial  accounting
     standards".

     (f)  Segment  information.   QSC  applies  the  "management"   approach  in
     accordance with SFAS 131,  "Disclosures about Segments of an Enterprise and
     Related Information",  for identifying  reportable segments. The management
     approach designates the internal organization used by management for making
     operating  decisions  and  assessing  performance  as the  source  of QSC's
     reportable  segments.  QSC  is  operating  in  one  segment:  Internet  and
     corporate network access in Germany.

3.   Investments

     On  February  23,  2001,  QSC  signed  contracts  to acquire a 65% share in
     COMpoint Network Consulting GmbH, Vellmar/Germany ("COMpoint"). COMpoint, a
     limited  liability  company,  is  an  Internet  service  provider  offering
     telecommunications  and network  solutions to its  customers.  On April 22,
     2002, QSC increased its share in COMpoint to 100%.  Total  acquisition cost
     for all shares amount to TEUR 1,285, paid in cash. QSC recorded TEUR 864 of
     goodwill in  connection  with the  purchase of its share in  COMpoint.  QSC
     amortized  TEUR 148 of this goodwill  until  December 31, 2001.  The merger
     between QSC and COMpoint was recorded in the commercial register on July l,
     2002.  Net  loss due to the  merger  amounted  to TEUR  244 and was  offset
     against the consolidated equity.

     On April  24,  2001,  QSC  signed a  contract  to  acquire  a 41%  share in
     Gesellschaft fur Internet-Kommunikation AG, Aachen/Germany ("Ginko"). Ginko
     is an Internet  service  provider  specializing  in the  provision  of fast
     Internet access.  On April 24, 2001, QSC participated in a capital increase
     and with  purchases  on December  14, 2001 and April 2, 3 and 8, 2002,  QSC
     increased its share in Ginko to 100%. Total acquisition cost for all shares
     amount to TEUR  1,717 of which  TEUR l,378 was paid in cash and TEUR 339 in
     shares. QSC recorded TEUR 1,790 of goodwill in connection with the purchase
     of its share in Ginko.  Whereas  TEUR 822 relate to the shares  acquired in
     2002.  TEUR 128 were amortized  until December 31, 2001. The merger between
     QSC and GINKO was  recorded in the  commercial  register on August 2, 2002.
     Net loss due to the merger amounted to TEUR 176 and was offset against

                                      -22-

<PAGE>

     the consolidated  equity.  The acquisitions of both COMpoint and Ginko were
     made for reasons of vertical  integration and have been accounted for under
     the purchase method of accounting.

     On April 26, 2001, the shareholders of ALCHEMIA S.p.A., Milan/Italy, one of
     QSC's strategic  investments made in 2000, resolved to change the Company's
     name to Netchemya  S.p.A.  ("Netchemya").  QSC's share in Netchemya is TEUR
     5,688 or 25%.  TISCALI  S.p.A.  is a  shareholder  of Netchemya  and made a
     strategic  decision in the third quarter of 2002 to discontinue  the resale
     of Netchemya's  network based services.  This has a major adverse impact on
     the funding of Netchemya's future business  activities and the shareholders
     took first measures to discontinue  operations.  QSC has therefore  written
     off its remaining investment in Netchemya of TEUR 4,136.

     On January 28, 2002, QSC fulfilled its commitment  acquiring a 49% interest
     in  Grell  Beratungs  GmbH,  Cologne  ("Grell").  QSC's  payment  for  this
     acquisition  consisted  of  575,000  ordinary  shares of QSC stock at a per
     share value of EUR l.29. Reflecting the recent development of this business
     QSC has written off TEUR 433. QSC uses the equity method for its investment
     in Grell. The book value of this investment is TEUR 301. From January 28 to
     September 30, 2002, QSC recorded post-acquisition losses of TEUR 7 from its
     investment in Grell.

4.   Employee equity incentive program

     QSC accounts for its stock option plans under provisions of APR Opinion 25,
     "Accounting for Stock Issued to Employees" for options granted to employees
     under stock option  plans.  Under APR Opinion 25,  compensation  expense is
     recognized  based on the amount by which the fair  value of the  underlying
     common  stock  exceeds  the  exercise  price of the  stock  options  at the
     measurement date. In the case of SOP2000,  the measurement date is the date
     of  grant.  In  the  case  of  SOP2000A,  the  exercise  price  of  483,169
     convertible  bonds was reduced in November  2000.  The 483,169  convertible
     bonds are therefore accounted for using variable plan accounting. All other
     convertible  bonds and shares  exercised  under SOP2000A have a measurement
     date equal to the grant  date.  The same  applies to the stock  option plan
     SOP2001. As at September 30, 2002, QSC had deferred  compensation  totaling
     TEUR 6,739.  This amount is yet to be amortized  as a charge to  operations
     until the options have been exercised finally.  In the first nine months of
     2002, QSC amortized TEUR 5,256 (2001:  TEUR 3,795).  QSC did not record any
     compensation  expense in  connection  with the  483,169  convertible  bonds
     subject to variable plan accounting. These bonds have a weighted average

                                      -23-
<PAGE>

     exercise  price of EUR  4.23.  QSC's  stock  closed at EUR 0.46 on the last
     trading day of the third  quarter 2002 at the  Frankfurt  Neuer Markt stock
     exchange.

     On May 16, 2002, the annual general meeting  approved a fourth stock option
     plan ("SOP 2002")  authorizing the QSC Management Board to issue up to 2.45
     million  registered  convertible  bonds at 3.5% annual  interest with a par
     value  of EUR  0.01.  The  bonds  have  a term  of up to  five  years.  The
     authorization is limited until May 31, 2005. The holders of the convertible
     bonds have the right to change each bond to a registered no-par value share
     of QSC.  Convertible  bonds may be  allotted  to  employees  of QSC and its
     affiliated  companies,  to members of the Advisory  Board,  the Supervisory
     Board  and  the  Management  Board,  as  well as  advisers  and  consulting
     companies.  The plan will be funded by a conditional capital increase of up
     to TEUR 2,450.  The conversion  price is the closing price of QSC shares on
     the Neuer Markt segment of the Frankfurt  Stock  Exchange on the day of the
     issue of the  convertible  bond.  The  conversion  rights are  subject to a
     lock-up  period,  during which the bonds may not be converted.  The lock-up
     period ends one year after the issue of the bonds for 33% of the conversion
     rights,  two years  after the issue for an  additional  33% and three years
     after the issue for the rest.

5.   Debt

     Other non-current  liabilities of TEUR 236 include convertible bonds of our
     employee  equity  incentive  program  and an accrual for  existing  pension
     obligations.

6.   Allowance for doubtful accounts

     In the first nine months of 2002,  allowance for doubtful  accounts of TEUR
     495 was  recorded.  In the first nine  months of 2001,  the  allowance  for
     doubtful  accounts  was TEUR 62.  In March  2001,  QSC  obtained  insurance
     policies  covering losses on accounts  receivables due to risks which might
     not be detected despite an effective credit management.

                                      -24-
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         (EUR amounts in thousands (TEUR), except for per share amounts)

     The  following  discussion  and analysis of QSC's  financial  condition and
results of  operations  should be read in  conjunction  with the audited  annual
financial statements and the related notes thereto.

l.   Overview

     We commenced  operations in January 1997 as a consulting  company providing
     services in telecommunications  and information  technology.  We phased out
     our consulting business at the end of December 1999.

     We were the first  company  in  Germany to  publicly  announce  plans for a
     nationwide network based on symmetric  DSL-technology  (Digital  Subscriber
     Line) on November  10, 1999.  This  Germany  wide network  rollout has been
     largely  completed  covering  more than 20 million  homes and more than one
     million businesses.

     We offer our  business  and  residential  customers  broadband  "always-on"
     connections  to the  Internet  on the basis of standard  copper  subscriber
     lines. We provide our services through more than 120 sales partners, mainly
     Internet service  providers acting as resellers.  Since March 2001, we have
     been  selling our Q-DSL  product  family to end-user  customers.  The Q-DSL
     product family is available either directly from us or from one of our more
     than 300 retail partners.

2.   Factors affecting future operations

     (a)  Revenues.  We derive  the  following  types of  revenues  from our DSL
     business:

          o    monthly  recurring  service  charges  for  connections  from  the
               end-user customer to our facilities;

          o    monthly  recurring  charges for  providing  sales  partners  with
               broadband capacity at our Metropolitan Service Centres and on our
               backbone;

          o    non-recurring charges for installation and end-user equipment;

          o    monthly recurring charges for providing  equipment housing to our
               sales partners within our Metropolitan Service Centres;

          o    monthly  recurring  charges for the leased-line  fibre connection
               from our sales partners to our Metropolitan Service Centres.

                                      -25-
<PAGE>

     We expect prices for both recurring and non-recurring  services to decrease
     each year due to increased competition and future volume discounts.

     We generate  revenues under our service  agreement with IN-telegence GmbH &
     Co. KG as a network carrier.  These revenues are insignificant  compared to
     our overall revenues.

     (b) Operating expenses. The following factors comprise our operating costs:

          o    Network  expenses:  we pay Deutsche  Telekom monthly rental costs
               for  using  copper-lines   between  the  end-users  and  Deutsche
               Telekom's  central offices  including  nonrecurring  installation
               costs for such  lines.  Network  expenses  also  include  monthly
               rental costs for space within Deutsche  Telekom's central offices
               and for our Metropolitan Service Centres. We pay Deutsche Telekom
               and other  telecommunications  companies  monthly  recurring  and
               non-recurring  costs for lines between Deutsche Telekom's central
               offices and our Metropolitan  Service Centres,  for lines between
               our  Metropolitan  Service Centres and our sales partners and for
               lines  interconnecting  our Metropolitan  Service Centres.  Other
               network  expenses we incur are for repairs and maintenance of our
               network,  for the operation of our network and for the design and
               deployment  of our network.  Network costs may vary in the future
               due to  regulatory  intervention  concerning  the monthly  rental
               costs for space within Deutsche  Telekom's  central  offices.  We
               expect  leased line costs for lines between  central  offices and
               Metropolitan  Service  Centres,  for lines  between  Metropolitan
               Service  Centres  and our  distribution  partners  and for  lines
               interconnecting  our Metropolitan  Service Centres to decrease in
               the  future  due  to  intense   competition   and  future  volume
               discounts.

          o    Other operating  expenses include costs for selling and marketing
               activities, research and development costs as well as general and
               administrative expenses.

     (c) EBITDA. In addition to other  measurements,  which are reflected in our
     statements of operations,  we measure our financial  performance by EBITDA.
     EBITDA  consists  of net  loss  excluding  interest,  taxes,  share of post
     acquisition losses of equity method  investments,  amortization of deferred
     stock   compensation,   other   non-operating   income,   depreciation  and
     amortization of non-current assets and amortization of goodwill. We believe
     that EBITDA is a meaningful  measure of performance  because it is commonly
     used in the  telecommunications  industry.  However,  other  companies  may
     calculate  it  differently  from us.  We  present  EBITDA to  enhance  your
     understanding of our operating results. You should

                                      -26-
<PAGE>

     not construe it as an  alternative  to operating  income as an indicator of
     our operating performance or as an alternative to cash flows from operating
     activities  as a  measure  of  liquidity.  For the  nine  months  ended  on
     September 30, 2001, we calculated  negative EBITDA of TEUR 64,624.  For the
     equivalent  period of 2002, we calculated  negative  EBITDA of TEUR 45,424.
     The  decrease is  primarily  caused by the  increase  in  revenues  and the
     measures which have been taken to optimize the network utilization.

     (d) Capital  expenditures.  The  development  and expansion of our business
     will require significant expenditures. When we enter a market, we primarily
     incur the following types of capital expenditures:

          o    expenditure  for  procurement,  design and  construction of space
               within Deutsche Telekom's central offices;

          o    purchase and  installation of DSL access  multiplexing  equipment
               and asynchronous transfer mode switches;

          o    purchase  and  installation  of  equipment  for our  Metropolitan
               Service Centres;

          o    purchase and installation of our network management systems;

          o    demand-based  expenditures for purchasing end-user DSL line cards
               and customer premises equipment.

     We may have to purchase  further  equipment in future periods  depending on
     the quantity and type of equipment we initially  deploy in a central office
     or in a Metropolitan  Service Centre.  Following the near completion of the
     network rollout,  the major portion of our capital  expenditures is for the
     purchase of line cards and customer premises  equipment to support customer
     and end-user growth. We expect that the average cost of both line cards and
     customer premises equipment will decrease in the next few years.

3.   Results of operations (nine months ended September 30, 2002 and 2001)

     (a) Revenues.  In the first nine months ended  September  2002, we recorded
     revenues of TEUR 33,648. Compared with revenues of TEUR 20,201 in the first
     nine months ended September 2001, this represents an increase of 67%, which
     is mainly due to an increase in the number of customers.

                                      -27-
<PAGE>

     The Securities  and Exchange  Commission  ("SEC")  issued Staff  Accounting
     Bulletin 101 "Revenue  Recognition in Financial  Statements" ("SAB 101") in
     December 1999. SAB 101 requires  that, in certain  circumstances,  revenues
     received in the first month of a contract  be  recognized  over an extended
     period of time  instead  of in the  first  month of the  contract.  QSC has
     adopted  the  provisions  of SAB  101.  Accordingly,  we do  not  recognize
     revenues  from  non-recurring  installation  charges  in the month they are
     invoiced, but we recognize them over the estimated average contract life of
     12 months.  For the period ended on September 30, 2002, we recognized  TEUR
     33,648 in  revenues.  TEUR 2,408 in  installation  charges are deferred and
     will be recognized in future periods.

     (b) Cost of revenues.  Cost of revenues are our network  expenses  totaling
     TEUR 45,726 for the first nine months of 2002. During the equivalent period
     in 2001, we recorded  network  expenses of TEUR 61,493.  This  represents a
     decrease in network  expenses of 26%.  Although the number of customers has
     increased,  network  expenses were  reduced.  This  primarily  reflects the
     measures which have been taken to optimize network  utilization.  We expect
     increasing  network  expenses in future  periods due to  intensified  sales
     activity expected to result in a growing subscriber base.

     (c) Selling and  marketing  expenses.  We  recorded  selling and  marketing
     expenses  of TEUR  23,047 in the first nine  months of 2002 and TEUR 14,494
     for the first nine months of 2001, representing an increase of 59%. Selling
     and marketing expenses increased  reflecting our efforts to market and sell
     our end-user products and reflecting an increase in personnel.

     Selling and marketing  expenses consist primarily of salaries,  commissions
     for our sales  partners,  costs incurred for  promotional  and  advertising
     campaigns and the development of corporate identity.  We expect selling and
     marketing  expenses  to further  increase  as we  continue  to promote  our
     services.

     (d)  General  and  administrative  expenses.   General  and  administrative
     expenses  were TEUR 9,422 in the first  nine  months of 2002 and TEUR 7,896
     during the equivalent period of 2001 - an increase of 19%.

     The increase in general and administrative expenses is due to the increased
     number of employees.  We expect our general and administrative  expenses to
     moderately  increase in future periods as we expand our business and manage
     our organizational growth.

                                      -28-
<PAGE>

     (e) Research and development expenses. We recorded research and development
     costs  of TEUR 877 in the  first  nine  months  of 2002 and TEUR 942 in the
     equivalent period of 2001, representing a decrease of 7%.

     Research and development  costs primarily  consist of development costs for
     advanced  solutions and  applications  for our DSL business.  We expect our
     research  and  development  expenses to  increase  in future  periods as we
     continue to develop value added services and new voice telephony products.

     (f) Other income (expenses).  Other income (expenses) consists primarily of
     interest income on our cash and cash equivalents  balance.  Interest income
     for the nine months to September 30, 2002,  was TEUR 3,084 in comparison to
     TEUR 7,650 in the equivalent  period of 2001,  which is due to a lower cash
     balance in 2002.  Interest expense in the first nine month of 2002 was TEUR
     105.  Interest  expense  was  incurred  from  short-term  loans,   minority
     interests  in the net  income  of our  majority-owned  subsidiary  COMpoint
     Network  Consulting  GmbH,  Vellmar/Germany  ("COMpoint")  and the interest
     accreted  to the  estimated  strike  price of the  option  to  acquire  the
     remaining 35% of COMpoint,  which took place on April 22, 2002. We recorded
     TEUR 216 interest expense during the equivalent period of 2001.

     For the period from January l until  September  30,  2002,  we recorded our
     share of post  acquisition  losses from our equity method investees of TEUR
     5,431. For the equivalent period in 2001, we recorded TEUR 2,120.

4.   Liquidity, capital resources and investments

     Our operations have required substantial capital investment for the network
     rollout.  We financed our operations  through equity.  From 1999 through to
     September  30, 2002,  we raised total net proceeds of TEUR 428,871  through
     private  placements,  our  public  share  offering  in  April  2000 and our
     employee equity incentive  programs.  Cash, cash equivalents and securities
     on September 30, 2002 were TEUR 102,616.

     The accumulated  deficit of TEUR 400,130 includes TEUR 120,873 in dividends
     from a  beneficial  conversion  feature  in  connection  with  our  private
     placement in December

                                      -29-
<PAGE>

     1999 and TEUR 21,863 deferred  compensation  resulting from the issuance of
     convertible bonds. The non-cash beneficial conversion feature is the result
     of our private placement in December 1999, where we sold shares in series B
     preferred  stock at a price per share deemed below the fair value per share
     for accounting  purposes.  We recognized the difference  between the deemed
     fair value per share and the actual price per share as a non-cash  dividend
     of TEUR 120,873 in connection with the beneficial  conversion feature.  The
     non-cash deferred  compensation amount is the result of the issuance of our
     stock option plans,  where we sold  convertible  bonds at a price per share
     deemed below the fair value per share for accounting purposes. In the first
     nine months of 2002, we incurred TEUR 5,256 in compensation  expense.  From
     January l through to September  30, 2002,  net cash outflow from  operating
     activities  was TEUR 43,719.  This was due to net losses of TEUR 74,879 and
     decreases in accounts  payable and accrued  liabilities  of TEUR 20,099 and
     increases  in assets of TEUR  2,253,  offset by  non-cash  expenses of TEUR
     32,308 and  decreases  in assets of TEUR 19,372 and  increases  in accounts
     payable and accrued liabilities of TEUR 1,832. We used TEUR 48,995 net cash
     for investing activities  including TEUR 41,899 for short-term  investments
     in debt securities which are classified as held-to-maturity. The balance of
     TEUR 7,096 was due to financial  investments  and  purchases of  intangible
     assets,  plant  and  equipment.  During  the  equivalent  period  of  2001,
     financial  investments  and  purchases  of  intangible  assets,  plant  and
     equipment  were TEUR  36,890.  The 81%  decrease  is  primarily  due to our
     network rollout being largely  completed and the decrease in investments in
     other entities.  We expect further  network  related cash outflows,  mainly
     from the purchase of DSL end-user  equipment  and line cards.  As such,  we
     anticipate  that future capital  expenditures  will correlate with end user
     growth.

     Net cash used by financing  activities during the first nine months of 2002
     amounts to TEUR -345.

                                      -30-
<PAGE>

     Due to the  expansion of our business  and network  coverage,  we expect to
     experience net cash outflows from both  operating and investing  activities
     in future  periods.  We may make  investments in future periods in entities
     that are  complementary  in order to  further  support  the  growth  of our
     business.  We believe that our  existing  cash will be  sufficient  to fund
     those investments.

5.   Shares and conversion  rights held by Members of the Supervisory  Board and
     the Management Board

     Shares and conversion rights of Members of the Management Board:

<TABLE>
<CAPTION>
----------------------------------------------- --------------- --------------- ------------------- ----------------
                                                  30/09/2002      30/09/2002        31/12/2001        31/12/2001
----------------------------------------------- --------------- --------------- ------------------- ----------------
                                                                  Conversion                          Conversion
                                                    Shares          rights            Shares            rights
----------------------------------------------- --------------- --------------- ------------------- ----------------
<S>                                                 <C>                      <C>        <C>                       <C>
Dr. Bernd Schlobohm                                 13,818,372               0          13,818,372                0
----------------------------------------------- --------------- --------------- ------------------- ----------------
Gerd Eickers                                        13,841,100               0          13,841,100                0
----------------------------------------------- --------------- --------------- ------------------- ----------------
Markus Metyas                                            2,307       1,059,116               2,307        1,059,116
----------------------------------------------- --------------- --------------- ------------------- ----------------
Bernd Puschendorf                                            0       1,000,000                   0                0
----------------------------------------------- --------------- --------------- ------------------- ----------------
                                                    27,661,779       2,059,116          27,661,779        1,059,116
----------------------------------------------- --------------- --------------- ------------------- ----------------
</TABLE>

                                      -31-
<PAGE>

     Shares and conversion rights of Members of the Supervisory Board:

<TABLE>
<CAPTION>
----------------------------------------------- --------------- --------------- ------------------- ----------------
                                                  30/09/2002      30/09/2002        31/12/2001        31/12/2001
----------------------------------------------- --------------- --------------- ------------------- ----------------
                                                                  Conversion                          Conversion
                                                    Shares          rights            Shares            rights
----------------------------------------------- --------------- --------------- ------------------- ----------------
<S>                                                          <C>        <C>                      <C>          <C>
John C. Baker                                                0          19,130                   0            9,130
----------------------------------------------- --------------- --------------- ------------------- ----------------
Herbert Brenke                                         187,820           9,130             161,120            9,130
----------------------------------------------- --------------- --------------- ------------------- ----------------
Manjit Dale                                                  0           9,130                   0            9,130
----------------------------------------------- --------------- --------------- ------------------- ----------------
Ashley Leeds                                             9,130               0               9,130                0
----------------------------------------------- --------------- --------------- ------------------- ----------------
David Ruberg                                             4,563          19,130               4,563            9,130
----------------------------------------------- --------------- --------------- ------------------- ----------------
Claus Wecker                                            83,025               0              83,025                0
----------------------------------------------- --------------- --------------- ------------------- ----------------
                                                       284,538          56,520             257,838           36,520
----------------------------------------------- --------------- --------------- ------------------- ----------------
</TABLE>

6.   Recent developments

     For the period from  January l until  September  30, 2002,  QSC  introduced
     three  new  products  representing  the  development  of QSC as a  solution
     provider for voice and data  transmission  based on  DSL-technology.  Q-VPN
     allows  companies  of any  size to build  company  networks  by  connecting
     geographically  dispersed  branch  offices.  Q-Security  protects  networks
     against unauthorized access allowing customers to define their own security
     requirements. Q-Voice allows customers to make telephone calls and transmit
     data over one and the same  access.  End-users  can  continue  to use their
     existing  telecommunications  devices with uncompromising quality. Q-Voice,
     which is currently offered in six cities,  allows QSC for the first time to
     satisfy all  telecommunications  requirements of its business customers out
     of one hand.  QSC will  continue to develop  its range of products  for its
     business clients.

     QSC's  focus  on  business  customers  led  to  a  re-organization  of  the
     residential customer segment, which is now organized in a separate business
     unit with its own web page and marketing.

     As at January l, 2002,  we had 263  employees in total.  We  increased  the
     number  of  employees  until  September  30,  2002 to a total  of 322.  The
     increase in staff is due to the continuing expansion of QSC's marketing and
     sales divisions as well as the merger with Ginko and COMpoint.

                                      -32-
<PAGE>

7.   Forward-looking statements

     The statements  contained in this report that are not historical  facts are
     forward-looking  statements. We have based these forward-looking statements
     on our  current  expectations  and  projections  of future  events.  Actual
     results  could  differ   materially   from  those   anticipated   in  these
     forward-looking  statements  as a result of the  risks  facing us or faulty
     assumptions  on our part.  Assumptions  that could cause actual  results to
     vary materially from future results include, but are not limited to:

     o    our  ability to  successfully  market our  services to current and new
          customers;

     o    our ability to generate customer demand for our services in our target
          markets;

     o    the development of our target markets and market opportunities;

     o    market pricing for our services and for competing services;

     o    the extent of increasing  competition,  especially by Deutsche Telekom
          AG;

     o    trends in regulatory, legislative and judicial developments.

                                      -33-
<PAGE>

                                    GLOSSARY

ADSL                Asymmetrical   Digital  Subscriber  Line;   asymmetric  data
                    transmission  technology with  downstream  rates between 1.5
                    Mbit/s and 8 Mbit/s and upstream rates between 16 kbit/s and
                    640 kbit/s.

ASP                 Application  Service Provider;  service providers that host,
                    manage,  support,  and  deliver  software  applications  and
                    database  to  customers  from a remote  data center over the
                    Internet or wide area networks.

Backbone            High-speed  network that  interconnects  networks with lower
                    speeds/capacities.

Bandwidth           The transmission capacity of a line.

Broadband           Data  transmission  capacity  in excess of 128  Kilobit  per
                    second.

CO                  Central office or co-location  room;  local access switching
                    facility of Deutsche Telekom, where the "last mile" begins.

ISDN                Integrated  Services  Digital  Network;   digital  switching
                    technology allowing the transmission of any and all forms of
                    telecommunication through a single line.

ISP                 Internet  service  provider.  They facilitate  customer data
                    communication  by provision  of Internet  access and related
                    services, e.g. e-mail management.

Last                Mile The distance from the  telephone  outlet to the nearest
                    local switching center (central office).

Leased Line         Any permanently  available  connection;  no time lost due to
                    dialing in and the setting up of a connection.

Line Sharing        Shared  use of a local  loop for  voice and  broadband  data
                    services.   Both  services  can  be  provided  by  different
                    operators  due to a  separation  of the  frequency  spectrum
                    used.

                                      -34-
<PAGE>

Mbit/s / kbit/s     Megabit per  second/Kilobit  per second;  measuring units of
                    data transmission speed.

MSC                 Metropolitan Service Centre; QSC's local access network mode
                    where local broadband  traffic is bundled and connected with
                    Internet and/or the PoTS (Plain old Telephony System) world.
                    The MSC's also house broadband application servers.

QoS                 Quality   of   Service;   in  order  to   ensure  an  agreed
                    transmission  service level,  the transport  protocol,  e.g.
                    must  support  Quality of Service.  Quality of Service,  for
                    instance,  ensures that a video transmitted via speedw@y-DSL
                    will reach the user without distortions.

SDSL                Symmetric Digital  Subscriber Line;  symmetric  transmission
                    technology, allows for data transfer into both directions at
                    equal speeds of up to 2.3 Megabit per second.

TKG                 "German  Telecommunication  Law" of 1998. It constitutes the
                    legal basis for the liberalisation of the Telecoms sector in
                    Germany.

Video-on-demand     The future of home entertainment. Via the Web, movies can be
                    ordered and copied almost "live" through the telephone line.
                    Due to QSC's DSL  technology,  the virtual  video library as
                    well as countless other multimedia services will grow from a
                    technical concept stage to real consumer availability.

Voice over DSL      The  possibility to transmit  voice and data  simultaneously
                    within the framework of DSL technology.

Web-Hosting         Service providers offer server capacities mainly to business
                    subscribers for their Internet applications.

                                      -35-
<PAGE>
                        [Page Intentionally Left Blank]


                                      -36-
<PAGE>
                              CONTACTS


                              QSC AG
                              Investor Relations
                              Mathias-Bruggen-Stra(beta)e 55
                              D - 50829 Cologne
                              Phone  +49-(0)221-6698-112
                              Fax  +49-(0)221-6698-009
                              E-Mail  INVEST@QSQ.DE
                              Info  www.qsc.de

                              Investor Relations Partner
                              Schumacher's AG fur Finanzmarketing
                              Prinzregentenstrasse 68
                              D - 81675 Munich
                              Phone  +49-(0)89-489 272-0
                              Fax  +49-(0)89-489 272-12
                              E-Mail  qsc@schumachers.net


                              CALENDAR

                              Annual Report 2002
                              March 27, 2003

                              Shareholders' Meeting
                              May 15, 2003

                              Conferences/Events
                              November 28, 2002
                              QSC Autumn Press Talk

                              December 5, 2002
                              Telecommunications Executive Network
                              Moving Forward & Making Money:
                              What next in the New Telecoms Landscape?


                                      -37-
<PAGE>
Further information under www.qsc.de

<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.

                                     QSC AG

Date:  December 6, 2002              By: /s/ Dr. Bernd Schlobohm
                                        ----------------------------------------
                                        Name:   Dr. Bernd Schlobohm
                                        Title:  Chief Executive Officer

                                     By: /s/ Markus Metyas
                                        ----------------------------------------
                                        Name:   Markus Metyas
                                        Title:  Chief Financial Officer