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

                                   FORM 10-KSB
(Mark One)

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934

                   For the fiscal year ended December 31, 2002

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

            For the transition period from _________ to ____________

                           Commission File No. 0-28659

                            Q-NET TECHNOLOGIES, INC.
                 (Name of small business issuer in its charter)

            DELAWARE                                           75-2610514
   (State or other jurisdiction                            (I.R.S.  Employer
of incorporation or organization)                          Identification No.)


13428 Maxella Avenue, Suite 291, Marina Del Ray, California           90292
(Address of principal executive offices)                            (Zip Code)

Issuer's telephone number  561-750-3922

Securities registered under Section 12(b) of the Exchange Act:    NONE

Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $0.00001 per share.
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.   [ ] Yes [ X ] No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). [ ]

The Company's revenues for the fiscal year ended December 31, 2002 were
$29,045.

The aggregate market value for the Registrant's voting common stock held by
non-affiliates based upon the closing bid price for the common stock on May 23,
2003, as reported on the Over the Counter Bulletin Board, was approximately
$889,900. Shares of common stock held by each officer and director and each
person who owns 5% or more of the outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. The determination of affiliate
status is not necessarily a conclusive determination for other purposes.
<PAGE>

The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: Common Stock, par value $.00001 per
share, 17,798,004 shares issued and outstanding as of September 30, 2003.


                       DOCUMENTS INCORPORATED BY REFERENCE

The documents incorporated by reference are listed as Exhibits 1-8,
respectively, under Item 13.

Transitional Small Business Disclosure Format (Check one):   Yes [ ]   No [X]


<PAGE>

                            Q-NET TECHNOLOGIES, INC.
                FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2002

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


                                                                                 PAGE
                                                                               --------
PART  I

<S>   <C>                                                                         <C>
Item  1.      Description  of  Business                                           1
Item  2.      Description  of  Property                                          15
Item  3.      Legal  Proceedings                                                 15
Item  4.      Submission of Matters to a Vote of Security Holders                16

PART  II

Item  5.      Market  for Common  Equity and Related Stockholder Matters         16
Item  6.      Management's Discussion  and  Analysis or Plan of Operation        20
Item  7.      Financial Statements                                               29
Item  8.      Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure                                         29

PART  III

Item  9.      Directors and Executive Officers, Promoters and Control Persons;
                Compliance with Section 16(a) of the Exchange Act                29
Item  10.     Executive Compensation                                             31
Item  11.     Security Ownership of Certain Beneficial Owners and Management
                and Related Stockholder matters.                                 36
Item  12.     Certain Relationships and Related Transactions                     37
Item  13.     Exhibits, List and  Reports  on  Form  8-K                         40
Item  14.     Control and Procedures.                                            43

SIGNATURES                                                                       44

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                       F-1

</TABLE>
                                       i
<PAGE>

                                     PART I
                                     ------

This Annual Report on Form 10-KSB contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward-looking words such as "may", "will", "expect", "intend",
"anticipate", "believe", "estimate", "continue" and other similar words. You
should read statements that contain these words carefully because they discuss
our future expectations, making projections of our future results of operations
or our financial condition or state other "forward- looking" information.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the actual results, performance or achievements of our Company
to be materially different from those which may be expressed or implied by such
statements. The factors listed in the section entitled "Risk Factors"
incorporated by reference into the section "Management's Discussion and Analysis
or Plan of Operation", as well as any other cautionary language in this report,
provide examples of risks, uncertainties and events which may cause our actual
results to differ materially from the expectations we described in our
forward-looking statements. We do not undertake any obligation to publicly
update forward-looking statements to reflect events or circumstances after the
date on which the statement is made or to reflect the occurrence of
unanticipated events.

ITEM  1.      DESCRIPTION  OF  BUSINESS

Q-Net Technologies, Inc. ("Q-Net", "we", "us", "our", and "company" refer to
Q-Net Technologies, Inc., a Delaware corporation unless the context otherwise
requires) is a development stage enterprise as our primary business objectives
have not been fully achieved. We are focusing our resources on completing the
development of our Qinnet E-Book and the Thin Client Server (TCS) technologies.
We further anticipate that revenues from operations will initially be
insufficient to cover these development expenses. As a result, we are fully
dependent upon management and significant stockholders to provide sufficient
working capital until commencement of profitable operations. There is no
assurance that we will be able to raise the necessary capital to fund our
initial and continuing operations.

                              CORPORATE BACKGROUND

We are a Delaware corporation that was incorporated on May 31, 1989 as
Specialists, Inc. In 1996, Specialists, Inc. amended its Certificate of
Incorporation to change its name to Eastern Group International Co., Ltd. Also
during 1996, Eastern Group International Co., Ltd. issued 7,714,000 shares of
common stock in exchange for $50,000 and changed its name to Telespace Limited.
In December 1999, Telespace Limited changed its name to Qinnet.com, Inc. On
April 13, 2000, Qinnet.com acquired all of the issued and outstanding shares of
Internet Corporation of America. On August 13, 2001, the Company changed its
name to Q-Net Technologies, Inc.

ACQUISITION OF QINNET HOLDINGS CORP. We entered into an agreement dated January
12, 2000 to merge with Qinnet Holdings Corp. ("Qinnet Holdings"), a Washington
State corporation. Both the Company and Qinnet Holdings share common directors,
officers and shareholders. On March 14, 2001, we extended an offer to accredited
United States shareholders and non-Canadian foreign shareholders to exchange
their shares in Qinnet Holdings for shares in the Company on the basis of one
share of the Company's common stock for each share of Qinnet Holdings common
stock. As of April 23, 2001, 12,275,100 shares had been exchanged, representing
approximately 93.8% of the outstanding shares of Qinnet Holdings. Further offers
were made to remaining Canadian shareholders of Qinnet Holdings to acquire their


                                       1
<PAGE>

remaining 813,000 shares of Qinnet Holdings, representing approximately 6.2%
interest. For the remaining 6.2% acquisition of Qinnet Holdings, we issued 1.05
shares of the Company's common stock for each share of Qinnet Holdings common
stock. As of June 8, 2001, we completed the acquisition of all the remaining
shares of Qinnet Holdings. We now own all of the issued and outstanding shares
of Qinnet Holdings.

Qinnet Holdings was incorporated on April 26, 1999 in the state of Washington.
Qinnet Holdings was a development stage enterprise and had two wholly-owned
subsidiaries: Beijing Qinnet Electronic Technologies Co., Ltd. ("Beijing
Qinnet"), established in the People's Republic of China ("PRC") on December 6,
1999, and Qincom Networks, Inc. ("Qincom"), a British Columbia, Canada company
established on August 22, 2000. Qincom previously provided long distance calling
wholesale services from Canada to the PRC through voice over Internet protocol
("VOIP") technology. On May 30, 2002, the Company incorporated Sonnetvoice
Communications Inc. ("Sonnet"), a Canadian company, to develop the long distance
calling retail services from Canada to the PRC. However, in August 2002, we
suspended our long distance telephone services.

BEIJING QINNET. Beijing Qinnet participated in two joint venture agreements with
Chinese Internet companies and had options to purchase equity interests in these
joint ventures. These two joint ventures were carried out by two operating
corporations, Tianjin Xiandao Information Network Co., Ltd. ("Tianjin Qinnet")
and Shenyang Qinnet Brainn Informerce Co., Ltd. ("Shenyang Qinnet"). Shenyang
Qinnet was in the business of providing Internet web site design, e-commerce,
customer and technical support services. Tianjin Qinnet was in the business of
providing Internet access services. Mr. Weiguo Lang, the Chairman and a director
of the Company, was the registered owner of 51% ownership interest in Shenyang
Qinnet and 70% ownership interest in Tianjin Qinnet as the investment
regulations in the PRC did not permit foreign ownership of PRC entities
operating directly in the Internet, telecom and related industries at the time.
Beijing Qinnet provided Mr. Lang with funds of $1,168,955 to purchase equity
interests in these joint ventures. Further, Beijing Qinnet had the option to
increase its ownership interest in this joint venture to 70% for an additional
$200,000. Exercise of the other option would transfer 70% ownership of Tianjin
Qinnet to Beijing Qinnet and would require the payment of RMB 70,000 or
approximately $8,460. The option agreements have a five-year term expiring on
March 24, 2005. The option arrangements were structured to enable Beijing Qinnet
to comply with PRC foreign ownership laws and restrictions. The option was
transferable by Beijing Qinnet to give flexibility in structuring its ownership
arrangement.

During the forth quarter of year 2001, we determined that the business
opportunity presented by Tianjin and Shenyang operations, when compared to the
opportunities in the digital publishing ("e-Books") and thin client server (TCS)
technologies, did not possess the sustainable competitive advantages that are
exhibited by the newer technologies. In view of our limited capital resources,
we decided to preserve our capital for investment in the development of TCS and
e-Book technologies. Accordingly, we wound down the business operations of
Tianjian Qinnet and Shenyang Qinnet in an orderly manner. During the fourth
quarter of year 2001, we provided for an impairment loss of $1,168,955 related
to our investments in these projects.

                                       2
<PAGE>

LIAONING QINNET E-BOOK TECHNOLOGIES CO., LTD. JOINT VENTURE. We entered into a
joint venture agreement dated July 11, 2000 with Liaoning Education Press
("LEP"), a wholly owned subsidiary of Liaoning Publishing Group of Companies
("LPG"), to carry out a joint venture electronic book publishing, manufacturing
and distribution business in the PRC. A joint venture company, Liaoning Qinnet
E-book Technologies Co., Ltd. ("Liaoning Qinnet"), was incorporated in
accordance with the Enterprise Laws of the PRC. As of December 31, 2002, we
contributed $280,000 for a 70% interest in this joint venture while LEP
contributed $120,000 in consideration for a 30% interest. Further, we advanced
$225,988 to Liaoning Qinnet as of December 31, 2002.

RECENT DEVELOPMENTS. In August 2002, we appointed a new management team as part
of a management and corporate governance restructuring. Accordingly, Mr. Fredric
R. Mann resigned as our Chief Executive Officer, Chief Financial Officer and
Director and Mr. Paul Schwartz resigned as our Chief Operating Officer,
Secretary, Treasurer and Director. Weiguo Lang became our Chief Executive
Officer and Danny Hon became our Acting Chief Financial Officer. Subsequently,
in January 2003, James D. Baker assumed the role of President and Chief
Executive Officer. Since the restructuring, Messrs. Baker and Hon have
conducted, and have instructed management to conduct, a comprehensive review and
evaluation of the Company's disclosure controls and procedures to ensure that
information required to be filed or submitted to the Securities and Exchange
Commission ("SEC") is recorded, processed, summarized and reported within the
required time periods. The review and evaluation is now complete. In addition to
the foregoing, we continue to face significant new challenges (which are more
fully described under "Certain Risks Affecting Business, Operating Results and
Financial Condition - Risks Related to Recent Developments" and Item 3, "Legal
Proceedings").

In December 2002, we engaged a new independent accounting firm, Moore Stephens
Ellis Foster Ltd., to audit our historical consolidated annual financial
statements and to review the Company's historical consolidated unaudited interim
financial statements.

In September 2001, the Company's subsidiary, Qinnet Ebook, entered into
agreements to transfer back the Internet Development, Editing and Multimedia
departments ("Education Department") to its Chinese shareholder and joint
venture partner, Liaoning Publishing Group ("LPG") on September 30, 2001. The
Company did not record the transaction in fiscal 2001 as both parties could not
come to an agreement in terms of the amount and method of payment for the
transferring of the three departments. There were no revenues from these
departments in 2002 and 2001 reported in the accompanying consolidated
statements of operations.

                                    OVERVIEW

Our principal business strategy is to develop and provide value-added
information technologies for the commercial needs of consumers and businesses in
China and other selected countries to be determined by us. We believe our
technologies are well positioned to provide such solutions. Our ability to carry
our plan of operations is currently limited by our lack of financial resources.
Our business activities in China include:

1.       joint venture to develop an electronic book publishing ("e-Book")
         business in the PRC;
2.       the development of a thin-client server computer system ("TCS")
         business in the PRC; and
3.       developing and marketing Internet solution software ("QWS") to Chinese
         customers.

                                       3
<PAGE>

OUR BUSINESS. Our business is summarized as follows:

1. ELECTRONIC BOOK PUBLISHING. A primary focus of our plan of operations over
the next twelve months is to pursue our activities in Liaoning Qinnet. We have
completed the development of our electronic reading device, branded as Q-Reader,
and are preparing for its commercial sales. We have negotiated with LPG to
terminate the agreement to expand the plan of the current operation, which
required us to advance the balance of $2,549,170 to Liaoning Qinnet for our
portion of the joint venture expenses. Accordingly, we have paid in full our
capital contribution to Liaoning Qinnet and have no further obligation. A
termination agreement with LPG would have no effect on the current joint venture
ownership in which we own 70% and LEP owns 30% of Liaoning Qinnet. We plan to
re-evaluate this business opportunity to determine a further funding plan to
allow us to expedite the roll out of the Q-Reader in China and other Southeast
Asian countries and to provide the funds necessary to complete the design and
initiate the production of the second-generation product, the e-Bag. This is a
wireless device that will enable a student to inexpensively interface with the
main server of a school or university, as well as providing all of the features
of the Q-Reader. We have finished the final production design of our Q-Reader
for commercial sales. As of March 2003, we produced and sold 572 units to LPG.
We have also received a purchase order of 2000 units, which are being
manufactured and expected to be delivered to the purchaser before the end of
December 2003. We plan to spend approximately $500,000 over the next twelve
months on production and marketing of the Q-Reader, depending upon financing.

2. THIN-CLIENT SERVER TECHNOLOGY BUSINESS. We plan to continue development of
our thin-client server technology ("TCS"). We have completed the system
demonstration set-up in Beijing. Our designed TCS terminal development is at the
final stage. Configurations of other brand TCS terminals for different
applications and for interfacing with different clients servers have also been
completed. The pre-sales marketing activity has begun. We, through our wholly
owned subsidiary, Beijing Qinnet, have almost completed the commercial contract
with a garment company and received 90% payment. The remaining 10% is scheduled
to be paid before the end of November 2003 after the final system test run is
completed. Our marketing activities have demonstrated the demands for our TCS
system. Our ability to implement our plan of operations for the deployment of
our TCS system is subject to our ability to raise sufficient financing. We plan
to spend $100,000 on the TCS project within the next twelve months. These funds
will mainly be utilized for marketing and sales. With continued terminal
development, the line will be expanded to include additional features. We also
plan to incorporate the TCS platform into a wireless model of the Q-Reader. In
addition, we plan to establish a centrally located server system that will
accommodate up to 10,000 subscribers in a Wide Area Network environment. The
amount of funds that we propose to spend on developing this business will depend
upon the amount of funds, if any, available from any financing that we are able
to achieve and our subsequent determination based on priorities and business
opportunities.

We have contracted with Emsoft Ltd., a Hong Kong based software developer, to
provide the Linux based embedded operating system software, EmLinux, for our
client terminal. The terms of this contract required us to pay an up-front fee
of $4,000, with the balance of $15,000 payable in phases of development. To
date, we have paid $9,000. We will also be required to pay usage fees and a
royalty to the software developer based on our sales of TCS terminals and
services.

                                       4
<PAGE>

We have also entered into a contract with Citrix, a major virtual workplace
software and services provider to provide us with the independent computing
architecture ("ICA") software that we plan to incorporate into our Q-Server TCS
terminals to communicate between the client terminal and the server. We
anticipate that we will be required to pay usage fees and a royalty to the
technology provider based on our sales of TCS terminals and services.

3. INTERNET SOLUTION SOFTWARE. We have completed the development and are ready
to market the Internet solution software ("QWS") developed by Beijing Qinnet. We
do not expect to realize significant revenues until such time as we undertake
broad based marketing efforts. We currently do not have the ability to undertake
these marketing efforts due to our current limited funding. Accordingly, our
ability to complete sales of this software is subject to our obtaining further
financing and our determination that the continuation of this operation is
viable as compared to alternative uses of capital.

4. QINTOP COMMUNICATION NETWORK. We have terminated the operations of QinTop
Communication Network, in August 2002, which was set up for VOIP services with
Qincom, as we have decided to terminate the Qincom operation and to direct our
corporate resources to other areas of our operations. QinTop was involved in the
wholesale provision of IP based long-distance telephone services.

5. TIANJIN QINNET. We have discontinued the operations of Tianjin Qinnet due to
changes of the market conditions affecting the Internet related services in
China. This was our first entry into the Chinese market at a time when Internet
services were unique. Since that time, Internet services have become virtual
commodities and very competitive pricing, resulting in significantly reduced
margins. Accordingly, we wound up the operations in an orderly manner.

6. SHENYANG QINNET. We have discontinued the operations of Shenyang Qinnet in
the last quarter of the year 2001. Shenyang Qinnet was a portal and e-commerce
services provider based in Shenyang, Liaoning, China. With the discontinuation
of extremely competitive Internet related businesses, key management and
technical personnel have been moved to the development of our electronic reading
device within Liaoning Qinnet.

7. QINNET EBOOK. In September 2001, the Company's subsidiary, Qinnet Ebook,
entered into agreements to transfer back the Internet Development, Editing and
Multimedia departments ("Education Department") to its Chinese shareholder and
joint venture partner, Liaoning Publishing Group ("LPG") on September 30, 2001.
There were no revenues from these departments in 2002 and 2001 reported in the
accompanying consolidated statements of operations.

We plan to spend approximately $700,000 over the next twelve months in order to
pursue our plan of operations, provided we achieve the required financing. We
plan to spend $500,000 on the e-Book project to produce and market approximately
3,500 Q-Reader electronic reading devices; $100,000 to produce and market
approximately 700 TCS terminals; $25,000 on QWS marketing and sales; and $75,000
for general working capital. If we fail to raise the required funds to pursue
our plan of operations, we will have to maintain or suspend some of these
operations or seek other industrial partners.

                                       5
<PAGE>

We had cash and cash equivalents in the amount of $132,557, mostly in China, and
working capital deficit in the amount of $1,551,485 as of December 31, 2002.
Accordingly, we will require significant amounts of additional financing in
order to complete our plan of operations. We will plan our expenditures based on
our capital resources in order to maintain our operations. The amount of
expenditures may vary if: (i) we determine to reduce or expand our plan of
operations; (ii) the actual costs incurred in pursuing our stated plan of
operations are greater or less than anticipated; (iii) we are not successful in
achieving revenues upon completion of our stated plan of operations; (iv) we are
not successful in achieving the required financing; and/or (v) we determine to
pursue other or additional more profitable business opportunities to the
existing operations. While we are currently in discussions to secure additional
financing, we do not have any arrangement in place for any debt or equity
financing which would enable us to achieve additional financing. There is no
assurance that we will be able to secure the required additional financing.
There is no assurance that completion of our stated plan of operations will
successfully generate the planned revenues or that any revenues generated will
be sufficient to fund future operations.

Our business plan may differ from our stated plan of operations. We may decide
not to pursue all or part of our stated plan of operations. In addition, we may
modify our stated plan of operations if actual costs are greater than
anticipated, if we are not able to achieve financing or if we secure financing
in order to expand or accelerate our plan of operations or if we identify and
obtain additional more profitable business opportunities.

                                    EMPLOYEES

As of December 31, 2002, we had approximately 40 employees. However, due to the
lack of capital, as of October 1, 2003, there are 16 employees left in both
Beijing Qinnet and Liaoning Qinnet, among whom 6 are technical staff, 2 are in
sales, 3 perform accounting functions and 5 perform administration and
management functions. Mr. James Baker is our president and chief executive
officer; and Mr. Danny Hon is our chief financial officer. Mr. Baker devotes his
full time to our business. The remaining employees are employed in our
operations in China. We anticipate hiring additional employees over the next
twelve months if we are successful in implementing our plan of operations. Of
these additional employees, most of them are anticipated to be located in China.
We plan on adding to our management teams in North America and China. Our
employees are not represented by a labor union and are not subject to a
collective bargaining agreement. We have never experienced a work stoppage. We
believe our relations with our employees are good.

                             COMPETITIVE CONDITIONS

The Company's technologies, products and services compete with those of other
companies. Many of the Company's present and potential future competitors have,
or may have, substantially greater resources than us to devote to further
technological and new product developments. We believe that we will compete
effectively based primarily on the originality of our concepts, the speed with
which we can introduce such concepts to the market, the uniqueness of our
designs, the focus of our business approach, the extensiveness of our business
relationships, the quality and innovation of our technologies and our ability to
identify and meet consumer needs.

                                       6
<PAGE>

ELECTRONIC BOOK PUBLISHING MARKET. The market for e-Books is developing.
However, a number of companies of significant size and strength (such as
Microsoft, Hewlett Packard and Palm) have introduced products to compete in the
field. In addition, the Company faces competition from the distribution of
electronic content over the Internet. There is a substantial risk that these
competitors will achieve commercial acceptance in the Chinese market before we
are able to complete the development of our electronic book reading device and
commence marketing of our product to consumers. To successfully compete with
anticipated competition, we entered into our joint venture with LPG in order to
secure access to a large volume of Chinese book publications on an exclusive
basis to the joint venture. Our withdrawal from the content aggregation and
digitization component of the business no longer guarantees this exclusive
access. On the other hand, as more freedom of Chinese government controls over
the content continues to occur, we have developed more sources and channels of
the content other than LPG. These sources are ready to become our content
providers and/or partners in China.

As the electronic book publishing market is new, there is no assurance as to the
price that Chinese consumers will be prepared to pay for our planned electronic
book reading device and services. Although we have planned to market our
products and services at prices that will exceed our costs, there is no
assurance that we will be able to realize the anticipated price from Chinese
consumers. In addition, new competitors with greater financial resources and
brand name recognition may enter the market and offer competing products and
services at prices that are below the prices that we plan to offer for our
products and services, with the result that we may have to adjust our prices for
our electronic book products and services at lower than anticipated prices.

THIN-CLIENT SERVER TECHNOLOGY. The TCS market is new and evolving and there is
no assurance that this technology will achieve acceptance by consumers. We plan
to market this technology to Chinese consumers on the basis that it offers a
more affordable alternative to traditional personal computers and personal
computer based systems. We believe that a TCS will be able to offer many of the
features and functions of a traditional personal computer based system at a more
affordable price to consumers. A TCS based system will be less expensive than a
personal computer based system, as it does not contain many of the hardware
components of traditional personal computers. However, there is no assurance
that consumers will prefer TCS to personal computers. Furthermore, prices of
personal computers continue to decline with the result that the price
differential between a TCS and a personal computer may decline, thereby lowering
the price competitive advantage of a TCS.

Given the potential of the TCS market, we anticipate that many large technology
and personal computer companies may enter this market. If they decide to enter
this market, we will face competition from companies with greater financial
resources and brand-name recognition than we have. We may not be able to achieve
the financing or consumer acceptance necessary to compete with this competition.

                              GOVERNMENT REGULATION

We intend to ensure that all activities that we undertake in the PRC comply with
the strict regulatory climate where many of corporate activities must be
approved by the relevant government regulatory authorities. Such regulations are
generally based on the size, location and nature of each individual undertaking.
Each of these elements generally determines whether a business activity requires
local, regional or central government approval. Further, foreign investments in


                                       7
<PAGE>

China are classified into one of three categories: encouraged, restricted or
prohibited. In general, foreign investments in projects that attract advanced
technology to China are encouraged. As such, we believe that our proposed
activities to develop, produce and market the electronic book reader device and
the TCS technology and TCS terminals fall into this encouraged category.

Direct foreign ownership of a controlling position in telecommunications and
Internet projects are restricted by the PRC government. As such, our equity
investments will be limited in these areas. We have consulted with our legal
counsel and relevant government agencies in China and have structured and plan
to continue to structure our business arrangements such that we will comply with
the PRC laws and regulations by entering into business arrangements with
qualified joint venture partners when we believe that it is necessary.

ELECTRONIC BOOK PUBLISHING. We must ensure that our electronic publishing joint
venture business with LPG complies with all applicable laws and regulations of
the PRC. The publishing industry is heavily regulated in the PRC. Companies may
not publish books in the PRC unless the related PRC government authorities
license them. Accordingly, we will not be able to obtain a license to publish
books in the PRC. LEP, our joint venture partner and the wholly owned subsidiary
of LPG, is a fully licensed publishing company in the PRC to publish books in
China. We have structured our arrangement with LEP to ensure that we comply with
all applicable laws and regulations. Our joint venture with LEP has been fully
approved by the required local government authority.

THIN-CLIENT SERVER TECHNOLOGY. We must ensure that our TCS projects comply with
all applicable laws and regulations of the PRC. These laws and regulations
include laws regarding provision of Internet services, provision of Internet
content and ownership and provision of telecommunications services. These laws
and regulations currently encourage the introduction of computer technology, but
restrict foreign ownership of Internet and telecommunications services. We plan
to structure our projects in the form of co-operations with Chinese
telecommunications companies that already have existing licenses in order to
ensure compliance with the applicable laws and regulations of the PRC if we
obtain such contracts providing telecommunication and iInternet services. We
contemplate that under these co-operation arrangements, we would supply advisory
services and equipment to the Chinese partners that would provide the Internet
and telecommunications components of the undertaking. We will always position
ourselves as a computer and information technology and product provider to fully
comply with the laws and regulations in the PRC.

FOREIGN OWNERSHIP LAWS. Qinnet Holdings is the sole owner of Beijing Qinnet that
has fully complied with the laws and regulations of the PRC and approved by the
PRC government. Beijing Qinnet carries out all the businesses of Qinnet Holdings
in China. The PRC laws and regulations currently prohibit direct ownership by
Qinnet Holdings of its joint venture businesses that are involved in Internet
services, content and other telecommunications activities. However, we have
terminated all our Internet services and telecommunication service provision
businesses in China, and we do not have risks against the foreign ownership
laws.

                                       8
<PAGE>

                            RESEARCH AND DEVELOPMENT

The market for our products and services is subject to rapid and significant
changes in technology and frequent new service and product introductions. We
believe that one of the keys to our future success will be our ability to
enhance our existing technologies and to introduce our products and services on
a competitive basis. Accordingly, we will continue to engage in significant
research and development activities. The Company's expenditures for research and
development for the year ended December 31, 2002, the year ended December 31,
2001 and year ended December 31, 2000 were $89,096, $500,000 and $12,000,
respectively. These expenses were incurred in connection with our electronic
book reading device joint venture, the TCS project and the QWS software
development.

There can be no assurance, however, that we will successfully complete the
development of any future technology or that such technology will be compatible
with, accepted by or incorporated in the products and services of our products
or products of third parties. Any significant delay or failure to develop new or
enhanced technology could have a material adverse effect on us.

                              AVAILABLE INFORMATION

Access to our Annual Report on Form 10-KSB, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to these reports filed with or
furnished to the Securities and Exchange Commission may be accessed through the
Securities and Exchange Commission's Electronic Data Gathering, Analysis and
Retrieval system at www.sec.gov. All statements made in any of our securities
filings, including all forward-looking statements or information, are made as of
the date of the document in which the statement is included, and we do not
assume or undertake any obligation to update any of those statements or
documents unless we are required to do so by law.

CERTAIN RISKS AFFECTING BUSINESS

This Annual Report on Form 10-KSB contains forward-looking statements within the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated or projected in these forward-looking statements as a
result of certain factors, including those set forth in the following cautionary
statements and elsewhere in this Annual Report on Form 10-KSB. If any of the
following risks were to occur, our business, financial condition or results of
operations would likely suffer. Any forward-looking statements should be
considered in light of the factors discussed below.

RISKS RELATED TO RECENT DEVELOPMENTS

Our senior management team only recently joined the Company.

Recently, our senior management team has undergone major changes with the
addition of a new Chief Executive Officer and Acting Chief Financial Officer.
The structure of our Board of Directors also has been significantly changed. We
are subject to certain risks associated with this new management structure,
including, among others, risks relating to employee and business relations,
managerial efficiency and effectiveness and overall familiarity with our
business and operations. We cannot assure you that this major restructuring of
our Board of Directors and senior management team will not adversely affect our
results of operations.

                                       9
<PAGE>

We cannot assure you that we will not discover instances of historical
breakdowns in controls, policies and procedures affecting our previously issued
financial statements.

Following our management and corporate governance restructuring, we have made
changes in our internal controls; our disclosure controls, policies and
procedures; and our corporate governance policies and procedures. While the
Company believes that the restructuring and our newly implemented controls,
policies and procedures will prevent the occurrence of financial reporting
problems in the future, there can be no assurance that we will not discover
instances of historical breakdowns in our internal controls, policies and
procedures of the types that would lead to a restatement of our historical
financial results.

RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL

Because we have only recently commenced business operations, there is no
assurance that our business will be profitable or that our business will
succeed.

While we were incorporated in 1989, we only commenced our business operations in
October 1999 in our current configuration of offering electronic book reading
device, TCS and other services. Our operating subsidiary, Qinnet Holdings, was
incorporated in June 1999. We are presently in the process of establishing our
business operations as an information and computer technology provider and
electronic reading device producer in China. Accordingly, we have only a limited
operating history with which to evaluate our business. You should consider the
risks, expenses and uncertainties that an early stage corporation like ours
faces. These risks include our ability or inability to: (i) provide value-added
technology, products and services in China; (ii) achieve commercial acceptance
of the technology products and services that we plan to offer in China; (iii)
expand our existing businesses; (iv) achieve financing to fund our plan of
operations; and (v) respond effectively to competitive pressures. If we are
unsuccessful in these addressed risks, our business, financial condition and
results of operations will be adversely affected and our business may fail.

Because we are still developing our business, we expect our losses to continue.

To date, we have not been profitable and we have earned limited revenues. As our
business plan is implemented, we expect to incur increased operating expenses
and thus significant losses until sufficient operating revenues can be earned.
If we are not able to generate significant revenues from our planned value-added
technology, products and services, then we will not be able to achieve
profitability.

If we do not obtain additional financing, our business may fail.

Our business plan calls for increased expenditures associated with the expansion
of our thin-client server business, our Liaoning Qinnet joint venture and our
other planned businesses. We anticipate that revenues from operations will
initially be insufficient to cover these expenses. Accordingly, we will have
substantial additional capital requirements and we can provide no assurance that
such funding will be available if and when needed. Obtaining additional
financing will be subject to a number of factors, including: (i) market
conditions; (ii) our operating performance; and (iii) investor acceptance of our
business plan. These factors may make the timing, amount, terms and conditions
of additional financing unattractive for us. If we are unable to raise
additional capital, we may not be able to implement our business plan and our
business may fail.

                                       10
<PAGE>

RISKS RELATED TO OUR BUSINESS

The marketing and market acceptance of our products may not be as rapid as we
expected.

The market for our products has only recently begun to develop, is rapidly
evolving and is increasingly competitive. Demand and market acceptance for our
products are subject to uncertainty and risk. We cannot predict whether, or how
fast, this market will grow or how long it can be sustained. Purchases of
consumer electronics products are largely discretionary and may be affected by
general economic trends in the countries or regions in which such products are
offered. If the market for our products develops more slowly than expected or
becomes saturated with competitors, our operating results could be adversely
impacted.

If we are not successful in completing the development of the Q-Reader, our
business will suffer.

We expect to derive a portion of our revenue from the development and sales of
our Q-Reader electronic book-reading device. There is no assurance that
consumers in China will prefer electronic book reading devices to augment or as
an alternative to traditional paper books. Our electronic book publishing
business model remains in the development stage and we have begun to generate
revenues but the amount has not been significant to date. Our success is
dependent upon our ability to implement this business model and the acceptance
of our electronic book reader products and services by consumers in China. As a
result, we cannot determine at this time the probability of our success in
earning income from sales of our planned electronic book publishing products and
services.

If our TCS business model is not widely accepted in China, our business will
suffer.

We expect to derive a portion of our revenue from the development and sales of
TCS computer systems in China. There is no assurance that consumers in China
will prefer TCS systems as an alternative to personal computers. Our TCS
business model remains in the development stage and we have not earned
significant revenues to date. Our success of TCS business is dependent upon our
ability to implement this business model and the acceptance of our products and
services by consumers in China. As a result, we cannot determine at this time
the probability of our success in earning income from sales of our planned TCS
products and services.

If our QWS technology is not widely accepted in China, our business will suffer.

We expect to derive a portion of our revenue from the development and sales of
QWS technology in China. There is no assurance that consumers in China will
purchase our QWS software. Our QWS technology has earned limited revenues to
date. Our success is dependent upon our ability to fund the marketing activities
for our QWS software in China. As a result, we cannot determine at this time the
probability of our success in earning income from sales of our QWS technology.

If social or political conditions in the PRC change, our business operations may
be adversely affected

                                       11
<PAGE>

We have established our business operations in the PRC and plan to derive a
substantial portion of our revenues from the domestic Chinese market. Social and
political conditions in China are more volatile than developed countries. This
volatility may cause our operations to fluctuate and make it difficult for our
business to grow. Results such as this could then have an adverse effect on our
stock price. Historically, such a volatility has been caused by: (i) significant
governmental influence over many aspects of local economies; (ii) political
uncertainty; (iii) unexpected changes in regulatory requirements; (iv) slow or
negative economical growth; and (v) imposition of trade barriers.

We have no control over these matters. Volatility resulting from these matters
may decrease our ability to expand our business operations in China, adversely
affect Internet availability to Chinese consumers, create uncertainty regarding
our operating climate and adversely affect our customer's budgets. All of these
factors may adversely impact our business.

If the Chinese currency depreciates relative to the U.S. dollar, then our
revenues will decline.

Our reporting currency is the U.S. dollar. We anticipate that our revenues from
operations within China will be earned in Chinese currency. Our revenues from
domestic Chinese operations will decline in value if the Chinese currency
depreciates relative to the U.S. dollar. Accordingly, our revenues will decrease
if the Chinese currency depreciates relative to the U.S. dollar, with the result
that our business operations and financial condition may be harmed.

If the telecommunications infrastructure in China is not improved, our business
will be limited in its growth.

Access to the Internet requires a relatively advanced telecommunications
infrastructure. The telecommunications infrastructure in many parts of China is
not as well developed as in the United States or other developed countries. The
quality and continued development of the telecommunications infrastructure in
China will have a substantial impact on our ability to deliver our services and
on the market acceptance of the Internet in China in general. If further
improvements in the Chinese telecommunications infrastructure are not made, the
usage of the Internet in China may not grow as anticipated. If access to the
Internet in China does not continue to grow or grows more slowly than we
anticipate, then our planned technology products and services may not achieve
the required consumer acceptance and our business, financial condition and
results of operations may be adversely affected.

If we are not able to effectively manage expanding operations, then our business
may be harmed.

Our business plan anticipates that our operations will undergo significant
expansion if we are able to implement our plan of operations. This expansion
will require us to hire additional personnel and establish offices in locations
within China. We anticipate that this growth will place a significant strain on
our managerial, operational and financial resources. To accommodate this growth,
we must successfully find and train additional employees, acquire and implement
new computer hardware and software systems and establish new offices. We may not
succeed with these efforts. Our failure to expand in an efficient manner could
cause our expenses to be greater than anticipated, our revenues to grow more
slowly than expected and could otherwise have an adverse effect on our business,
financial condition and results of operations.

                                       12
<PAGE>

If we are unable to hire and retain key personnel, then we may not be able to
implement our business plan.

We depend on the services of our senior management and key technical personnel.
In particular, our success depends on the continued efforts of our key
management; sales and technical personnel could have an adverse effect on our
business, financial condition and results of operations. In addition, our
success is largely dependent on our ability to hire highly qualified managerial,
sales and technical personnel. These individuals are in high demand and we may
thus not be able to attract the staff that we need within our budget.

Our stock price has been volatile.

The market price of our common stock has historically been volatile. It is
likely that the market price of our common stock will continue to be subject to
significant fluctuations. We believe that future announcements concerning us,
our competitors or our principal customers, including technological innovations,
new product introductions, governmental regulations, litigation or any future
decision to restate any of our financial statements may cause the market price
of our common stock to fluctuate substantially in the future. Sales of
substantial amounts of outstanding common stock in the public market could
materially and adversely affect the market price of our common stock. Further,
in recent years the stock market has experienced extreme price fluctuations in
equity securities of technology companies. Such price and volume fluctuations
often have been unrelated to the operating performance of those companies. These
fluctuations, as well as general economic, political and market conditions, such
as armed hostilities, acts of terrorism, civil disturbances, recessions,
international currency fluctuations, or tariffs and other trade barriers, may
materially and adversely affect the market price of our common stock.

We do not have a comprehensive disaster recovery plan or back-up system, and a
disaster could severely damage our operations.

We currently do not have a comprehensive disaster recovery plan in effect and do
not have fully redundant systems for certain critical operations. Although we
have some technology redundancy and back-up capabilities for our production and
transmission capabilities, there are single points of failure within our
processes and technology that, in the event of a catastrophic disruption, would
cause us to lose our ability to provide transmission capabilities. In that
event, we would have to operate at reduced service levels that could severely
negatively affect our relationships with our customers, our revenue generation
and our brand. There are initiatives underway to prioritize our recovery
requirements and we are developing strategies for our mission critical business
operations and technology. This will be the basis for the development and
implementation of business continuity and disaster recovery plans.

RISKS RELATED TO OUR INDUSTRY

We face competition in many areas and the competition could negatively impact
our operating results.

We face competition from a wide range of other companies in the communications,
media, publishing, information, Internet services, and software and technology
fields. The competitive environment could, among other results, require price
reductions for our products, require increased spending on marketing and product


                                       13
<PAGE>

development, limit our ability to develop new products and services, limit our
ability to expand our customer base or even result in attrition in our customer
base. Any of these occurrences could negatively impact our operating results.
Many of our competitors have greater financial and human resources than we do.
As a result, these competitors can compete more effectively by offering
customers better pricing and other terms and conditions, including indemnifying
customers against patent infringement claims.

New products and rapid technological change may adversely affect our operations.

The emergence of new consumer products and technologies, changes in consumer
preferences and other factors may limit the life cycle of our technologies and
any future products we might develop. Our future operations could be adversely
impacted by our ability to identify emerging trends in our markets and to
develop and market new products and services that respond to competitive
offerings, technological changes and changing consumer preferences in a timely
manner and at competitive costs. Although we believe that we will continue to
develop attractive new products, the industry in which we operate is
characterized by rapid changes, including technological changes. The process of
developing and marketing new products is inherently complex and uncertain, and
there are a number of risks, including the following: we cannot assure you that
we will have adequate funding and resources necessary for investments in new
products and technologies; we cannot assure you that our long-term investments
and commitment of significant resources will result in successful new products
or technologies; we cannot assure you that we can anticipate successfully the
new products and technologies which will gain market acceptance and that such
products can be successfully marketed; we cannot assure you that our newly
developed products or technologies can be successfully protected as proprietary
intellectual property rights or will not infringe the intellectual property
rights of others; and that our products may become obsolete due to rapid
advancements in technology and changes in consumer preferences.

Our failure to anticipate adequately changes in the industry and the market, and
to develop attractive new products, including any of the risks described above,
may reduce our future growth and profitability and may adversely affect our
business results and financial condition.

                           FORWARD-LOOKING STATEMENTS

This Form 10-KSB contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. When used in this document and in
the documents incorporated herein by reference, the words "may", "will",
"continue", "anticipate", "believe", "estimate", "expect", "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify such forward-looking statements. Such statements reflect the current
views of the Company or its management with respect to future events and are
subject to certain risks, uncertainties and assumptions including, but not
limited to those set forth above under "Certain Risks Affecting Business,
Operating Results and Financial Condition."

Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, the Company's actual results,
performance or achievements could differ materially from those expressed in, or
implied by, any such forward-looking statements. Factors that could cause or
contribute to such material differences include, but are not limited to, those


                                       14
<PAGE>

discussed in Item 1 under "Business" and "Certain Risks Affecting Business,
Operating Results and Financial Condition" and Item 3, "Legal Proceedings," as
well as those factors discussed elsewhere in this Form 10-K and in the documents
incorporated herein by reference. The inclusion of such forward-looking
information should not be regarded as a representation by the Company or any
other person that the future events, plans or expectations contemplated by the
Company will be achieved. The Company undertakes no obligation to release
publicly any updates or revisions to any such forward-looking statements that
may reflect events or circumstances occurring after the date of this Form
10-KSB.

ITEM  2.      DESCRIPTION OF PROPERTY

Our principal office is located at 13428 Maxella Avenue, Suite 291, Marina Del
Ray, California 90292. We are not party to any lease for these premises. We do
not own any real estate. We believe that all of our facilities are adequately
maintained and suitable for their present use.

Our subsidiary, Beijing Qinnet, sub-leases premises is comprised of
approximately 2,000 square feet in Beijing, China on an annual basis at the rate
of approximately $2,000 per month. Our joint venture subsidiary, Liaoning
Qinnet, sub-leases premises comprised of approximately 2,200 square feet in
Shenyang, Liaoning, China at the rate of approximately $700 per month, prepaid
until June 30, 2004.

We intend to relocate our principal executive offices from California to Florida
during the first quarter of 2004. We believe that our facilities are adequate
for our present needs and our near term growth, and that additional facilities
will be available at acceptable rates as we need them.

ITEM  3.      LEGAL PROCEEDINGS

We are, from time to time, involved in various lawsuits generally incidental to
our business operations. In the opinion of management, the ultimate resolution
of these matters, if any, will not have a significant effect on the financial
position, operations or cash flows of the Company.

One legal proceeding was resolved in 2003. We were named as a third-party
defendant in a lawsuit commenced in The United States District Court for the
District of Nevada in August of 2002 by one of our former shareholders. The
former shareholder had sued our transfer agent, Pacific Stock Transfer Company
("PSTC"), of Las Vegas, Nevada, and had claimed damages in excess of $75,000
arising from the alleged failure by PSTC to remove a restrictive legend from the
shareholder's share certificate. PSTC had named us as a third-party in the
lawsuit and sought indemnification by us for any liability to the shareholder.
We maintained that PSTC had no liability to the shareholder or, in the
alternative, that anything PSTC may have done wrong was so reckless as to
release us from its contractual obligations. On August 11, 2003, the former
shareholder and PSTC settled this matter and PSTC agreed to dismiss its claim
against us without prejudice. However, PSTC may later decide to re-file its case
against us for indemnification within the statute of limitations period.

                                       15
<PAGE>

Currently, the Company is involved in the following ongoing matters.

Our subsidiary, Qincom Networks Inc., filed a lawsuit against Sunny
International Service Corporation in February 2002 in the British Columbia
Supreme Court. (CASE NUMBER 021173) Qincom Networks is alleging breach of
contract of approximately $196,000 CDN (equal to approximately $115,378 US)
arising from the non-payment by Sunny for wholesale long distance services that
were provided by Qincom Networks. Trial for this action was originally set for
late August 2002 but has been postponed to April 2004. We anticipate that any
funds that we recover in this action will be used by us to pay a
telecommunications provider for network services that we purchased in order to
enable us to provide wholesale long distance services to Sunny. If we are not
successful in recovering against Sunny, then the telecommunications provider may
commence action against us to recover the amounts we owe.

In addition, one of our investors filed a lawsuit in the Court of Common Pleas
of Philadelphia, Pennsylvania on November 12, 2002 against us, alleging
rescission of promissory note and the subscription agreement along with
fraudulent and negligent misrepresentation. We filed an Answer to the Complaint
and discovery is pending. On June 3, 2003, we have consented to the entry of a
partial judgment against us in the amount of $51,500. This amount represents a
return of the $50,000 principal that the investor loaned us plus statutory
interest.

The Company intends to defend all of its pending litigation vigorously. Because
of the preliminary nature of all these proceedings and the uncertainty of
litigation generally, we are unable to predict at this time the likely outcome
of the litigation or estimate its liability, if any, with regard to these cases.
However, we may be required to pay judgments or settlements and incur expenses
in these matters in aggregate amounts that could have a material adverse effect
on our financial condition or results of operations.

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

No matters were submitted to a vote of our security holders during the fourth
quarter of the fiscal year ended December 31, 2002, through the solicitation of
proxies or otherwise.

                                     PART II
                                     -------

ITEM  5.      MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
              MATTERS

MARKET INFORMATION

As of the fiscal year ended December, 31, 2002, our common stock was quoted on
the Over-The- Counter Bulletin Board Trading System ("OTCBB") under the symbol
"QNTI". However, on May 23, 2003, we were delisted from the OTCBB and have not
been actively trading on any exchange since then. We intend to apply to the NASD
to resume trading on the OTCBB upon filing our forthcoming 10QSB for the three
quarters ended March 31st, June 30, 2003 and September 30, 2003.

                                       16
<PAGE>

The price range per share reflected in the table below is the high and low bid
quotation for our common stock and reflects all stock splits effected by the
Company. This information was obtained by NASDAQ for the periods indicated.


Quarter                                           High              Low
------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31, 2001
1st  Quarter  2001                               $10.00            $5.50
2nd  Quarter  2001                               $7.00             $4.75
3rd  Quarter  2001                               $5.50             $4.25
4th  Quarter  2001                               $5.00             $3.00

FISCAL YEAR ENDED DECEMBER 31, 2002
1st  Quarter  2002                               $4.75             $3.50
2nd  Quarter  2002                               $4.50             $1.02
3rd  Quarter  2002                               $1.18             $0.09
4th  Quarter  2002                               $0.21             $0.08

1st Quarter 2003                                 $0.22             $0.05
2nd Quarter 2003 (through May 23, 2003):         $0.07             $0.04

Trading in our common stock on the OTCBB market has been limited and sporadic
and the quotations set forth above are not necessarily indicative of actual
market conditions. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual transactions. On
August 28, 2003, there were approximately 807 stockholders of record of our
common stock and 17,798,004 shares of our common stock outstanding. This number
does not include stockholders for whom shares were held in a "nominee" or
"street" name.

We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance the expansion and
growth of our business and do not expect to pay any cash dividends in the
foreseeable future. Payment of future cash dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs, plans for expansion and other factors considered relevant by our
Board of Directors.


                      EQUITY COMPENSATION PLAN INFORMATION
<TABLE>
<CAPTION>

==============================================================================================================

                                                                                    NUMBER OF SECURITIES
                                                                                   REMAINING AVAILABLE FOR
                            NUMBER OF SECURITIES TO  WEIGHTED-AVERAGE EXERCISE  FUTURE ISSUANCE UNDER EQUITY
      PLAN CATEGORY         BE ISSUED UPON EXERCISE     PRICE OF OUTSTANDING         COMPENSATION PLANS
                            OF OUTSTANDING OPTIONS,    OPTIONS, WARRANTS AND        (EXCLUDING SECURITIES
                            WARRANTS AND RIGHTS(A)           RIGHTS(B)           REFLECTED IN COLUMN (A)(C)
==============================================================================================================
<S>                               <C>                         <C>                         <C>
Equity compensation plans
approved by security holders      1,890,000                   $2.28                       470,000
==============================================================================================================

Warrants                            138,757                   $0.10
==============================================================================================================

          Total                   2,028,757                   $2.13                       470,000
==============================================================================================================
</TABLE>


                                       17
<PAGE>

We approved our 2000/A and 2001 incentive stock option plan in June 2001. Both
stock option plans were approved by our stockholders in August 2001. Our 2000/A
stock option plan provides for the grant of incentive stock options to purchase
our common stock to our directors, officers, employees and eligible consultants.
Options to purchase a total of up to 260,000 shares of our common stock were
granted in April 2000 under the 2000/A stock option plan. Each option granted is
exercisable at a price of $10.00. We granted options to purchase a total of
2,000,000 shares of our common stock under our 2001 stock option plan during the
year ended December 31, 2001. Each option granted is exercisable at price of
$5.00 per share. During the years 2000, 2001 and 2002, 210,000 and 1,290,000
stock options granted under the 2000/A and 2001 plans, respectively, were
cancelled after certain directors, employees and consultants were no longer with
the company. In December 2002, we granted options to purchase a total of
1,100,000 shares of our common stock under our 2001 stock option plan. Each
option granted is exercisable at a price of $0.10.

There were 138,757 outstanding warrants at of December 31, 2002. Each warrant is
exercisable at a price of $0.10 for a share of our common stock with expiry date
on January 30, 2004.

RECENT SALES OF UNREGISTERED SECURITIES

The following information is furnished with regard to all securities sold by us
within the past three years that were not registered under the Securities Act.
The issuances described hereunder were made in reliance upon the exemptions from
registration set forth in Section 4(2) of the Securities Act or Regulation D,
Rule 506 of the Securities Act. None of the foregoing transactions involved a
distribution or public offering.

On April 23, 2001, we completed the issuance of 12,275,100 shares of our common
stock to the non-Canadian shareholders of Qinnet Holdings. These shares were
issued pursuant to Rule 506 of Regulation D in consideration of the transfer to
us of an aggregate of 93.8% of the outstanding stock of Qinnet Holdings. Each
shareholder represented to us that the shareholder was an "accredited investor".

On June 8, 2001, we issued an additional 853,650 shares of our common stock to
the remaining shareholders of Qinnet Holdings. These shares were issued pursuant
to Regulation S in consideration for the transfer to us of the remaining 6.2%
interest in Qinnet Holdings. Each investor represented to us that the investor
was not a "U.S. Person", as defined under Regulation S of the 1933 Act. The
shares were issued as restricted shares under the 1933 Act and were endorsed
with a restrictive legend. Shares were issued to an aggregate of forty (40)
investors.

On January 24, 2002, we completed the sale of 132,150 units at a price of $2.80
per unit for gross proceeds of $370,020. Each unit was comprised of one share of
our common stock and one share purchase warrant. Each share purchase warrant
entitles the holder to purchase one share our common stock at a price of $2.80
per share until January 30, 2004. We paid commissions in the amount of $55,503
in connection with the offering. Of this amount, $18,499 was converted into
units at a price of $2.80 and the balance was paid in cash. A total of 138,757
shares and 138,757 share purchase warrants were issued. The purchasers consisted
of a total of seven purchasers. On October 22, 2002, the exercise price of the


                                       18
<PAGE>

stock warrants was renegotiated and changed to $0.10 per share when the stock
was trading at $0.08 per share. All sales were completed pursuant to Rule 506 of
Regulation D of the Act to persons who are "accredited investors", as defined in
Rule 501 of Regulation D. The shares were issued as restricted shares under the
Securities Act of 1933 (the "1933 Act") and all share certificates were endorsed
with a restrictive legend.

On September 22, 2002, the company received $20,000 from Jim Dent that was
initially treated as a loan by the company. Subsequently, the Company issued
400,000 shares of common stock at a price of $.05 per share to convert the loan
into equity. These shares were issued pursuant to Regulation S. The investor
represented to us that the investor was not a "U.S. Person", as defined under
Regulation S of the 1933 Act. The shares were issued as restricted shares under
the 1933 Act and were endorsed with a restrictive legend.

On February 20, 2003, the company issued 50,000 shares of its common stock to
Cheng Yue Wang and 25,000 shares of its common stock to Qing Wang respectively
for services rendered to the company. The transaction was valued at $0.11 per
share. As a result, the company recognized compensation expense totaling $8,250
in the accompanying financial statements. The transaction was exempt from
registration under Section 4(2) as the recipient of the shares Employees of
Company at the time receiving shares in lieu of compensation were provided with
access to the officers of the company so as to receive all material information
regarding the company, which the recipient requested. The shares were issued
with restrictive legend and the transactions did not include a public
distribution or offering.

On April 30, 2003, the company issued 300,000 shares of its common stock to
Newman, Pollock & Klein, LLP for legal services related to the company's
corporate and securities matters. The transaction was valued at $.06 per share.
As a result, the company recognized legal expenses totaling $18,000 in the
accompanying financial statements. The transaction was exempt from registration
under Section 4(2) as the recipient of the shares is a sophisticated investor
and was provided with access to the officers of the company so as to receive all
material information regarding the company, which the recipient requested. The
shares were issued with restrictive legend and the transactions did not include
a public distribution or offering.

On June 24, 2003, we received a subscription from Invesitssments, S.A. of
$11,250.00 for the sale of 450,000 shares of common stock at a price of $.025
per share. These shares were issued pursuant to Regulation S. The investor
represented to us that the investor was not a "U.S. Person", as defined under
Regulation S of the 1933 Act. The shares were issued as restricted shares under
the 1933 Act and were endorsed with a restrictive legend.

On February 5, 2003, we received a subscription from Famco Acquisition Company,
LLC of $5,000.00 for the sale of 50,000 shares of common stock at a price of
$.10 per share. These shares were issued pursuant to Rule 506 of Regulation D.
The investor represented to us that the shareholder was an "accredited
investor".

On February 13, 2003, we received a subscription from Famco Acquisition Company,
LLC of $5,000.00 for the sale of 50,000 shares of common stock at a price of
$.10 per share. These shares were issued pursuant to Rule 506 of Regulation D.
The investor represented to us that the shareholder was an "accredited
investor".

                                       19
<PAGE>

On August 25, 2003, the company issued 700,000 shares of its common stock to
Newman, Pollock & Klein, LLP for legal services related to the company's
corporate and securities matters. On the transaction date, the company's common
stock had no reliable market value. The transaction was valued at $.025 per
share. As a result, the company recognized legal expenses totaling $17,500 in
the accompanying financial statements. The transaction was exempt from
registration under Section 4(2) as the recipient of the shares is a
sophisticated investor and was provided with access to the officers of the
company so as to receive all material information regarding the company, which
the recipient requested. The shares were issued with restrictive legend and the
transactions did not include a public distribution or offering.

On August 25, 2003, the company issued 855,000 shares of its common stock to
Lijun Liu in exchange for sales and marketing consulting services. On the
transaction date, the company's common stock had no reliable market value. The
company valued the shares issued by the value of the marketing expenditure at
$.025 per share. As a result, the company recognized a stock-based compensation
expense totaling $21,375 in the accompanying financial statements. The
transaction was exempt from registration under Section 4(2) as the recipient of
the shares is a sophisticated investor and was provided with access to the
officers of the company so as to receive all material information regarding the
company, which the recipient requested. The shares were issued with restrictive
legend and the transactions did not include a public distribution or offering.

ITEM  6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

You should read this section together with our consolidated financial statements
and related notes thereto included elsewhere in this report. In addition to the
historical information contained herein, this report contains forward-looking
statements that involve risks and uncertainties. Forward-looking statements are
not based on historical information but relate to future operations, strategies,
financial results or other developments. Forward-looking statements are
necessarily based upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond our control and many of which, with respect to future
business decisions, are subject to change. Certain statements contained in this
Form 10-KSB, including, without limitation, statements containing the words
"believe", "anticipate", "estimate", "expect", are of the opinion that and words
of similar import, constitute "forward-looking statements." You should not place
any undue reliance on these forward-looking statements.

You should be aware that our actual growth and results could differ materially
from those contained in the forward-looking statements due to a number of
factors, which include, but are not limited to the following: the special risk
factors set forth in Part I, Item 1 above, the risks and uncertainties set forth
below; economic and business conditions specific to our products and industry;
competition and the pricing and mix of products offered by us and our
competitors; product acceptance; relations with and performance of third
parties; our ability to control costs and expenses; effectively communicate with
our customers and to penetrate their chosen distribution channels; access to
capital; foreign currency risks; risks associated with our entry into new
markets or distribution channels; risks related to the timely performance of
third parties, such as shipping companies, including risks of strikes or labor
disputes involving these third parties; maintaining satisfactory relationships
with our banking partners; political and trade relations; the overall level of
consumer spending; global economic conditions and additional threatened
terrorist attacks and responses thereto, including war. There may be other


                                       20
<PAGE>

factors not mentioned above or included elsewhere in this report that may cause
actual results to differ materially from any forward-looking information. You
should not place undue reliance on these forward-looking statements. We assume
no obligation to update any forward-looking statements as a result of new
information, future events or developments, except as required by applicable
securities laws.

PLAN OF OPERATIONS

During 2002, we reevaluated our business strategy and discontinued
non-performing operations. Our plan of operations over the next twelve months
includes the following elements, subject to us achieving the required financing
(See Item 1. - Description of Business): Our principal business strategy is to
develop and provide value-added information technologies for the commercial
needs of consumers and businesses in China and other selected countries to be
determined by us. We believe our technologies are well positioned to provide
such solutions. Our ability to carry our plan of operations is currently limited
by our lack of financial resources. Our business activities in China include:

         1.       a joint venture to develop an electronic book publishing
                  ("e-Book") business in PRC;
         2.       the development of a thin-client server computer system
                  ("TCS") business in the PRC; and
         3.       developing and marketing Internet solution software ("QWS")
                  being marketed to Chinese customers.

OUR BUSINESS.  Our business is summarized as follows:

1.     ELECTRONIC BOOK PUBLISHING

A primary focus of our plan of operations over the next twelve months is to
pursue our activities in Liaoning Qinnet. We have completed the development of
our electronic reading device, branded as Q-Reader, and are preparing for its
commercial sales. We have negotiated with LPG to terminate the agreement to
expand the plan of the current operation, which required us to advance the
balance of $2,549,170 to Liaoning Qinnet for our portion of the joint venture
expenses. Accordingly, we have paid in full our capital contribution to Liaoning
Qinnet and have no further obligation. A termination agreement with LPG would
have no effect on the current joint venture ownership in which we own 70% and
LEP owns 30% of Liaoning Qinnet. We plan to re-evaluate this business
opportunity to determine a further funding plan to allow us to expedite the roll
out of the Q-Reader in China and other Southeast Asian countries and to provide
the funds necessary to complete the design and initiate the production of the
second-generation product, the e-Bag. This is a wireless device that will enable
a student to inexpensively interface with the main server of a school or
university, as well as providing all of the features of the Q-Reader. We have
finished the final production design of our Q-Reader for commercial sales. As of
March 2003, we had produced and sold 572 units to LPG. During the first quarter
of 2003, we initiated the test sales of Q-Readers for a total of $43,102. We
have also received a purchase order of 2000 units, which are being manufactured
and expected to be delivered to the purchaser before the end of December 2003.
We plan to spend approximately $500,000 over the next twelve months on
production and marketing of the Q-Reader, depending upon financing. Due to a
lack of working capital, we have not been able to implement our sales strategy
for the Q-Reader and received a few thousand dollars in revenue during the
second and third quarter of 2003. We believe that with additional capital, we
will be able to resume the manufacturing and distribution of the Q-Reader within
thirty days.


                                       21
<PAGE>

2.     THIN-CLIENT SERVER TECHNOLOGY BUSINESS.

We plan to continue developing our thin client server ("TCS") and prepare for
its commercial sales. We have completed the system demonstration set-up in
Beijing. We, through our wholly owned subsidiary, Beijing Qinnet, have signed
two trial memorandums with a school and a commercial bank. These agreements
allow us to demonstrate our TCS system at their facilities. Our ability to
implement our plan of operations for the development of our TCS is subject to
our ability to raise additional financing. We plan to spend $100,000 on the TCS
project within the next twelve months. These funds will be directed to complete
and refine terminal development, system configuration, and marketing and sales
activities. With continued terminal development, the line will be expanded to
include more features. We also plan to incorporate the TCS platform into a
wireless model of the Q-Reader. In addition, we plan to establish a centrally
located server system that will accommodate up to 10,000 subscribers in a Wide
Area Network environment. The amount of funds that we propose to spend on
developing this business will depend upon the amount of funds, if any, available
from any financing that we are able to achieve and our subsequent determination
based on priorities and business opportunities.

We have contracted with Emsoft Ltd., a Hong Kong based software developer, to
provide the Linux based operating system software, EmLinux, for our client
terminal. The terms of this contract required us to pay an up-front fee of
$4,000, with the balance of $15,000 payable within the next twelve months. We
will also be required to pay usage fees and a royalty to the software developer
based on our sales of TCS terminals and services

We have also entered into a contract in the fourth quarter of 2002, with CITRIX
Systems, Inc., a Ft. Lauderdale, Fl based major virtual workplace software and
services provider to provide us with the independent computing architecture
software that we plan to incorporate into our Q-Server TCS computing terminals
to communicate between the client terminal and the server. We anticipate that we
will be required to pay usage fees and a royalty to CITRIX under a marketing
agreement based on our sales of TCS terminals and services. Negotiations of this
agreement are dependent upon our ability to raise additional capital for sales
and marketing and finish development of the TCS terminals to provide a schedule
for the roll out of this activity.

3.  INTERNET SOLUTION SOFTWARE.

We have completed the development and are ready to market the Internet solution
software ("QWS") developed by Beijing Qinnet. We do not expect to realize
significant revenues until such time as we undertake broad based marketing
efforts. We currently do not have the ability to undertake these marketing
efforts due to our current limited funding. Accordingly, our ability to complete
sales of this software is subject to our obtaining further financing and our
determination that the continuation of this operation is viable as compared to
alternative uses of capital.

                                       22
<PAGE>

4.     QINTOP COMMUNICATION NETWORK

We have terminated the operations of the QinTop Communication Network in August
2002, as we have decided to direct our corporate resources to other areas of our
operations. QinTop was involved in the wholesale provision of IP based
long-distance telephone services.

5.     TIANJIN QINNET

We have discontinued our previously disclosed plan of operations for Tianjin
Qinnet in the third quarter of the year 2002 due to market conditions affecting
Internet related services. This was our first entry into the Chinese market at a
time when Internet services were unique. Since that time, Internet services have
become virtual commodities and pricing very competitive resulting in
significantly reduced margins. Accordingly, the Company has wound up the
operations in an orderly manner.

6.     SHENYANG QINNET

We have previously disclosed our plan of discontinuing operations of Shenyang
Qinnet in the last quarter of the year 2001. With the discontinuation of
extremely competitive Internet related businesses, key technical personnel have
been moved to the development of our electronic reading device within Liaoning
Qinnet.

7.     SUBSEQUENT EVENT & JOINT VENTURE WITH EINFO SOLUTIONS IN AUSTRALIA

In August 2003, we entered into a letter of intent to form a joint venture with
einfo Solutions, in Adelaide, Australia to produce a new version of the Q-Reader
for marketing to the Australasian market. This joint venture will be 50% owned
by the Company and 50% owned by eInfo Solutions. The Australian government has
agreed to fund $52,000 Australian to the joint venture to aid in its formation
and the development of a prototype for the Australasian market. The prototype
will be based upon the existing Q-Reader with a color screen and upgraded
English language capability and documentation and is expected to be produced by
the end of the first quarter of 2004. The joint venture will have certain
royalty rights to this new Q-Reader on a worldwide basis.

We plan to spend approximately $700,000 over the next twelve months in order to
pursue our plan of operations, provided we achieve the required financing. We
plan to spend $500,000 on the ebook project to produce and market 3,500 Q-Reader
electronic reading devices; $100,000 to produce and install 700 TCS terminals;
$25,000 on QWS marketing and sales; and $75,000 for general working capital. If
we fail to raise the required funds to pursue our plan of operations, we will
have to maintain or reduce operations or seek other industrial partners.

We had cash in the amount of $132,557, mostly in China, and working capital
deficit in the amount of $1,551,485 as of December 31, 2002. Accordingly, we
will require significant amounts of additional financing in order to complete
our plan of operations. We will plan our expenditures around our capital
resources in order to maintain our operations. The amount of expenditures may
vary if: (i) we determine to reduce or expand our plan of operations; (ii) the
actual costs incurred in pursuing our stated plan of operations are greater or
less than anticipated; (iii) we are not successful in achieving revenues upon
completion of our stated plan of operations; or (iv) we are not successful in
achieving the required financing. While we are currently in discussions to
secure additional financing, we do not have any arrangement in place for any


                                       23
<PAGE>

debt or equity financing which would enable us to achieve additional financing.
There is no assurance that we will be able to secure the required additional
financing. There is no assurance that completion of our stated plan of
operations will successfully generate the planned revenues or that any revenues
generated will be sufficient to fund future operations.

In January 2003, we hired James Baker to be our full-time chief executive
officer. We currently employ approximately 16 people in our operations, mostly
in China. We anticipate that we will hire additional employees over the next
twelve months if we achieve the financing necessary to implement our plan of
operations. Of these additional employees, a majority are anticipated to be
located in China. We also plan to expand our management team in North America
and China.

Our business plan may differ from our stated plan of operations. We may decide
not to pursue all or part of our stated plan of operations. In addition, we may
modify our stated plan of operations if actual costs are greater than
anticipated, if we are not able to achieve financing or if we secure financing
in order to expand or accelerate our plan of operations.

RESULTS OF OPERATIONS

We completed the acquisition of a 100% interest in Qinnet Holdings Corp.
("Qinnet Holdings") during the second quarter of 2001. We completed this
acquisition in consideration of the issuance by us of 13,128,750 shares of our
common stock to the shareholders of Qinnet Holdings. Due to the common
management and shareholders of Q-Net Technologies, Inc. and Qinnet Holdings, the
acquisition was accounted for using historical cost in a manner similar to
pooling-of-interests method of accounting. Under this method, the assets,
liabilities and stockholders' equity of the acquired entities are combined with
the Company's respective accounts and recorded at book value. The financial
statements and footnotes included with this Form 10-KSB Annual Report have been
restated to include the operations of Qinnet Holdings and its subsidiaries for
all periods presented.

The audited consolidated financial statements included with this Form 10-KSB
Annual Report include Q-Net Technologies, Inc. and each of our subsidiaries.
These subsidiaries include our 100% owned subsidiaries, Qinnet Holdings Corp.,
Beijing Qinnet Electronic Technologies Co. Ltd. (a subsidiary of Qinnet
Holdings), Qincom Networks Inc., Sonnetvoice Communications Inc. and Internet
Corporation of America, and our 70% owned subsidiary, Liaoning Qinnet E-book
Technology Co. Ltd. These consolidated financial statements do not include the
accounts of our Tianjin Qinnet or Shenyang Qinnet joint ventures, which are
accounted for using the cost method.

2002 COMPARED WITH 2001

REVENUES

We earned revenues in the amount of $29,045 during the year ended December 31,
2002, compared to revenues in the amount of $12,449 for the year ended December
31, 2001 The revenue was primarily derived from the sales of Q-Readers in year
2002 and sales of ISDN equipments in year 2001. We had revenue of $25,695
derived through Liaoning Qinnet joint venture by selling of Q-Readers in the 4th
quarter of year 2002. We did not have any revenue from the thin-client server
operations during the twelve months ended December 31, 2002. We terminated our
wholesale Internet phone service operations during 2002. We anticipate that we


                                       24
<PAGE>

will not earn further revenues from wholesale Internet phone services. Further,
there is no assurance that we will be able to generate further revenues from our
other business operations due to our current lack of financing, the development
costs associated with our Liaoning Qinnet Q-Reader joint venture and our
thin-client server and solutions software businesses, and our determinations not
to proceed with the QinTop, Tianjin Qinnet and Shenyang Qinnet businesses.

Our cost of revenues for the year ended December 31, 2002 was $16,220,
representing 55.8% of total revenues. Our cost of revenues for the year ended
December 31, 2001 was $83,393, representing 670% of total revenues. The cost of
revenues is primarily attributable to cost of production of Q-Readers and cost
of the ISDN equipments for year 2002 and 2001 respectively.

Our gross profit for the year ended December 31, 2002 was $12,825, compared to a
gross loss of $70,944, for the year ended December 31, 2001. Our gross profit
was primarily attributable to our sales of Q-Readers in the 4th quarter of year
2002.

OPERATING EXPENSES

Our operating expenses decreased to $2,221,862 for the year ended December 31,
2002, compared to $3,305,193 for the year ended December 31, 2001. The decrease
in our operating expenses in the amount of $1,083,331 was primarily attributable
to the one time write off of the impairment of investments in joint ventures in
year 2001.

Our consulting expenses, which included management contracts, decreased to
$786,465 for the year ended December 31, 2002 from $984,350 for the year ended
December 31, 2001 representing a decrease of $197,885 or 20.1%. The decrease was
mainly due to the reduction of consulting fees and management fees incurred
after the resignation of two of our former directors in August 2002.

Our general and administrative expenses increased to $1,097,002 for the year
ended December 31, 2002 from $648,403 for the year ended December 31, 2001. This
increase was primarily attributable to the increase in the rental cost incurred
by our China Offices for $143,406, increase in wages and benefits of our China
staff by $98,478, write off of inventory of $69,327, increase in provision for
doubtful accounts for $144,715. If we are not successful in achieving additional
financing, we anticipate our general and administrative expenses will decrease,
as we will be forced to scale back our operations.

We incurred costs in the amount of $413,817 and $420,516 related to the
operation of our Liaoning Qinnet joint venture and TCS project, respectively,
during the year ended December 31, 2002. These costs compare to $272,503 and
$328,139 during the year ended December 31, 2001. The increase in expenses for
the twelve-month ended December 31, 2002 for Liaoning Qinnet joint venture and
TCS projects were primarily due to the increase in the rental and staff cost. We
anticipate the amount expended on the Liaoning Qinnet joint venture and TCS
project will increase if we are able to achieve the financing required to enable
us to meet our funding obligations under the joint venture. This lack of funding
is delaying our rollout of the Q-Reader product and TCS product.

In year 2001, the Company made a full provision of $1,168,955 for the impairment
of investments in different joint ventures in the PRC and decision not to pursue
the Tianjin Qinnet, Shenyang Qinnet, Shanghai, Tianjin QinTop and Hulunbier
businesses.


                                       25
<PAGE>


NET LOSS

We incurred a net loss in the amount of $2,218,770 for the year ended December
31, 2002, compared to a net loss of $3,477,201 for the year ended December 31,
2001. The decrease to our loss in the amount of $1,258,431 was primarily
attributable to the one time write off of the impairment of investments in joint
ventures in year 2001.

LIQUIDITY AND CAPITAL RESOURCES

We had cash in the amount of $132,557 as of December 31, 2002, compared to cash
of $364,440 as of December 31, 2001. We had a working capital deficit in the
amount of $1,551,485 as of December 31, 2002, compared to working capital in the
amount of $4,004 as of December 31, 2001.

Cash used by us in operating activities decreased to $814,318 for the year ended
December 31, 2002, compared to $2,166,410 for the year ended December 31, 2001.
Cash used in operating activities was reduced in part due to an increase in
accounts payable and accrued liabilities in the amount of $881,651. Accounts
payable and other accrued liabilities were further increased by $881,651 as of
December 31, 2002 from $428,836 in the financial year ended December 31, 2001.

Cash used in financing activities increased to $1,481,024 for the year ended
December 31, 2002 compared to ($100,912) for the year ended December 31, 2001.
The increase in cash used in financing activities was mainly attributable to the
repayment on notes payable to bank in China.

We currently have options to purchase a total of 50,000 shares of our common
stock outstanding at a price of $10.00 per share, options to purchase 740,000 of
our common stock at a price of $5.00 per share and options to purchase 1,100,000
of our common stock at a price of $0.10 per share. None of these options have
been exercised as of December 31, 2002

We defaulted on a promissory note in the amount of $50,000 due on October 1,
2002 to an investor. We were in negotiations with the investor regarding the
default. These negotiations were not successful and the investor has instituted
legal proceedings against us to collect the amount due under the promissory
note. See Item 3- Legal Proceedings.

We completed a private placement of 132,150 units at a price of $2.80 US per
unit for a gross proceeds of $370,020 on January 24, 2002 to certain investors
(the "Investors"). Each unit consisted of one share of our common stock and one
share purchase warrant (each a "Warrant"). Each Warrant entitled the holder to
purchase one share of common stock of the Corporation at a price of $2.80 US per
share until January 30, 2004. We incurred stock issuance cost of $55,503, of
which $37,004 was paid in cash and the remaining $18,499 was paid through the
issuance of 6,607 stock units with the same terms. We had agreed to file a
registration statement to qualify the resale of the shares underlying the Units
with the United States Securities and Exchange Commission statement, we have
negotiated a reduction to the exercise price of the Warrants from $2.80 to $0.10
per share in consideration of the agreement of the Investors to waive the
Corporation's obligation to file a registration statement.

                                       26
<PAGE>

Our cash position decreased in the amount of $231,883 during the year ended
December 31, 2002, whereas our cash position decreased in the amount of
$2,099,500 during the year ended December 31, 2001. We anticipate that our cash
position will continue to decline until such time as our revenues increase to a
level where they exceed our operating expenses or until we realize an additional
financing.

We will require additional capital if we are to complete our stated plan of
operations. Our plan of operations calls for us to spend approximately
$700,000 over the next twelve months, if we achieve the required financing.
Our current monthly operating expenses are approximately $50,000 per month. We
have a working capital deficit and our revenues currently are not sufficient to
cover our operating expenses. Accordingly, we immediately require additional
financing if we are to continue as a going concern and to finance our business
operations. We anticipate that any additional financing would be through the
sales of our common stock or placement of convertible debt. We are presently in
the process of negotiating private placements of our securities to raise working
capital to finance our operations. However, we do not have any arrangements in
place for the sale of any of our securities and there is no assurance that we
will be able to raise the additional capital that we require to continue
operations. In the event that we are unable to raise additional financing on
acceptable terms, we intend to reduce our marketing and sales efforts and may
implement additional actions to reduce expenditures, including withdrawing from
our joint ventures, reducing staff, reducing the level of services, selling
assets, disposing of business units or suspending some or all of our operations.

We anticipate that we will continue to incur losses for the foreseeable future
based on our expectation that we will incur substantial marketing and operating
expenses in completing our stated plan of operations and there is no assurance
that we will generate revenues that exceed these expenses.

RECENT ACCOUNTING PRONOUNCEMENTS

The FASB issued the following pronouncements during and subsequent to 2002, none
of which are expected to have a significant affect on the financial statements:

SFAS No. 145 - "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." Under SFAS No. 4, all gains
and losses from extinguishment of debt were required to be aggregated and, if
material, classified as an extraordinary item, net of related income tax effect.
This Statement eliminates SFAS No. 4 and, thus, the exception to applying APB
No. 30 to all gains and losses related to extinguishments of debt. As a result,
gains and losses from extinguishment of debt should be classified as
extraordinary items only if they meet the criteria in APB No. 30. Applying the
provisions of APB No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual or infrequent or that
meet the criteria for classification as an extraordinary item. Under SFAS No.
13, the required accounting treatment of certain lease modifications that have
economic effects similar to sale-leaseback transactions was inconsistent with
the required accounting treatment for sale-leaseback transactions. This
Statement amends SFAS No. 13 to require that those lease modifications be
accounted for in the same manner as sale-leaseback transactions. This statement
also makes technical corrections to existing pronouncements. While those
corrections are not substantive in nature, in some instances, they may change
accounting practice.

                                       27
<PAGE>

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 requires companies to record
liabilities for costs associated with exit or disposal activities to be
recognized only when the liability is incurred instead of at the date of
commitment to an exit or disposal activity. Adoption of this standard is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this standard will not have a material impact on the
Company's financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amending FASB No. 123, and "Accounting
for Stock-Based Compensation". This statement amends Statement No. 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 amends APB Opinion No. 28 "Interim Financial
Reporting" to require disclosure about those effects in interim financial
information. The Company will adopt the disclosure provisions and the amendment
to APB No. 28 is effective for interim periods beginning after December 15,
2002.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". FIN45 clarifies and expands on existing disclosure
requirements for guarantees, including loan guarantees. It also would require
that, at the inception of a guarantee, the Company must recognize a liability
for the fair value of its obligation under that guarantee. The initial fair
value recognition and measurement provisions will be applied on a prospective
basis to certain guarantees issued or modified after December 31, 2002. The
adoption of FIN45 will not have a material impact on the Company's financial
statement.

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21 "Revenue Arrangements with Multiple Deliverables". EITF No.
00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and rights to use assets.
The provisions of EITF No. 00-21 will apply to revenue arrangements entered into
in the fiscal periods beginning after June 15, 2003. The Company is currently
evaluating the impact EITF No. 00-21 will have on its financial position and
results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, and an Interpretation of ARB No. 51". FIN46 requires
certain variable interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN46 is effective for all
new interest entities created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1, 2003, the provisions
of FIN46 must be applied for the first interim or annual period beginning after
June 15, 2003. Management is currently evaluating the effect that the adoption
of FIN46 will have on its results of operations and financial condition.

                                       28
<PAGE>

The American Institute of Certified Public Accountants has issued an exposure
draft SOP "Accounting for Certain Costs and Activities Related to Property,
Plant and Equipment ("PP&E")". This proposed SOP applies to all non-government
entities that acquire, construct or replace tangible property, plant and
equipment including lessors and lessees. A significant element of the SOP
requires that entities use component accounting retroactively for all PP&E
assets to the extent future component replacement will be capitalized. At
adoption, entities would have to option to apply component accounting
retroactively for all PP&E assets, to the extent applicable, or to apply
component accounting as an entity incurs capitalizable costs that replace all or
a portion of PP&E. The Company cannot evaluate the ultimate impact of this
exposure draft until it becomes final.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement is effective for contracts entered into or modified after June 30,
2003. We do not expect the implementation of SFAS No. 149 to have a material
impact on our consolidated financial statements.

ITEM 7.     FINANCIAL STATEMENTS

The financial statements required pursuant to this item are filed under Part
III, Item 13(a) (1) of this report. The financial statement schedule required
under Item 310 (a) of Regulation S-B is filed under Part III, Item 13 (a) (2) of
this report.

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE

On December 19, 2002, we dismissed Grant Thornton, LLP (the "Former Accountant")
as our principal independent accountant and engaged Moore Stephens Ellis Foster
Ltd., Chartered Accountants, as our principal independent accountant effective
that same date. Disclosure with respect to this Item has previously been
provided in our Form 8-K filed with the SEC on December 19, 2002.

                                    PART III
                                    --------

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
            COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The following is a list (along with certain biographical information) of the
executive officers and directors of the Company. All directors of the Company
are serving a current term of office which continues until the next annual
meeting of stockholders, until their successors are elected or they are removed
in accordance with our Bylaws, and all officers are serving a current term of
office which continues until the next annual meeting of directors, except Mr.
Baker, who has an employment agreement:

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<PAGE>


Name of Director        Age               Position
----------------        ---               --------

Weiguo Lang             45                Director and Chairman

James D. Baker          59                Director and Chief Executive Officer

Danny Hon               42                Director and Chief Financial Officer

DR. WEIGUO LANG was appointed as our president and to our board of directors on
October 26, 1999. Mr. Lang stepped down as our president on August 10, 2001 but
remains as chairman of our board of directors. In 1997, Dr. Lang established the
first Internet service provider operation in Chengdu, the capital of Sichuan
Province, which was one of the earliest Internet service provider operations in
China. Since then, Dr. Lang has pursued and researched various Internet
opportunities in China. From 1995 to 1998, Dr. Lang was President of Agro
International, a publicly listed Canadian corporation. From 1993 thru 1994, he
was a senior consultant for International Business for the Canadian
international trade & development businesses.

Prior to moving to Canada to further his education, Dr. Lang was a division
manager in Heilongjiang Provincial Government in China from 1984 to 1987. Dr.
Lang received M.Sc. and Ph.D. degrees in Engineering from Canada and a B.Sc.
degree from China. Most of his research work was related to computer programming
and mathematical modeling. Dr. Lang speaks fluent mandarin and English. Dr. Lang
is a director and is the president of Qinnet Holdings.

JAMES D. BAKER was appointed to our board of directors in August 2002 Mr. Baker
was appointed as our chief executive officer on January 1, 2003. Mr. Baker has
been involved with integrated computer systems and cutting edge technology for
over 30 years. From 1967 to 1981 he was with IBM as Project Manager. He has held
a number of executive positions with young companies as founder or co-founder
while also serving on a number of the boards. He was CEO and a Director for
AegiSoft Corporation, a Digital rights Management Company, and was also
instrumental in both raising the capital and running the company from its
inception. RealNetworks acquired AegiSoft in 2000. In 1995, he became the
Chairman and a director of International Pressure Vessel, Inc. (IPV). IPV has
the global technology transfer rights on a Chinese technology for pressure
vessels and obtained a U.S. patent. Mr. Baker became intimately involved in
doing business with Chinese agencies on a regular basis. During this same period
he was instrumental in raising start-up capital for RAPOR, Inc, which designs,
manufactures and markets rapid access portals used in the security industry, and
currently serves as a Director. Mr. Baker also was Founder, President and CEO of
Computer Application Systems (CASI); a computer based Access Control Company,
which provided security systems to over 85% of the Fortune 500 Companies from
1981 - 1987. CASI grew to be number 50 in the Inc. 500 list of fastest growing
privately held companies in the US in 1987. Figgie International, Inc. acquired
the company in 1987. From 1991 to 1995 he consulted to the Security Industry.
Currently he is a Director of TargitInteractive, Inc. an interactive marketing
services provider. Mr. Baker received a Bachelors of Science degree in
Industrial Management from the University of Cincinnati and pursued a Masters in
Business Administration from the University of Michigan.

                                       30
<PAGE>

DANNY HON was appointed to our board of directors and as the acting chief
financial officer in August 2002. Since 2000, Mr. Hon has been the in-house
accountant of the Company. Mr. Hon is a Partner in the Accountancy Firm of Hon
and Wong, Certified General Accountants, and has been in public practice since
1994. Mr. Hon received his Professional Diploma in accountancy from Hong Kong
Polytechnic in 1984, completed the joint examination of the Association of
Chartered Accountants, U.K. and Hong Kong Society of Accountants in 1985,
completed the examination of The Certified General Accountants Association of
Canada for the Certified General Accountants certification in 1993, became a
Certified Financial Planner in 1998 and received a Master of Science in
Administration Degree with concentration in Information Resource Management from
Central Michigan University in 2000.

On August 15, 2002 Frederic Mann resigned as our President, Chief Executive
Officer, Chief Financial Officer and Director and Paul Schwartz resigned as our
Chief Operating Officer and Director. Disclosure with respect to this matter has
previously been provided in our Form 10-QSB for the quarter ended September 30,
2003 filed with the SEC on December 9, 2002.

Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16(a) of the Exchange Act, directors and executive officers
of the Company and beneficial owners of greater than
10% of the Common Stock are required to file certain reports with the Securities
and Exchange Commission (the "Commission") in
respect of their ownership of Company securities. The Company believes that
during fiscal year 2002 all such required reports were timely filed,

ITEM 10.    EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation paid
or accrued to our executive officers for services rendered to Q-NET during the
fiscal years ended December 31, 2002, 2001 and 2000. No other compensation was
paid to any of our named executive officers other than the cash and stock option
compensation set forth below.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                            LONG-TERM COMPENSATION
                         ANNUAL COMPENSATION                                AWARDS                          PAYOUTS
NAME AND                                                           RESTRICTED   SECURITIES
PRINCIPAL                                           OTHER ANNUAL     STOCK      UNDERLYING        LTIP      ALL OTHER
POSITION          YEAR      SALARY         BONUS    COMPENSATION(1)  AWARD(S)   OPTIONS(#)       PAYOUTS    COMPENSATION
--------          ----      ------         -----    ---------------  --------   ----------       -------    ------------

<S>               <C>      <C>                 <C>      <C>           <C>          <C>              <C>        <C>
James D.          2002     $ 10,000            $0       $0            0            150,000          0          0
Baker             2001     $      0            $0       $0            0                  0          0          0
CEO               2000     $      0            $0       $0            0                  0          0          0
(4)

Danny             2002     $ 12,912            $0       $0            0            150,000          0          0
Hon               2001     $      0            $0       $0            0                  0          0          0
CFO               2000     $      0            $0       $0            0                  0          0          0
(5)

Fredric           2002     $223,548            $0       $0            0                  0          0          0
Mann              2001     $300,000       $60,000       $0            0            100,000          0          0
(1)               2000     $ 90,000            $0       $0            0                  0          0          0

Paul              2002     $ 74,516            $0       $0            0                  0          0          0
Schwartz          2001     $120,000            $0       $0            0             75,000          0          0
(2)               2000     $      0            $0       $0            0                  0          0          0

Weiguo            2002     $120,000            $0       $0            0            100,000          0          0
Lang              2001     $120,000            $0       $0            0            100,000          0          0
Director          2000     $120,000            $0       $0            0                  0          0          0
</TABLE>

                                       31
<PAGE>

Notes:

(1) Compensation attributed to Mr. Mann, our former Director, President, CFO and
CEO, includes $90,000 paid by Qinnet Holdings to Mr. Mann as a consulting fee
during the period from October 1, 2000 to December 31, 2000 and $360,000 paid
and accrued by Qinnet Holdings to Mr. Mann during the period from January 1,
2001 to December 31, 2001. Of the amount attributable to compensation in 2001,
$240,000 was paid to Mr. Mann and $120,000 was accrued. See below under
Executive Compensation - Compensation Arrangements. $122,850 was paid to Fred
Mann in 2002.

(2) Compensation attributed to Mr. Schwartz, our former Director, Secretary,
Executive Vice-President, Treasurer and COO, includes $120,000 paid and accrued
by Qinnet Holdings to Mr. Schwartz during the period from January 1, 2001 to
December 31, 2001. Of the amount attributable to compensation in 2001, $80,000
was paid to Mr. Schwartz and $40,000 was accrued. See below under Executive
Compensation - Compensation Arrangements. $45,685 was paid to Paul Schwartz in
2002.

(3) Compensation attributed to Mr. Lang includes $120,000 paid by Qinnet
Holdings to Can Tech & Trade International Corp., a private company controlled
by Mr. Lang, as a consulting fee during the period from January 1, 2000 to
December 31, 2000 and $120,000 paid and accrued by Qinnet Holdings to Mr. Lang
during the period from January 1, 2001 to December 31, 2001. See below under
Executive Compensation - Compensation Arrangements.

(4) We entered into an employment agreement with James Baker in January 2003.
Mr. Baker's employment agreement specifies a gross annual salary of $144,000.00.
A copy of his employment agreement is attached as an exhibit to this Form
10-KSB.

Compensation of Directors. Our directors are not currently compensated for their
services as a director of the Company. We may adopt a formal director
compensation plan in the future. All of the Directors are reimbursed for their
out-of-pocket expenses for each Board and committee meeting attended.

Board of Directors Committees. We have not yet established an audit committee,
compensation committee, nominating committee, an executive committee of our
board of directors, stock plan committee or any other committees. Certain stock
exchanges currently require companies to adopt a formal written charter that


                                       32
<PAGE>

establishes an audit committee that specifies the scope of an audit committee's
responsibilities and the means by which it carries out those responsibilities.
In order to be listed on any of these exchanges, we will be required to
establish an audit committee.

STOCK OPTION GRANTS

The following table sets forth information with respect to stock options granted
to each of our named executive officers during our most recent fiscal year ended
December 31, 2002:

                     OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>

(INDIVIDUAL GRANTS)

                           Number of       Percent of total
                           securities       Options/SARs      Exercise
                           underlying       granted to      or base price      Expiration
Name                       options/SARs     employees in      ($/sh)              date
----                       ------------     ------------      ------              ----
<S>                            <C>                             <C>              <C>
CHENWEI ZHANG                  7,500                           $ 0.10           6-Dec-07
DEPENG HUANG                  10,000                           $ 0.10           6-Dec-07
JAMES HAN                     20,000                           $ 0.10           6-Dec-07
JINCHI YANG                   10,000                           $ 0.10           6-Dec-07
JING LI                       15,000                           $ 0.10           6-Dec-07
JOHN BOSCHERT                100,000                           $ 0.10           6-Dec-07
LEON NOWEK                   100,000                           $ 0.10           6-Dec-07
MARK WHITE                   100,000                           $ 0.10           6-Dec-07
YANZHONG QI                   10,000                           $ 0.10           6-Dec-07
YUEXING YUAN                  20,000                           $ 0.10           6-Dec-07
DANNY HON                    150,000                           $ 0.10           6-Dec-07
JAMES D. BAKER               150,000                           $ 0.10           6-Dec-07
WEIGUO LANG                  100,000                           $ 0.10           6-Dec-07
CAIHONG TAN                    5,000                           $ 0.10           6-Dec-07
CHENGYUE WANG                 35,000                           $ 0.10           6-Dec-07
DEQIANG WANG                  10,000                           $ 0.10           6-Dec-07
DONGYU JIANG                   5,000                           $ 0.10           6-Dec-07
HAILONG CHEN                  15,000                           $ 0.10           6-Dec-07
HONGYAN ZHAO                   5,000                           $ 0.10           6-Dec-07
JIE LIU                       20,000                           $ 0.10           6-Dec-07
JINGHUI FENG                  20,000                           $ 0.10           6-Dec-07
JINJIE ZHOU                   20,000                           $ 0.10           6-Dec-07
LITAO ZHAO                     7,500                           $ 0.10           6-Dec-07
MINGLI WU                     15,000                           $ 0.10           6-Dec-07
QING WANG                     80,000                           $ 0.10           6-Dec-07
RONG LUO                      10,000                           $ 0.10           6-Dec-07
SHUAI TAN                     15,000                           $ 0.10           6-Dec-07
TIESHUANG ZHAO                 5,000                           $ 0.10           6-Dec-07
WEI SUN                       20,000                           $ 0.10           6-Dec-07
XIANGLING PAN                 10,000                           $ 0.10           6-Dec-07
ZHONG JIANG                   10,000                           $ 0.10           6-Dec-07
                           1,100,000
</TABLE>

                                       33
<PAGE>

EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES

None of the share purchase options held by our chief executive officer and our
named executive officers were exercised during the year ended December 31, 2002.

            AGGREGATED OPTION/SAR EXERCISES DURING THE LAST

          FINANCIAL YEAR END AND FINANCIAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>


                                                                                     NUMBER OF
                                                                   VALUE OF          SECURITIES
                                                                   UNDERLYING        UNEXERCISED
                                                                   UNEXERCISED       IN-THE-MONEY
                                                                   OPTIONS/SARS      OPTIONS/SARS
                                                                   AT FY-END (#)     AT FY-END (#)
                                                                   EXERCISABLE/      EXERCISABLE/
NAME                                SHARES ACQUIRED     VALUE      UNEXERCISABLE     UNEXERCISABLE
----                                ---------------     -----      -------------     -------------
<S>                                          <C>        <C>          <C>               <C>
FREDRIC R. MANN
Former Director and
President, Chief
Executive Officer
Chief Financial Officer                      NIL        N/A          100,000           NIL/ N/A

PAUL SCHWARTZ
Former Director and Secretary,
Executive Vice-President,
Treasurer and Chief
Operating Officer                            NIL        N/A           75,000           NIL/ N/A

WIEGUO LANG
Director and Chairman                        NIL        N/A          200,000           NIL/ N/A

JAMES BAKER
Director, President and CEO                  NIL        N/A          150,000            NIL/N/A

DANNY HON
Director and CFO                             NIL        N/A          150,000            NIL/N/A
</TABLE>

                                       34
<PAGE>

OUTSTANDING STOCK OPTIONS

The following table shows the issued and outstanding stock options held by our
officers and directors, and by each person known by us to beneficially own more
than 5% of our common stock as of April 30, 2003.
<TABLE>
<CAPTION>

Name and Position             Exercise       No. of       Date        Vesting       Expire
                               Price         Options    of Grant        Date         Date
                               -----         -------    --------        ----         ----
<S>                            <C>         <C>         <C>           <C>            <C>
FREDRIC MANN                   $5.00       100,000      June 15,      June 15,      April 28,
Former Director, President                              2001          2001          2005
Chief Executive Officer
Chief Financial Officer

PAUL SCHWARTZ                  $5.00        75,000      June 15,      June 15,      April 28,
Former Director, Secretary                              2001          2001          2005
Executive Vice-President,
Treasurer, Chief Operating
Officer

WEIGUO LANG                    $5.00       100,000      June 15,      June 15,      April 28,
Director and Chairman                                   2001          2001          2005

                                $0.10      100,000      Dec 6,        Dec 6,        Dec 6,
                                                        2002          2002          2007

JAMES BAKER                    $0.10       150,000      Dec 6,        Dec 6,        Dec 6,
Director, President and CEO                             2002          2002          2007

DANNY HON                      $0.10       150,000      Dec 6,        Dec 6,        Dec 6,
Director and CFO                                        2002          2002          2007
</TABLE>

MANAGEMENT AGREEMENTS

Fredric Mann, our former president and chief executive officer, provided his
services to us pursuant to an employment agreement dated October 23, 2001. The
employment agreement provided that we pay Mr. Mann a base annual salary of
$300,000 per year in consideration of Mr. Mann acting as president and chief
executive officer on a permanent basis. Mr. Mann has also agreed to act as chief
financial officer and general counsel until such positions are filled by the
board of directors. The employment agreement also provides for a performance and
merit based bonus to be not less than $60,000 for any year. In addition, we have
agreed to grant to Mr. Mann options to purchase 100,000 shares of our common
stock in each year of the term of the agreement. The employment agreement is for
an initial three-year term. We are entitled to terminate this agreement upon one
month's prior written notice and the payment of one year's salary and minimum
bonus. Mr. Mann's resigned on August 15, 2002.

                                       35
<PAGE>

Mr. Lang provides his services to us on a monthly consulting fee basis through a
private consulting company controlled by Mr. Lang. We currently pay Can Tech &
Trade International Corp. a consulting fee of $10,000 per month for Mr. Lang's
services. We are currently negotiating with Mr. Lang for the execution of a
definitive fixed term executive consulting agreement with Mr. Lang whereby Mr.
Lang will continue to provide these services to us.

James D. Baker's Employment Agreement. On January 1, 2003, we executed an
employment agreement with James D. Baker to become our President and CEO.
Pursuant to the terms of the agreement, Mr. Baker was to receive a signing bonus
of $30,000, an annual base salary of $140,000 in cash and $2,000 in the
Company's common stock and the issuance of 250,000 shares upon execution of the
agreement and may earn additional stock upon the Company reaching certain
benchmarks set out in the agreement. In addition, Mr. Baker is to receive an
automobile allowance of $1,000 per month and is reimbursed for ordinary and
necessary expenses incurred in performance of his duties on behalf of the
Company. No payments of Mr. Baker's salary or signing bonus have been made and
have been accrued.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information concerning the beneficial
ownership of the Company's outstanding classes of stock as of December 31, 2002,
by each person known by the Company to own beneficially more than 5% of each
class, by each of the Company's Directors and Executive Officers (see Part III,
Item 10, above) and by all Directors and Executive Officers of the Company as a
group. Unless otherwise indicated below, to the Company's knowledge, all persons
listed below have sole voting and investment power with respect to their shares
of common stock except to the extent that authority is shared by spouses under
applicable law.

Name and address                     Common Shares (2)       Percentage
of Beneficial Owner (1)              Beneficially Owned        Owned
-----------------------              ------------------        -----
JAMES D. BAKER                                0                   0%

DANNY HON                                     0                   0%

FREDRIC R. MANN                         720,000(2)             5.59%

WEIGUO LANG                           1,132,000(4)             7.72%
A22-Linda Building
8 Dongtucheng Street
Chaoyang District,
Beijing China  100013

All Officers and Directors
as a Group (2 people)                 1,852,000                10.4%

                                       36
<PAGE>

(1) Under Rule 13d-3, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares: (I) voting power, which includes the
power to vote, or to direct the voting of shares; and (ii) investment power,
which includes the power to dispose or direct the disposition of shares. Certain
shares may be deemed to be beneficially owned by more than one person (if, for
example, persons share the power to vote or the power to dispose of the shares).
In addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire the shares (for example, upon exercise of an
option) within 60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned by such
person (and only such person) by reason of these acquisition rights. As a
result, the percentage of outstanding shares of any person as shown in this
table does not necessarily reflect the person's actual ownership or voting power
with respect to the number of shares of common stock actually outstanding on
September 30, 2003. As of September 30, 2003 there were 17,798,004 shares of our
common stock issued and outstanding.

(2) Excludes 100,000 shares that were subject to stock options that were
cancelled after Mr. Mann's resignation

(3) Excludes 75,000 shares that were subject to stock options that were
cancelled after Mr. Schwartz resignation.

(4) Includes 1,032,000 shares held by Weiguo Lang and 100,000 shares that are
subject to stock options that are exercisable currently or within sixty days.

CHANGE IN CONTROL. In January 2004 we executed a purchase and sale agreement
with China BPS Information Technology which provides in part for China BPS to
convey certain assets in exchange for the issuance of shares of our common
stock. If this transaction is finalized, of which there can be no assurance,
China BPS will, upon completion of the agreement, own approximately 50.5% of our
issued and outstanding common stock.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Except as described below, none of the following persons has any direct or
indirect material interest in any transaction to which we are a party during the
past two years, or in any proposed transaction to which the Company is proposed
to be a party:

(A) any director or officer;

(B) any proposed nominee for election as a director;

(C) any person who beneficially owns, directly or indirectly, shares carrying
more than 5% of the voting rights attached to our common stock; or

(D) any relative or spouse of any of the foregoing persons, or any relative of
such spouse, who has the same house as such person or who is a director or
officer of any parent or subsidiary.

                                       37
<PAGE>

Paul Schwartz, formerly our secretary treasurer, chief operating officer and a
director, was issued 450,000 shares of our common stock on April 23, 2001 in
consideration for his shares in Qinnet Holdings as part of our March 14, 2001
offer to acquire a majority interest in Qinnet Holdings. Mr. Schwartz
transferred his 450,000 shares in Qinnet Holdings to us in consideration of one
share of our common stock for each share of Qinnet Holdings held. All shares
issued to Mr. Schwartz are restricted shares under the Securities Act.

Lynn Patterson, formerly one of our directors, was issued 105,000 shares of our
common stock on June 8, 2001 in consideration for his shares in Qinnet Holdings
as part of our May 23, 2001 offer to acquire the remaining interest in Qinnet
Holdings. Mr. Patterson transferred his 100,000 shares in Qinnet Holdings to us
in consideration of 1.05 shares of our common stock for each share of Qinnet
Holdings held. All shares issued to Mr. Patterson are restricted shares under
the Securities Act.

Fredric Mann, formerly our president, chief executive officer, chief financial
officer and a director, was issued 720,000 shares of our common stock on April
23, 2001 in consideration for his shares in Qinnet Holdings as part of our March
14, 2001 offer to acquire a majority interest in Qinnet Holdings. Mr. Mann
transferred his 720,000 shares in Qinnet Holdings to us in consideration of one
share of our common stock for each share of Qinnet Holdings held. All shares
issued to Mr. Mann are restricted shares under the Securities Act.

The number of shares held by each director and officer in Qinnet Holdings and
the number of shares of our common stock that were issued on closing of our
acquisition of Qinnet Holdings are summarized as follows:

Mr. Lang and our former directors, Mr. Mann and Mr. Schwartz, who were also a
director or officer of Qinnet Holdings were granted options to purchase shares
of Qinnet Holdings. Subsequent to the acquisition of Qinnet Holdings, we granted
to our directors and officers options to purchase shares of our common stock in
consideration of the cancellation of their options to purchase shares of common
stock of Qinnet Holdings. These options are generally on the same terms and
conditions as the options to purchase Qinnet Holdings shares previously held by
each director and officer. The following table shows the options granted to our
directors and officers in consideration of the cancellation of their options to
purchase shares of the common stock of Qinnet Holdings:
<TABLE>
<CAPTION>

Name and Position          Exercise   No. of        Date              Vesting         Expiration
                           Price     Options       of Grant            Date              Date
                           -----     -------       --------            ----              ----
<S>                         <C>      <C>         <C>                <C>               <C>
FREDRIC MANN                $5.00    100,000     June 15, 2001      June 15, 2001    April 28, 2005
Former Director, President
Chief Executive Officer
Chief Financial Officer

PAUL SCHWARTZ               $5.00     75,000     June 15, 2001      June 15, 2001    April 28, 2005
Former Director, Secretary
Executive Vice-President,
Treasurer, Chief Operating
Officer

WEIGUO LANG                 $5.00    100,000     June 15, 2001      June 15, 2001    April 28, 2005
Director and Chairman       $0.10    100,000     Dec 6, 2002        Dec 6, 2002      Dec 6, 2007

LYNN PATTERSON              $5.00      50,000    June 15, 2001      June 15, 2001    April 28, 2005
Former Director             $5.00     25,000     June 15, 2001      June 15, 2001    April 28, 2005
                            $5.00     25,000     June 15, 2001      June 15, 2001    April 28, 2005
</TABLE>

                                       38
<PAGE>

The options granted to Mr. Patterson, Mr. Mann and Mr. Schwartz have
subsequently been terminated in accordance with their stock option agreement
with us as a result of their resignation as directors and the same for Lynn
Patterson.

Mr. Lang and Mr. Schwartz were directors of Qinnet Holdings. Mr. Weiguo Lang is
the Chairman and director of the Company and Qinnet Holdings. Mr. Schwartz, our
former secretary and treasurer and director, was formerly the secretary and
treasurer of Qinnet Holdings.

Mr. Lang provides his services to us on a monthly consulting fee basis through a
private consulting company controlled by Mr. Lang. The services provided by Mr.
Lang to Qinnet Holdings include exercising general direction and supervision
over its business. Qinnet Holdings currently pays Can Tech & Trade International
Corp. a consulting fee of $10,000 per month for Mr. Lang's services. Qinnet
Holdings is currently negotiating with Mr. Lang for the execution of a
definitive fixed term executive consulting agreement with Mr. Lang whereby Mr.
Lang will continue to provide these services to Qinnet Holdings.

Mr. Schwartz, a former secretary and treasurer, provided his services to us
pursuant to a three-year term at a salary of $120,000 per year. The services
provided by Mr. Schwartz included ensuring that proper corporate, financial and
administrative records were maintained, supervised and advised on the conduct of
financial affairs, and coordinated all auditing functions.

Mr. Mann, a former director, president, chief executive officer and chief
financial officer, provided his services to us pursuant to a three-year term at
a salary of $360,000 per year.

GSG Global Synergy Group, of which Paul Schwartz was president until December
31, 2000, was paid a consulting fee of $20,000 per month from May 1, 2000 to
December 31, 2001. Under this agreement, GSG provides us with funding, investor
relations and accounting consulting services.

We paid an amount of $25,000 to Qinnet Holdings during the year ended December
31, 2000 in consideration of Qinnet Holdings providing the services of Mr.
Weiguo Lang and Paul Schwartz and providing office and administration services.
Of this total amount, an amount of $10,000 was attributable to the services
provided by Mr. Lang and $10,000 was attributable to the services provided by
Mr. Paul Schwartz.

SHENYANG QINNET

We have discontinued our previously disclosed plan of operations for Shenyang
Qinnet due to market conditions affecting Internet related businesses and are in
the process of winding down operations. Any funds recoverable from the net
assets will be invested in the activities described above.

                                       39
<PAGE>

TIANJIN QINNET

We have discontinued our previously disclosed plan of operations for Tianjin
Qinnet due to market conditions affecting Internet related services and are in
the process of winding down operations. Any funds recoverable from the net
assets will be invested in the activities described above.

ITEM 13.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1)      Financial Statements; Financial Statements Schedules

         Report of Moore Stephens Ellis Foster Ltd./ Independent Auditors

         Report of Independent Certified Public Accountants, Grant Thornton LLP

         Consolidated Balance Sheets as of December 31, 2001 and 2002

         Consolidated Statements of Operations for the years ended
         December 31, 2001 and 2002 and cumulative from inception (May 31, 1989)
         through December 31, 2002

         Consolidated Statement of Changes in Stockholders' Equity, period from
         inception (May 31, 1989) through December 31, 2000 and the years ended
         December 31, 2001 and 2002

         Consolidated Statements of Cash Flows for the years ended December 31,
         2001 and 2002 and cumulative from inception (May 31, 1989) to December
         31, 2002

         Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules
All financial statement schedules not listed are omitted because either they are
not applicable or not required, or the required information is included in the
consolidated financial statements or the notes thereto.



                                       40
<PAGE>
(a)(3) Exhibits
The following documents are filed or incorporated by reference as exhibits to
this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER             DESCRIPTION OF EXHIBIT
------             ----------------------
<S>                <C>
Exhibit 2.1        Agreement and Plan of Reorganization between Qinnet.com and Internet Corporation of America, Inc.,
                   dated April 11, 2000. (1)

Exhibit 3.1:       Certificate of Incorporation of Specialistics Inc. (1)

Exhibit 3.2:       Certificate for Renewal and Revival of Certificate of Incorporation.  (1)

Exhibit 3.3:       Certificate of Amendment to Certificate of Incorporation changing the Corporation's name from
                   "Specialistics Inc." to "Eastern Group International Co., Ltd." (1)

Exhibit 3.4:       Certificate of Amendment of Certificate of Incorporation changing the Corporation's name from
                   "Eastern Group International Co., Ltd." to "TeleSpace Limited". (1)

Exhibit 3.5:       Certificate of Amendment of Certificate of Incorporation amending Article 5.  (1)

Exhibit 3.6:       Certificate of Amendment of Certificate of Incorporation amending Article IV. (1)

Exhibit 3.7:       Certificate of Amendment of Certificate of Incorporation changing the Corporation's name from
                   "TeleSpace Limited" to "qinnet.com, Inc."(1)

Exhibit 3.8:       By-Laws of Qinnet, as amended  (1)

Exhibit 3.9:       Restated Certificate of Incorporation filed August 13, 2001(5)

Exhibit 10.1:      Agreement dated August 18, 2000 between Qinnet.com, Inc. and Liaoning Publishing Group of Companies (2)

Exhibit 10.2:      Memorandum of Understanding dated January 8, 2001 between Qinnet.com, Inc.  And PowerNet USA Ltd.  (3)

Exhibit 10.3:      Offer of Qinnet.com to the Accredited United States Shareholders of Qinnet Holdings dated
                   March 14, 2001 (3)

Exhibit 10.4:      Offer of Qinnet.com to non-Canadian Foreign Shareholders of Qinnet Holdings dated March 14, 2001  (3)

Exhibit 10.5:      Form of Offer of Qinnet.com to the Remaining Shareholders of Qinnet Holdings dated May 23, 2001(4)

Exhibit 10.6:      Employment Agreement dated October 23, 2001 between Q-Net Technologies, Inc. and Fredric Mann(6)

Exhibit 10.7       Employment Agreement dated January 1, 2003 between Q-Net Technologies, Inc. and James D. Baker.(7)

                                       41
<PAGE>

Exhibit 31.1       Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
                   pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (7)

Exhibit 31.2       Certification of the Principal Financial and Accounting Officer Pursuant to 18 U.S.C.
                   Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (7)

Exhibit 31.3       Certification of the Chairman Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                   Section 302 of the Sarbanes-Oxley Act of 2002. (7)

Exhibit 32.1       Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
                   pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (7)

Exhibit 32.2       Certification of the Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section
                   1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (7)

Exhibit 32.3       Certification of the Chairman Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                   Section 906 of the Sarbanes-Oxley Act of 2002. (7)


</TABLE>

(1)      Previously filed as an exhibit to Qinnet.com's Current Report on Form
         8-K filed on April 14, 2000 and incorporated herein by reference.

(2)      Previously filed as an exhibit to Qinnet.com's Quarterly Report on Form
         10-QSB filed on November 14, 2000 and incorporated herein by reference.

(3)      Previously filed as an exhibit to Qinnet.com's Current Report on Form
         10-KSB filed on April 2, 2000 and incorporated herein by reference.

(4)      Previously filed as an exhibit to Qinnet.com's Current Report on
         Current Report on Form 8-K filed on July 9, 2001 and incorporated
         herein by reference.

(5)      Previously filed as an exhibit to Qinnet.com's Current Report on Form
         10-QSB Quarterly Report filed on August 17, 2001 and incorporated
         herein by reference.

(6)      Previously filed as an exhibit to Q-Net's Annual Report on Form 10-KSB
         filed on April 16, 2002 and incorporated herein by reference.

(7)      Filed as an exhibit to this Form 10-KSB

(b) Reports on Form 8-K
The following reports of Form 8-K were filed during the fourth quarter of 2002:

The Company filed a report on Form 8-K under Item 4 on December 19, 2002,
announcing dismissal of Grant Thorton, LLP as the Company's independent
accountants.

On December 19, 2002, we filed a Current Report on Form 8-K to announce the
appointment of Moore Stephens Ellis Foster Ltd., Chartered Accountants as our
independent auditor to audit our financial statements for the year ended
December 31, 2002.

                                       42
<PAGE>

ITEM 14.  CONTROLS AND PROCEDURES.

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Securities
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

As of a date within 90 days of the date of this report, our Chief Executive
Officer and Chief Financial Officer evaluated the effectiveness of the design
and operation of the Company's disclosure controls and procedures. Based upon
this evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that information required to be disclosed by the Company in the reports that it
files or submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time period specified by
the Securities and Exchange Commission's rules and forms.

Additionally, there were no significant changes in the Company's internal
controls that could significantly affect the Company's disclosure controls and
procedures subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in the Company's internal
controls. As a result, no corrective actions were required or undertaken.

                                       43
<PAGE>

                                   SIGNATURES


In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                               Q-NET TECHNOLOGIES, INC.
                                                     (Registrant)

                                               By: /s/ James D. Baker
Date: January 29, 2004                         ------------------------------
                                               James D. Baker, President,
                                               Chief Executive Officer and
                                               Director
                                               (Principal Executive Officer)

                                               By: /s/ Danny Hon
                                               -------------------------------
Date: January 29, 2004                         Acting Chief Financial Officer
                                               Director

                                               By: /s/ Weiguo Lang
                                               -------------------------------
Date: January 29, 2004                         Chairman and Director


In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant in the capacities
and on the dates indicated.

Signatures                          Title
----------                          -----


/S/ JAMES D. BAKER                  Chief Executive Officer and Director
----------------------------        (Principal Executive Officer)
James D. Baker

/S/ DANNY HON                       Acting Chief Financial Officer (Principal
---------------------------         Financial Officer)
Danny Hon

/S/ WEIGUO LANG                     Chairman and Director
---------------------------
Weiguo Lang

                                    44

<PAGE>

                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001
<TABLE>
<CAPTION>


<S>                                                                                  <C>

         Report of Moore Stephens Ellis Foster Ltd./ Independent Auditors            F-2

         Report of Independent Certified Public Accountants, Grant Thornton LLP      F-3

         Consolidated Balance Sheets as of December 31, 2001 and 2002                F-4

         Consolidated Statements of Operations for the years ended
         December 31, 2001 and 2002 and cumulative from inception (May 31, 1989)
         through December 31, 2002                                                   F-5

         Consolidated Statement of Changes in Stockholders' Equity, period from
         inception (May 31, 1989) through December 31, 2000 and the years ended
         December 31, 2001 and 2002                                                  F-6

         Consolidated Statements of Cash Flows for the years ended December 31,
         2001 and 2002 and cumulative from inception (May 31, 1989) to December
         31, 2002                                                                    F-7

         Notes to Consolidated Financial Statements                                  F-8
</TABLE>



<PAGE>

MOORE STEPHENS
ELLIS FOSTER LTD.
CHARTERED ACCOUNTANTS

1650 West 1st Avenue
Vancouver, BC  Canada   V6J 1G1
Telephone:  (604) 737-8117  Facsimile: (604) 714-5916
Website:   www.ellisfoster.com

--------------------------------------------------------------------------------


REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS

Q-NET TECHNOLOGIES, INC.
(FORMERLY QINNET.COM, INC.)
(A development stage company)

We have audited the consolidated balance sheet of Q-NET TECHNOLOGIES, INC.
(FORMERLY QINNET.COM, INC.) (A development stage company) ("the Company") as at
December 31, 2002, the consolidated statements of stockholders' equity,
operations and cash flows and cumulative data for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the cumulative data
from May 31, 1989 to December 31, 2001 in the statements of stockholders'
equity, operations and cash flows, which were audited by other auditors whose
report, dated April 12, 2002 which expressed an opinion with a going concern
qualification, has been furnished to us. Our opinion, insofar as it relates to
the amounts included for cumulative data from May 31, 1989 to December 31, 2001,
is based solely on the report of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and the results of their operations and their cash flows and cumulative data for
the year then ended in conformity with generally accepted accounting principles
in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Management's plans concerning
these matters are described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.



                                          "MOORE STEPHENS ELLIS FOSTER LTD."
Vancouver, Canada                                Chartered Accountants
April 16, 2003 except as to Notes
19(e) to 19(h) which are as of
August 31, 2003

--------------------------------------------------------------------------------
                 MSEFA partnership of incorporated professionals
                  An independently owned and operated member of
              Moore Stephens North America Inc., a member of Moore
                         Stephens International Limited
               - members in principal cities throughout the world



                                      F-2
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors
Q-Net Technologies, Inc.

We have audited the accompanying consolidated balance sheet of Q-Net
Technologies, Inc. (the "Company") (formerly Qinnet.com, Inc.) (a development
stage company) as of December 31, 2001, and the related consolidated statements
of operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Q-Net
Technologies, Inc. as of December 31, 2001, and the consolidated results of its
operations and its consolidated cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has no established source of
revenue and is dependent on its ability to raise substantial amounts of capital.
Management's plans in regard to these matters are also described in Note 2.
These matters raise substantial doubt about its ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.



Grant Thornton LLP

Irvine, California
April 12, 2002






                                      F-3
<PAGE>

                            Q-NET TECHNOLOGIES, INC.
                           (formerly Qinnet.com, Inc.)
                          (a development stage company)
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                      December 31,    December 31,
                                                                                          2002           2001
------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>             <C>
ASSETS
Current assets
  Cash and cash equivalents                                                           $    132,557    $    364,440
  Short term investments                                                                        --       1,999,995
  Trade accounts receivable, net of allowance for doubtful
      accounts of $nil (2001 : $nil)                                                        15,515              --
  Other receivable, net of allowance for doubtful accounts of $38,238 (2001 : $nil)          2,425         171,387
  Inventory, net of allowance for obsolete inventory of $44,177 (2001 : $nil)              157,600         128,201
  Prepaid expenses                                                                          36,737          19,530
                                                                                      ------------    ------------
Total current assets                                                                       344,834       2,683,553

Property and equipment, net                                                                161,019         138,566
Loan and interest receivable, net of allowance for doubtful
      receivable of $116,508 (2001 : $nil)                                                      --         111,258

                                                                                      ------------    ------------
                                                                                      $    505,853    $  2,933,377
                                                                                      ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
  Accounts payable and other accrued liabilities                                      $  1,310,487    $    428,836
  Investor deposit                                                                          50,000              --
  Deferred revenue - related party                                                         117,486              --
  Payable to joint venture partner - related party                                         150,625          98,488
  Convertible short term loan                                                               50,000              --
  Note payable to bank                                                                          --       1,932,960
  Net liabilities of discontinued operations                                               215,296          47,878
                                                                                      ------------    ------------
Total current liabilities                                                                1,893,894       2,508,162

Commitments and contingencies                                                                   --              --

Stockholders' Equity (Deficit)
  Preferred Stock: $0.00001 par value
    Authorized: 100,000,000
    Issued and outstanding: nil                                                                 --              --
  Common Stock: $0.00001 par value
    Authorized: 100,000,000
    Issued and outstanding: 14,568,004 (2001 : 14,429,247)                                     145             144
  Additional paid in capital                                                             9,056,796       8,681,154
  Subscription received but shares not yet issued                                           35,000              --
  Deficit accumulated during the development stage                                     (10,486,209)     (8,267,439)
  Accumulated other comprehensive income                                                     6,227          11,356
                                                                                      ------------    ------------
Total Stockholders' Equity (Deficit)                                                    (1,388,041)        425,215

                                                                                      ------------    ------------
                                                                                      $    505,853    $  2,933,377
                                                                                      ============    ============
</TABLE>

                        See accompanying condensed notes


                                      F-4
<PAGE>

                            Q-NET TECHNOLOGIES, INC.
                           (formerly Qinnet.com, Inc.)
                          (a development stage company)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                   Cumulative from            Year Ended
                                                                  inception (May 31,   ----------------------------
                                                                    1989) through      December 31,    December 31
                                                                  December 31, 2002        2002           2001
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                <C>             <C>
Revenue                                                             $     52,716       $     29,045    $     12,449
Cost of revenue                                                          110,799             16,220          83,393
                                                                    ------------       ------------    ------------
Gross profit                                                             (58,083)            12,825         (70,944)
                                                                    ------------       ------------    ------------

Expenses
  General and administrative                                           5,150,546          1,097,002         648,403
  Management consulting                                                2,537,806            786,465         984,350
  Marketing expenses                                                     730,178            248,308         180,171
  Impairment of investments in joint ventures                          1,168,955                 --       1,168,955
  Reorganization costs                                                   333,000                 --              --
  Start-up cost                                                          449,957             90,087         323,314
                                                                    ------------       ------------    ------------
                                                                      10,370,442          2,221,862       3,305,193
                                                                    ------------       ------------    ------------

Operating loss                                                       (10,428,525)        (2,209,037)     (3,376,137)

Other income (expense)
  Interest income                                                        318,381             86,294          42,619
  Interest expense                                                      (301,948)          (113,596)       (113,953)
  Gain on disposal of education department                                93,339             93,339              --
  Gain on disposal of capital assets                                      15,296             15,296              --
  Foreign exchange gain (loss)                                            (6,459)            43,377         (11,835)
                                                                    ------------       ------------    ------------

Loss before minority interest and discontinued operations            (10,309,916)        (2,084,327)     (3,459,306)

Minority interest in net loss of subsidiary                              131,028                 --         116,761
                                                                    ------------       ------------    ------------

Loss before discontinued operations                                  (10,178,888)        (2,084,327)     (3,342,545)

Net loss from discontinued operations                                   (307,321)          (134,443)       (134,656)
                                                                    ------------       ------------    ------------

Net loss                                                            $(10,486,209)      $ (2,218,770)   $ (3,477,201)
                                                                    ============       ============    ============

Basic and diluted net loss per share from continuing operations                        $      (0.14)   $      (0.23)
                                                                                       ============    ============
Basic and diluted net loss per share from discontinued operations                      $      (0.01)   $      (0.01)
                                                                                       ============    ============
Basic and diluted net loss per share                                                   $      (0.15)   $      (0.24)
                                                                                       ============    ============

Weighted average shares outstanding                                                      14,558,620      14,429,247
                                                                                       ============    ============
</TABLE>


                        See accompanying condensed notes


                                      F-5

<PAGE>

                            Q-NET TECHNOLOGIES, INC.
                           (formerly Qinnet.com, Inc.)
                          (a development stage company)
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
              FOR THE PERIOD FROM MAY 31, 1989 TO DECEMBER 31, 2002
<TABLE>
<CAPTION>

                                                                       STOCK         ADDITIONAL       STOCK
                                                       COMMON        AMOUNT AT        PAID IN      SUBSCRIPTION
                                                       SHARES        PAR VALUE        CAPITAL       RECEIVABLE
---------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>             <C>            <C>
Issuance of stock at formation on May 31, 1989        16,000,000    $        160    $         --   $         --

Effect of one-for-seven reverse split on June
  27, 1996                                           (13,714,000)           (137)            137             --

Issuance of common stock to new majority
  shareholder on November 27, 1996                     7,714,000              77          49,923        (50,000)

Capital contributed to support development
  during the period May 31, 1989 through
  December 31, 1992                                           --              --           5,358             --

Effect of one-for-eight reverse split on
  July 31, 1999                                       (8,749,503)            (87)             87             --

Issuance of common stock for cash in 1999             13,128,750             131       5,470,549             --

Issuance of common stock for acquisition of ICA           50,000              --         283,000             --

Stock options granted to non-employees                        --              --       1,989,000             --

Receipt of stock subscription                                 --              --              --         50,000

Stock options granted to non-employees                        --              --         883,100             --

Foreign currency translation adjustment                       --              --              --             --

Loss for the period May 31, 1989 through
  December 31, 2000                                           --              --              --             --
                                                    ------------    ------------    ------------   ------------
Balance, December 31, 2000                            14,429,247    $        144    $  8,681,154   $         --

Foreign currency translation adjustment                       --              --

Net loss                                                      --              --              --             --

Total comprehensive loss
                                                    ------------    ------------    ------------   ------------
Balance, December 31, 2001                            14,429,247    $        144    $  8,681,154   $         --

Issuance of common stock for cash,
  net of issuance costs of $55,503                       132,150               1         314,318

Issuance of common stock for services                      6,607              --          18,499

Intrinsic value of convertible feature of
  promissory note                                                                          7,500

Subscription received but shares not yet issued

Stock options granted to non-employees                                                    35,325

Foreign currency translation adjustment

Net loss

Total comprehensive loss
                                                    ------------    ------------    ------------   ------------
Balance, December 31, 2002                            14,568,004    $        145    $  9,056,796   $         --
                                                    ============    ============    ============   ============
[RESTUBBED]
<CAPTION>

                                                                      DEFICIT
                                                    SUBSCRIPTION    ACCUMULATED    ACCUMULATED
                                                    RECEIVED BUT    DURING THE        OTHER
                                                      SHARES NOT    DEVELOPMENT    COMPREHENSIVE
                                                      YET ISSUED       STAGE          INCOME            TOTAL
---------------------------------------------------------------------------------------------------------------
<S>                                                  <C>            <C>             <C>
Issuance of stock at formation on May 31, 1989                      $         --    $         --    $        160

Effect of one-for-seven reverse split on June
  27, 1996                                                                    --              --              --

Issuance of common stock to new majority
  shareholder on November 27, 1996                                            --              --              --

Capital contributed to support development
  during the period May 31, 1989 through
  December 31, 1992                                                           --              --           5,358

Effect of one-for-eight reverse split on
  July 31, 1999                                                               --              --              --

Issuance of common stock for cash in 1999                                     --              --       5,470,680

Issuance of common stock for acquisition of ICA                --             --              --         283,000
                                                                                                    ------------
Stock options granted to non-employees                         --             --              --       1,989,000

Receipt of stock subscription                                  --             --              --          50,000

Stock options granted to non-employees                         --             --              --         883,100

Foreign currency translation adjustment                        --             --             768             768

Loss for the period May 31, 1989 through
  December 31, 2000                                            --     (4,790,238)             --      (4,790,238)
                                                     ------------   ------------    ------------    ------------
Balance, December 31, 2000                           $         --   $ (4,790,238)   $        768    $  3,891,828

Foreign currency translation adjustment                        --             --          10,588          10,588

Net loss                                                       --     (3,477,201)                     (3,477,201)
                                                                                                    ------------
Total comprehensive loss                                                                              (3,466,613)
                                                     ------------   ------------    ------------    ------------
Balance, December 31, 2001                           $         --   $ (8,267,439)   $     11,356    $    425,215

Issuance of common stock for cash,
  net of issuance costs of $55,503                                                                       314,319

Issuance of common stock for services                                                                     18,499

Intrinsic value of convertible feature of
  promissory note                                                                                          7,500

Subscription received but shares not yet issued            35,000                                         35,000

Stock options granted to non-employees                                                                    35,325

Foreign currency translation adjustment                                                   (5,129)         (5,129)

Net loss                                                              (2,218,770)                     (2,218,770)
                                                                                                    ------------
Total comprehensive loss                                                                              (2,223,899)
                                                     ------------   ------------    ------------    ------------
Balance, December 31, 2002                           $     35,000   $(10,486,209)   $      6,227    $ (1,388,041)
                                                     ============   ============    ============    ============
</TABLE>


                        See accompanying condensed notes


                                      F-6
<PAGE>

                           Q-NET TECHNOLOGIES, INC.
                           (formerly Qinnet.com, Inc.)
                          (a development stage company)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                             Cumulative from               Year Ended
                                                            inception (May 31,      -------------------------------
                                                              1989) through           December 31,    December 31,
                                                             December 31, 2002           2002            2001
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                  <C>             <C>
Cash flows from operating activities
  Net loss                                                     $(10,486,209)        $ (2,218,770)   $ (3,477,201)
  Less: income (loss) from discontinued operation, net              307,321              134,443         134,656
  Adjustments to reconcile net loss to net cash
    used in operating activities :
      Depreciation and amortization                                  68,126               35,864          17,060
      Provision for doubtful accounts                               147,474               67,534              --
      Write off on inventory                                         69,327               69,327              --
      Discount on convertiable debt                                   7,500                7,500              --
      Gain on disposal of capital assets                            (15,296)             (15,296)             --
      Gain on disposal of education department                      (93,339)             (93,339)             --
      Minority interest in net loss of subsidiary                  (131,028)                  --        (116,761)
      Non-monetary compensation expense                           2,925,924               53,824              --
      Reorganization costs                                          283,000                   --              --
      Impairment of investments in joint ventures                 1,168,955                   --       1,168,955
      Changes in assets and liabilities :
        Increase in trade accounts receivable                       (16,917)              59,137              --
        Increase in inventory                                      (132,257)             (73,576)        (69,520)
        (Increase) decrease in prepaid expenses                    (108,498)             (15,577)          5,611
        (Increase) decrease in other receivable                     (29,331)             130,724        (121,074)
        Increase in loan and interest receivable                   (112,250)              (5,250)         (7,000)
        Increase in accounts payable and accrued liabilities      1,164,727              881,651         298,864
        Increase in investor deposit                                 50,000               50,000              --
        Increase in deferred revenue                                117,486              117,486              --
    Changes in net liabilities of discontinued operations           111,592               40,303          12,416
                                                               ------------         ------------    ------------
          Net cash used in operating activities                  (4,703,693)            (774,015)     (2,153,994)
                                                               ------------         ------------    ------------

Cash flows from investing activities
  Purchases of property and equipment                              (286,208)             (11,368)        (53,639)
  Redemption of short term investments                                   --            1,999,653              --
  Proceeds from disposal of capital assets                           40,000               40,000              --
                                                               ------------         ------------    ------------
         Net cash used in investing activities                     (246,208)           2,028,285         (53,639)
                                                               ------------         ------------    ------------

Cash flows from financing activities
  Investment from minority interest shareholders                    229,516                   --         138,928
  Payable to joint venture partner                                   52,137               52,137              --
  Deposits on investments                                        (1,130,939)                  --         (38,016)
  Proceeds from convertible short term loan                          50,000               50,000              --
  Repayment to notes payable to bank                                     --           (1,932,480)             --
  Receipt of stock subscription                                      85,000               35,000              --
  Issuance of common stock                                        5,790,517              314,319              --
                                                               ------------         ------------    ------------
         Net cash provided by financing activities                5,076,231           (1,481,024)        100,912
                                                               ------------         ------------    ------------

Effect of exchange rate changes on cash                               6,227               (5,129)         10,588
                                                               ------------         ------------    ------------

Increase (decrease) in cash and cash equivalents                    132,557             (231,883)     (2,096,133)
Cash and cash equivalents - beginning of year                            --              364,440       2,460,573
                                                               ------------         ------------    ------------
Cash and cash equivalents - end of year                        $    132,557         $    132,557    $    364,440
                                                               ============         ============    ============

Supplemental information :
Cash paid for :
    Interest                                                   $    293,858         $    105,402    $    114,057
    Income taxes                                               $         --         $         --    $         --
Noncash financing activities :
    Common stock issued for costs associated with common
      stock unit sale                                          $     18,499         $     18,499    $         --
    Stock options granted to non-employees                     $     32,325         $     32,325    $         --
</TABLE>


                        See accompanying condensed notes


                                      F-7
<PAGE>

                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 1 - DESCRIPTION OF BUSINESS

The Company, a Delaware corporation, was incorporated on May 31, 1989 as
Specialists, Inc. In 1996, Specialists, Inc. amended its Certificate of
Incorporation to change its name to Eastern Group International Co., Ltd. Also
during 1996, Eastern Group International Co., Ltd. issued 7,714,000 shares of
common stock in exchange for $50,000 and changed its name to Telespace Limited.
In December 1999, Telespace Limited changed its name to Qinnet.com, Inc.. On
April 13, 2000, Qinnet.com acquired all of the issued and outstanding shares of
Internet Corporation of America, Inc. ("ICA") as a shell company for $50,000
cash and 50,000 shares of restricted, unregistered common stock. As a result of
this transaction, the Company became the successor issuer to ICA for reporting
purpose under the Securities Exchange Act of 1934. On August 13, 2001, the
Company changed its name to Q-Net Technologies, Inc.

The Company entered into an agreement dated January 12, 2000 to merge with
Qinnet Holdings Corp. ("Qinnet Holdings"), a Washington State corporation. Both
the Company and Qinnet Holdings share common directors, officers and
shareholders. On March 14, 2001, the Company extended an offer to accredited
United States shareholders and non-Canadian foreign shareholders to exchange
their shares in Qinnet Holdings for shares in the Company on the basis of one
share of the Company's common stock for each share of Qinnet Holdings common
stock. As of April 23, 2001, 12,275,100 shares had been exchanged, representing
approximately 93.8% of the outstanding shares of Qinnet Holdings. Further offers
were made to remaining Canadian shareholders of Qinnet Holdings to acquire their
remaining 813,000 shares of Qinnet Holdings, representing approximately 6.2%
interest. For the remaining 6.2% acquisition of Qinnet Holdings, the Company
issued 1.05 shares of the Company's common stock for each share of Qinnet
Holdings common stock. As at June 8, 2001, the Company completed its acquisition
of all the remaining shares of Qinnet Holdings.

Qinnet Holdings was incorporated on April 26, 1999 in the state of Washington.
Qinnet Holdings is a development stage enterprise and has two wholly-owned
subsidiaries: Beijing Qinnet, established in the People's Republic of China
("PRC") on December 6, 1999, and Qincom, a British Columbia, Canada company
established on August 22, 2000. Qincom provides long distance calling wholesale
services from Canada to the PRC through voice over Internet protocol technology.
On May 30, 2002, the Company incorporated Sonnet (a Canadian company) to develop
the long distance calling retail services from Canada to the PRC. In August
2002, the Company has suspended its long distance telephone services. (See Note
5)

Beijing Qinnet participates in two joint venture agreements with Chinese
Internet companies and has options to purchase equity interests in these joint
ventures. These two joint ventures are carried out by two operating
corporations, Tianjin Xiaodao Information Network Co. Ltd. ("Tianjin Qinnet")
and Shenyang Qinnet Brainn Informerce Co. Ltd. ("Shenyang Qinnet"). Shenyang
Qinnet is in the business of providing Internet web site design, e-commerce,
customer and technical support services. Tianjin Qinnet is in the business of
providing internet access services. Mr. Weiguo Lang, the Chairman and a director
of the Company, is the registered owner of 51% ownership interest in Shenyang
Qinnet and 70% ownership interest in Tianjin Qinnet as the investment
regulations in the PRC do not permit foreign ownership of PRC entities operating
directly in the telecom and related industries. Beijing Qinnet provided funds of
$1,168,955 to purchase Mr. Lang's equity interests in these joint ventures.
Exercise of the first option would transfer 51% ownership of Shenyang Qinnet to
Beijing Qinnet and would require the payment of RMB50,000 or approximately
$6,040. Further, Beijing Qinnet has the option to increase its ownership
interest in this joint venture to 70% for an additional $200,000. Exercise of
the other option would transfer 70% ownership of Tianjin Qinnet to Beijing
Qinnet and would require the payment of RMB70,000 or approximately $8,460. The
option agreements have a five-year term expiring on March 24, 2005. The option
arrangements have been structured to enable Beijing Qinnet to comply with PRC
foreign ownership laws and restrictions. The option is transferable by Beijing
Qinnet to give flexibility in structuring its ownership arrangement. The Company
anticipates that the foreign ownership laws of the PRC may change prior to the
expiration of the option period or the options might be extended.

                                      F-8
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 1 - DESCRIPTION OF BUSINESS - CONTINUED

During the fourth quarter of year 2001, the Company determined that the business
opportunity presented by Tianjin and Shenyang operations, when compared to the
opportunities in the digital publishing and thin client server ("TCS")
technology, did not possess the substainable competitive advantages that are
exhibited by the newer technologies. In view of the limited capital resources,
the Company decided to preserve its capital for investment in the development of
TCS technology. The Company has wound down the business operations of Tianjian
Qinnet and Shenyang Qinnet in an orderly manner. During the fourth quarter of
year 2001, the Company provided for an impairment loss in accordance with FASB
No. 121 of $1,168,955 related to its investments in these projects.

The Company entered into a joint venture agreement dated July 11, 2000 with
Liaoning Education Press ("LEP"), a wholly owned subsidiary operation of
Liaoning Publishing Group of Companies ("LPG"), to carry out a joint venture
electronic book publishing, manufacturing and distribution business in the PRC.
A joint venture company, Liaoning Qinnet E-book Technologies Co., Ltd. ("Qinnet
E-book"), was incorporated in accordance with the Enterprise Laws of the PRC. As
of December 31, 2002, the Company contributed $280,000 for a 70% interest in
this joint venture while LEP contributed $120,000 in consideration for a 30%
interest. The Company advanced $225,988 to Qinnet E-book as of December 31,
2002.

In September 2001, the Company's subsidiary, Qinnet Ebook, entered into
agreements to transfer the Internet Development, Editing and Multimedia
departments ("Education Department") obtained from LPG in July 2000 back to LPG
as of September 30, 2001. Through transferring these three departments, Qinnet
Ebook is entitled to recover from LPG the operating costs incurred during the
period from July 2000 to September 30, 2001, totaling $160,487 (or RMB
1,328,092). The Company did not record the transaction in fiscal 2001 as both
parties could not come to an agreement in terms of the amount and method of
payment for the transferring of the three departments. In fiscal year 2002,
Qinnet Ebook and LPG concluded an agreement regarding the amount and method of
payment, and the Company recorded a gain of $93,339 on the disposal of the three
departments in fiscal year 2002. There were no revenues from these departments
in 2002 and 2001 reported in the accompanying consolidated statements of
operations.

The Company is a development stage enterprise as its primary business objectives
have not been fully developed. The Company is focusing its resources on
developing Qinnet E-Book and the TCS technology. Management anticipates that
revenues from operations will initially be insufficient to cover these
development expenses. As a result, the Company is fully dependent upon outside
capital sources to provide sufficient working capital until commencement of
operations. There is no assurance that the Company will be able to raise the
necessary capital to fund its initial and continuing operations.

NOTE 2 - REALIZATION OF ASSETS

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a net loss of $2,218,770 for the year
ended December 31, 2002 and has cumulative net losses of $10,486,209 from
inception (May 31, 1989) through December 31, 2002. As of December 31, 2002, the
Company had a negative working capital of $1,551,485 and a deficit in
stockholders equity of $1,388,041. In addition, the Company is a development
stage entity and is dependent on outside financing to fund its operations. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
to continue to raise additional capital from selling the Company's stock to
maintain the operations of the Company and further development of Qinnet E-Book
and the TCS technology. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                      F-9
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
---------------------

In June 2001, the Company completed its merger with Qinnet Holdings, in which
Qinnet Holdings became a wholly-owned subsidiary of the Company. The Company
exchanged approximately 13 million shares of common stock for all the
outstanding common shares of Qinnet Holdings. Due to common management and
shareholders of the Company and Qinnet Holdings, the merger was accounted for
using historical costs in a manner similar to pooling-of-interests method of
accounting. Under this method, the assets, liabilities and shareholders' equity
of the acquired entities are combined with the Company's respective accounts and
are recorded book value. The accompanying consolidated financial statements have
been restated to include the operations of Qinnet Holdings for all periods
presented.

Principles of Consolidation
---------------------------

The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiary companies, Qinnet Holdings, Qincom, Beijing Qinnet, ICA,
Sonnet, and its 70% owned subsidiary, Qinnet E-book. The Company accounts for
the remaining 30% interest in Qinnet E-book as minority interest in the
accompanying consolidated financial statements. All significant intercompany
transactions and accounts have been eliminated.

Accounting Method
-----------------

The Company's financial statements are prepared using the accrual method of
accounting.

Use of Estimates
----------------

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

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents include all cash on hand, cash in banks, certificates
of deposit and other highly-liquid investments with original maturities of three
months or less.

Short-term Investments
----------------------

Short-term investments represent certificate of deposits with original
maturities of more than three months but less than a year.

Concentration of Credit Risk
----------------------------

The Company maintains Renminbi cash balances in banks in the People's Republic
of China and U.S. Dollar cash balances in U.S. and Canadian banks, all of which
are not insured.


                                      F-10
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Property and Equipment
----------------------

Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of five years.

Inventories
-----------

Inventories are stated at the lower of cost, determined on a first-in, first-out
basis, or market.

Long-Lived Assets
-----------------

Effective January 1, 2002, the Company adopted SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", and records impairment losses on
long-lived assets used in operation when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. If the carrying value exceeds the sum of
the assets' undiscounted cash flows, the Company estimates an impairment loss by
taking the difference between the carrying value and fair value of the assets.

Revenue Recognition
-------------------

The Company's revenue is primarily derived from the sale of voice over internet
protocol long distance telephone services on a wholesale basis (suspended in
August 2002) and the sale of Q-Readers, a hand-held electronic book reading
device. Revenue is recognized upon delivery of the goods or services.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financials filed with the SEC. SAB101 outlines the
basic criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. It also requires companies
to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board Opinion No. 20, "Accounting Changes." As amended by SAB101A and
SAB101B, the Company is required to follow this guidance no later than the
fourth fiscal quarter of the fiscal year ended December 31, 2001. The Company
implemented SAB101 during the first quarter of 2000, which did not have a
material effect on the Company's results of operations or financial position.

Cost Recognition
----------------

Cost of revenue includes direct costs to produce products and provide long
distance telephone services.

Product Development Costs
-------------------------

In accordance with American Institute of Certified Public Accountant's ("AICPA")
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," computer software costs
incurred in the preliminary project stage, such as direct labor and related
overhead, and purchased software and computer equipment from third parties, are
expensed as incurred. Statement of Financial Accounting Standards ("SFAS") No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," does not materially affect the Company.


                                      F-11
<PAGE>

                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Start-up Costs
--------------

The Company accounts for start-up and organization costs for financial statement
purposes in accordance with AICPA SOP 98-5, "Reporting on the Costs of Start-up
Activities," which provides guidance on the financial reporting of start-up
costs and organization costs and requires such costs to be expensed as incurred.
Start-up cost expensed for 2002 and 2001 were $90,087 and $323,314,
respectively.

Income Taxes
------------

The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets
and liabilities are computed for differences between the financial statements
and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future, based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary, to reduce deferred income
tax assets to the amount expected to be realized.

Foreign Currency Translations
-----------------------------

The assets and liabilities of the Company's foreign operations are translated
into U.S. dollars at exchange rates in effect at the end of period, and revenues
and expenses are translated at average exchange rates during the period.
Resulting translation adjustments are reflected as a separate component of
stockholders' equity. Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional
currency are included in the results of operations as incurred.

Fair Value of Financial Instruments
-----------------------------------

For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable and accounts payable,
the carrying amounts approximate fair value due to their short maturities. The
note payable to bank is secured by the short-term investments, and therefore its
carrying amount approximates fair value.

Business Segment Information
----------------------------

The Company discloses information about its reportable segments in accordance
with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company's reportable segments are geographic areas that
provide long distance calling services (suspended in August 2002) and sales of
Q-Readers. The accounting policies of the operating segments are the same as
those for the Company.

Earnings Per Share
------------------

Basic loss per share is computed using on the weighted average number of common
shares outstanding. Diluted loss per share computed using the weighted average
number of common shares outstanding and dilutive common stock equivalents.
Potential dilutive securities include stock options and warrants, which are
antidilutive, have been excluded from the computation of loss per share.


                                      F-12
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Stock-Based Compensation
------------------------

The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation cost for stock options,
if any, is measured as the excess of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. SFAS No.123, "Accounting for Stock-Based Compensation," established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. The Company has elected
to remain on its current method of accounting as described above, and has
adopted the pro forma disclosure requirements of SFAS No. 123.

In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44 ("FIN44"), "Accounting for Certain Transactions Involving
Stock Compensation - an Interpretation of APB Opinion No. 25." FIN44 is
generally effective for transactions occurring after July 1, 2000, but applies
to repricings and some other transactions after December 14, 1998. Management
believes that FIN44 does not have any impact on financial statements of the
Company.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amending FASB No. 123, and "Accounting
for Stock-Based Compensation". This statement amends Statement No. 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. SFAS No. 148 amends APB Opinion No. 28 "Interim Financial
Reporting" to require disclosure about those effects in interim financial
information. The Company has adopted the disclosure provisions in these
financial statements.

The Company accounts for its stock based compensation plans using the intrinsic
value method whereby no compensation costs have been recognized in the financial
statements for stock options granted to employees and directors. If the fair
value method had been used for options granted subsequent to January 1, 2002, a
fair value of $63,675 would be recorded. The Company's net loss and net loss per
share would approximate the following pro-forma amounts:

                              December 31, 2002             December 31, 2001
------------------------------------------------------------------------------
Net loss :
   As reported                 $    (2,218,770)            $      (3,477,201)
   Pro forma                        (2,282,445)                   (3,477,201)
Net loss per common share
   Basic and diluted
      As reported              $         (0.15)            $           (0.24)
      Pro forma                          (0.16)                        (0.24)
------------------------------------------------------------------------------

The fair value of options granted to non-employees and non-directors is $35,325
and has been credited to additional paid in capital contributed surplus. The
same amount has been charged as compensation expenses for the year ended
December 31, 2002.

                                      F-13
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Stock-Based Compensation - Continued
------------------------------------

The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with weighted average assumptions for
grants as follows:

   Expected life (years)                                           5 years
   Risk-free interest rate                                           4.06%
   Expected volatility                                             165.49%
   Expected dividend yield                                             --

Weighted average fair value of options granted during the year ended December
31, 2002 and 2001 are as follows:

                                                         2002        2001
                                                    ----------------------

Exercise price equals market price at date of grant     $0.09       $0.79
                                                    ----------------------

Comprehensive Loss
------------------

The Company includes items of other comprehensive loss by their nature, such as
translation adjustments, in a financial statement and displays the accumulated
balance of other comprehensive loss separately from retained earnings and
additional paid in capital in the equity section of the balance sheet.

Related Party Transaction
-------------------------

A related party is generally defined as (i) any person that holds 10% or more of
the Company's securities and their immediate families, (ii) the Company's
management, (iii) someone that directly or indirectly controls, is controlled by
or is under common control with the Company, or (iv) anyone who can
significantly influence the financial and operating decisions of the Company. A
transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties. (See Note 15).

Assets Retirement Obligations
-----------------------------

The Company has adopted the provisions of SFAS No. 143, "Accounting for Asset
Retirement Obligations", effective January 1, 2002. The Company records the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the Company
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is amortized over the useful life of the related asset.
Upon settlement of the liability, the Company either settles the obligation for
its recorded amount or incurs a gain or loss upon settlement. The adoption of
SFAS No. 143 has no material effect on the financial statement.

Reclassification
----------------

Certain prior period amounts have been reclassified to conform to the current
year presentation. These changes had no effect on previously reported results of
operations or total stockholders' equity.

                                      F-14
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Recent Accounting Pronouncements
--------------------------------

The FASB issued the following pronouncements during and subsequent to 2002, none
of which are expected to have a significant effect on the financial statements:

SFAS No. 145 - "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." Under SFAS No. 4, all gains
and losses from extinguishment of debt were required to be aggregated and, if
material, classified as an extraordinary item, net of related income tax effect.
This Statement eliminates SFAS No. 4 and, thus, the exception to applying APB
No. 30 to all gains and losses related to extinguishments of debt. As a result,
gains and losses from extinguishment of debt should be classified as
extraordinary items only if they meet the criteria in APB No. 30. Applying the
provisions of APB No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual or infrequent or that
meet the criteria for classification as an extraordinary item. Under SFAS No.
13, the required accounting treatment of certain lease modifications that have
economic effects similar to sale-leaseback transactions was inconsistent with
the required accounting treatment for sale-leaseback transactions. This
Statement amends SFAS No. 13 to require that those lease modifications be
accounted for in the same manner as sale-leaseback transactions. This statement
also makes technical corrections to existing pronouncements. While those
corrections are not substantive in nature, in some instances, they may change
accounting practice.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 requires companies to record
liabilities for costs associated with exit or disposal activities to be
recognized only when the liability is incurred instead of at the date of
commitment to an exit or disposal activity. Adoption of this standard is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this standard will not have a material impact on the
Company's financial statements.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others". FIN45 clarifies and expands on existing disclosure
requirements for guarantees, including loan guarantees. It also would require
that, at the inception of a guarantee, the Company must recognize a liability
for the fair value of its obligation under that guarantee. The initial fair
value recognition and measurement provisions will be applied on a prospective
basis to certain guarantees issued or modified after December 31, 2002. The
adoption of FIN45 will not have a material impact on the Company's financial
statement.

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 00-21 "Revenue Arrangements with Multiple Deliverables". EITF No.
00-21 provides guidance on how to account for arrangements that involve the
delivery or performance of multiple products, services and rights to use assets.
The provisions of EITF No. 00-21 will apply to revenue arrangements entered into
in the fiscal periods beginning after June 15, 2003. The Company is currently
evaluating the impact EITF No. 00-21 will have on its financial position and
results of operations.

                                      F-15
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Recent Accounting Pronouncements - Continued
--------------------------------------------

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, and an Interpretation of ARB No. 51". FIN46 requires
certain variable interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN46 is effective for all
new interest entities created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1, 2003, the provisions
of FIN46 must be applied for the first interim or annual period beginning after
June 15, 2003. Management is currently evaluating the effect that the adoption
of FIN46 will have on its results of operations and financial condition.

The American Institute of Certified Public Accountants has issued an exposure
draft SOP "Accounting for Certain Costs and Activities Related to Property,
Plant and Equipment ("PP&E")". This proposed SOP applies to all non-government
entities that acquire, construct or replace tangible property, plant and
equipment including lessors and lessees. A significant element of the SOP
requires that entities use component accounting retroactively for all PP&E
assets to the extent future component replacement will be capitalized. At
adoption, entities would have to option to apply component accounting
retroactively for all PP&E assets, to the extent applicable, or to apply
component accounting as an entity incurs capitalizable costs that replace all or
a portion of PP&E. The Company cannot evaluate the ultimate impact of this
exposure draft until it becomes final.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
Statement is effective for contracts entered into or modified after June 30,
2003. We do not expect the implementation of SFAS No. 149 to have a material
impact on our consolidated financial statements.

NOTE 4 - SHORT TERM INVESTMENTS AND NOTES PAYABLE TO BANK

In 2001, two fixed term deposits amounting to US$1,999,995 (RMB16,552,139) were
pledged to a bank to secure bank loans of RMB16,000,000. One of the fixed term
deposits for US $1,000,000 accrued interest at 5.3125% and matured on December
14, 2002. The other term deposit for US $999,995 accrued interest at 1.1875% and
matured on October 16, 2002. Upon maturity, the proceeds were used to repay the
bank loan of RMB16,000,000. One of the bank loans of RMB8,000,000 with an
interest rate of 5.04% per annum was repaid upon maturity on October 16, 2002.
The other bank loan of RMB8,000,000) with an interest rate of 5.85% per annum
was repaid on December 14, 2002. These short-term investments were denominated
in U.S. dollars and were used as collateral for the Company's notes payable with
the bank, which provides RMB for local purposes.

NOTE 5 - DISCONTINUED OPERATION

In August 2002, the Company suspended its long distance telephone services
operation which included both long distance calling wholesale services (Qincom)
and retail services (Sonnet).

                                      F-16
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 5 - DISCONTINUED OPERATION - CONTINUED

Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
("APB 30"), the Consolidated Financial Statements of the Company have been
reclassified to reflect the discontinuation of long distance telephone services.
Accordingly, the revenues, costs and expenses, assets and liabilities, and cash
flows of discontinued operation have been segregated in the Consolidated
Statements of Operations, Consolidated Balance Sheets and Consolidated
Statements of Cash Flows. The net operating results, net assets and net cash
flows of this business have been reported as "Discontinued Operations."

Following is summarized financial information for the discontinued operations:
<TABLE>
<CAPTION>

                                            Cumulative from              Year End
                                            inception (May 31,  ---------------------------
                                            1989) through       December 31,   December 31,
                                            December 31, 2002       2002           2001
-------------------------------------------------------------------------------------------
<S>                                             <C>             <C>             <C>
Revenues                                        $ 839,218       $ 126,515       $ 712,703

Loss from discontinued operations                (294,626)       (121,748)       (134,656)

Loss on disposal of business                      (12,695)        (12,695)             --

Net loss from discontinued operations            (307,321)       (134,443)       (134,656)
-------------------------------------------------------------------------------------------

Current assets                                                  $      --       $  51,968

Total assets                                                           --         116,042

Current liabilities                                               215,296         163,920

Total liabilities                                                 215,296         163,920

Net liabilities of discontinued operations                        215,296          47,878
-------------------------------------------------------------------------------------------
</TABLE>

NOTE 6 - INVENTORIES
<TABLE>
<CAPTION>

                                                       2002         2001
                                                       ----         ----
<S>                                                <C>           <C>
Materials and parts                                $  60,745     $  58,880

Work in progress                                     123,789            --

Finished goods                                        17,243        69,321
                                                   -----------------------

                                                     201,777       128,201

Less : Provision for obsolete items                  (44,177)           --
                                                   -----------------------
                                                   $ 157,600     $ 128,201
                                                   =======================
</TABLE>


                                      F-17
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 7 - PROPERTY AND EQUIPMENT

                                              2002                 2001
                                              ----                 ----

Electronic equipment                       $ 99,181             $ 127,506

Computer equipment                           55,001                 9,403

Vehicle                                      55,217                25,012

Office equipment                              2,464                 1,035

Furniture                                    11,563                10,983
                                           --------             ---------
                                            276,514               173,939

Less : Accumulated depreciation             (63,407)              (35,373)
                                           --------             --------
                                           $161,019             $ 138,566
                                           ========             =========

Depreciation charges for the year ended December 31, 2002 is $35,864 (2001 :
$17,060).

NOTE 8 - LOAN AND INTEREST RECEIVABLE

In June 2000, the Company loaned $100,000 to an individual, who provided
assistance in raising finance for the Company, with interest at 7% per annum.
The note is payable on demand. In the third quarter of year 2002, the Company
made a full provision of $116,508 for the outstanding loan and accrued interest
receivable as the collectibility of the loan is in doubt.

NOTE 9 - INVESTOR DEPOSIT

In June 2002, the Company received a deposit of $50,000 from an investor for the
sale of 50,000 stock units at a price of $1.00 per unit for net proceeds of
$50,000. Each stock unit consists of one share of the Company's common stock and
one stock warrant. Each warrant entitles the holder to purchase one share of the
Company's common stock at a price of $2.00 per share and expire on June 30,
2004. The investor initiated a legal action in November 2002 for repayment of
the amount subscribed. (See notes 12 and 19(b) relating to the same investor)

NOTE 10 - DEFERRED REVENUE

The deferred revenue represents the sales proceeds received from Chinese Joint
Venture Partner but the goods sold have not been delivered as of December 31,
2002.

NOTE 11 - PAYABLE TO JOINT VENTURE PARTNER

The amount is due to the joint venture partner, LPG and its subsidiaries. The
terms and repayment details are still under negotiation.

                                      F-18
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 12 - CONVERTIBLE SHORT-TERM LOAN

On July 1, 2002, the Company issued a convertible promissory note in exchange
for $50,000 received from a third party. The note and any unpaid interest at 12%
per annum were due on October 1, 2002. The promissory note is convertible at the
holder's option into a stock unit at a conversion rate of $1.00 per unit upon
maturity. Each stock unit consists of one share of the Company's common stock
and one stock warrant. Each warrant entitles the holder to purchase one share of
the Company's common stock at a price of $2.00 per share and expires on June 30,
2004. The note is carried net of discount of $7,500, which is the intrinsic
value of the beneficial conversion feature as calculated at the date of
issuance. The lender has demanded repayment of both the principal and interest
amount upon the due date and the promissory note is in default of repayment.

Also see Note 19.

NOTE 13 - STOCKHOLDERS' EQUITY

Capital Stock
-------------

In January 2002, the Company completed the sale of 132,150 stock units at a
price of $2.80 per unit for gross proceeds of $370,020. Each unit consists of
one share of the Company's common stock and one stock warrant. Each warrant
entitles the holder to purchase one share of the Company's common stock at a
price of $2.80 per share and expire on January 30, 2004. The Company incurred
stock issuance costs of $55,503, of which $37,004 was paid in cash and the
remaining $18,499 was paid through the issuance of 6,607 stock units with the
same terms. The stock issued in settlement of the issuance costs was valued at
the fair market value of the common stock at the date of the transaction. On
October 22, 2002, the exercise price of the stock warrants was renegotiated and
changed to $0.10 per share when the stock was trading at $0.08 per share.

In September 2002, the Company received the subscription of $20,000 for the sale
of 400,000 shares of the stock of the Company at a price of $0.05 per share and
share certificate has been issued to the subscriber after the year end date.

In October 2002, the Company received the subscriptions of $15,000 for the sale
of 150,000 shares of the stock of the Company at a price of $0.10 per share and
the share certificates have been issued to the subscriber after the year end
date.

Stock Options
-------------

Under the 2000/A Stock Option Plan, ("the Plan"), the Company has issued
non-qualified stock options and incentive stock options to key employees,
directors and consultants to purchase an aggregate of 260,000 shares of the
Company's common stock at an exercise price of $10.00 per share and are fully
vested. Upon board approval, the number of shares available for grant may
increase quarterly by up to an amount equal to 20% of the Company's outstanding
shares of common stock. The options may have a term of up to ten years and
generally vest immediately.

In June 2001, the Company adopted the 2001 Stock Option Plan ("the Plan"), under
which it was authorized to issue non-qualified stock options and incentive stock
options to key employees, directors and consultants to purchase up to 2,100,000
shares of the Company's common stock. Upon board approval, the number of shares
available for grant could be increased quarterly to an amount equal to 15% of
the Company's outstanding shares of common stock. The Company recorded
compensation expense in 2000 of $1,989,000 in connection with the grant of these
options.

                                      F-19
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001


NOTE 13 - STOCKHOLDERS' EQUITY - CONTINUED

Stock Options - Continued
-------------------------

In June 2001, the Company granted options to the Qinnet Holdings optionees to
purchase an aggregate of 2,000,000 shares of the Company's common stock under
generally the same terms and conditions of the options granted by Qinnet
Holdings, in consideration for the cancellation of the options previously
granted by Qinnet Holdings. These options all have exercise price of $5.00 per
share with various vesting and expiration dates.

In December 2002, the Company granted options to key employees, directors and
consultants to purchase an aggregate of 1,100,000 shares of the Company's common
stock at an exercise price of $0.10 per share and are fully vested.

During the year 2002, 1,055,000 (2001 - 455,000) stock options have been
cancelled after certain directors, employees and consultants were no longer with
the company.

The following table summarizes information about stock option transactions for
the years ended December 31, 2002 and 2001 :

                                                            Weighted-average
                                          Options            exercise price
                               -------------------------------------------

Balance, December 31, 2000                2,260,000                 $5.58
Options granted                              30,000                 $5.60
Options exercised                                --                    --
Options cancelled                         (445,000)               ($5.28)
--------------------------------------------------------------------------
Balance, December 31, 2001                1,845,000                 $5.64
Options granted                           1,100,000                  0.10
Options exercised                                --                    --
Options cancelled                        (1,055,000)                 5.50
--------------------------------------------------------------------------
Balance, December 31, 2002                1,890,000                 $2.28
--------------------------------------------------------------------------


The following is a summary of the outstanding options as at December 31, 2002 :
<TABLE>
<CAPTION>

                                      Weighted Average    Total Weighted     Weighted
    Range of         Total Options     Remaining Life        Average         Options        Average
 Exercise Price       Outstanding          (Years)         Exercise Price   Exercisable   Exercise Price
 --------------       -----------          -------         --------------   -----------   --------------
<S>                  <C>                      <C>          <C>              <C>           <C>
$ 0.10               1,100,000                4.9          $     0.10       1,100,000     $     0.10

$ 5.00                 740,000                2.4          $     5.00         632,500     $     5.00

$10.00                  50,000                2.7          $    10.00          50,000     $    10.00

</TABLE>


                                      F-20
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 13 - STOCKHOLDERS' EQUITY - CONTINUED

Warrants
--------

The following is a summary of warrant transactions :

                                                          WEIGHTED-AVERAGE
                                             WARRANTS      EXERCISE PRICE
                                          --------------------------------
Balance, December 31, 2001                           --       $        --
Warrants granted                                138,757              0.10
Warrants exercised                                   --                --
--------------------------------------------------------------------------
Warrants exercisable at December 31, 2002       138,757       $      0.10
--------------------------------------------------------------------------

NOTE 14 - RELATED PARTY TRANSACTIONS

The Company incurred management fees of $120,000 (2001: $120,000) and $74,516
(2001 : $120,000), to a director and an ex-director of the Company respectively.

The Company incurred consulting fees of $66,560 (2001 : $nil) and $223,548
(2001: $360,000), to directors and a former director of the Company
respectively.

The Company incurred accounting fees of $12,912 (2001 : $nil) to a director of
the Company.

The Company incurred consulting fees of $240,000 (2001 : $240,000) and rent
expense of $4,480 (2001 : $nil) to a company related to a major shareholder of
the Company.

The Company incurred rent expenses of $88,467 and interest expense of $8,227 to
the Chinese Joint Venture Partner in year 2002.

Included in the accounts payable and accrued liabilities, $8,227 (2001 : $nil)
was payable to LPG, $321,334 (2001 : $192,805) was payable to two ex-directors,
$188,632 (2001 : $45,316) was payable to three directors or companies controlled
by them, and $382,604 (2001 : $46,343) was payable to three shareholders and
companies controlled by them.


                                      F-21
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 15 - SEGMENT INFORMATION

The Company's reportable segments are geographic areas that provide long
distance telephone calls wholesale and retail services in Canada (suspended in
August 2002) and Q-Readers in China. Summarized financial information concerning
the Company's reportable segments is shown in the following table : -
<TABLE>
<CAPTION>
                                                        CHINA       NORTH AMERICA      TOTAL
                                                        -----       -------------      -----
FOR THE YEAR ENDED DECEMBER 31, 2002
------------------------------------
<S>                                                 <C>            <C>            <C>
Revenue                                             $      29,045  $          --  $      29,045
Operating Loss                                          (808,360)    (1,400,677)     (2,209,037)
Loss from discontinued operations                              --      (134,443)       (134,443)
Total Assets                                              499,795          6,058        505,853
Depreciation / Amortization                                31,822          4,042         35,864
Interest Income                                            81,044          5,250         86,294
Interest Expense                                          108,669          4,927        113,596

FOR THE YEAR ENDED DECEMBER 31, 2001
------------------------------------
Revenue                                             $      12,449  $          --  $      12,449
Operating Loss                                         (1,833,780)    (1,542,357)    (3,376,137)
Loss from discontinued operations                              --      (134,656)       (134,656)
Total Assets                                            2,815,887        117,490      2,933,377
Depreciation / Amortization                                13,306          3,754         17,060
Interest Income                                            19,551         23,068         42,619
Interest Expense                                          112,715          1,238        113,953
</TABLE>

NOTE 16 - INCOME TAXES

There is no current or deferred tax expense for the years ended December 31,
2002 and 2001, due to the Company's loss position. The Company has fully
reserved for any benefits of these losses. The deferred tax consequences of
temporary differences in reporting items for financial statement and income tax
purposes are recognized, as appropriate. Realization of the future tax benefits
related to the deferred tax assets is dependent on many factors, including the
Company's ability to generate taxable income within the net operating loss
carryforward period. Management has considered these factors in reaching its
conclusion as to the valuation allowance for financial reporting purposes.


                                      F-22
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 16 - INCOME TAXES - CONTINUED

The income tax effect of temporary differences comprising the deferred tax
assets and deferred tax liabilities on the accompanying consolidated balance
sheets is a result of the following : -

                                              2002                    2001
                                        ----------------       ----------------
Deferred tax

   Net operating loss carryforwards     $     2,213,000        $     1,457,000

   Valuation allowance                      (2,213,000)            (1,457,000)
                                        ----------------       ----------------

Net deferred tax assets                 $           --         $           --
                                        ================       ================


The net change in the valuation allowance for year ended December 31, 2002 and
2001 was an increase of $756,000 and $607,000, respectively, and is the result
of net operating loss carryforwards.

Pursuant to the Tax Reform Act of 1986, annual utilization of the Company's net
operating loss carryforwards may be limited if a cumulative change in ownership
of more than 50% is deemed to occur within any three-year period. As of December
31, 2002, the Company has approximately $4,800,000 of federal and state
operating loss carryforwards available to reduce future federal and state tax
liability through year 2022 for federal purposes and 2007 for state purposes.

NOTE 17 - COMMITMENTS AND CONTINGENCIES

The company's president and chief executive officer, provides his services
pursuant to an employment agreement dated January 1, 2003. The employment
agreement provides that the Company will pay Mr. Baker a base annual salary of
$120,000 in cash and $24,000 in common stock per year along with a signing bonus
comprising $30,000 cash, 250,000 common stock, and 100,000 stock options
exercisable at market price upon execution of the agreement In addition, the
Company has agreed to grant to Mr. Baker options to purchase 100,000 shares
being 100% vested by end of fiscal year 2003. Subsequent increases to annual
salary, annual stock option compensations as well as year end bonus, will be
determined by the Compensation Committee in September of each year, until the
expiration of the agreement. The employment agreement is for an initial
three-year term. The Company is entitled to terminate this agreement upon one
month's prior written notice and the payment of one year's salary. As of April
16, 2003, the shares and options had not yet been granted by the Company.

Also see note 9 and 12.


                                      F-23
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001


NOTE 18 - LEGAL PROCEEDINGS

(a)      Qincom filed a lawsuit against Sunny International Service Corporation
         ("Sunny") in February 2002 in the British Columbia Supreme Court.
         Qincom is alleging breach of contract of approximately $196,000 CDN
         (equal to approximately $115,378 US) arising from the non-payment by
         Sunny for wholesale long distance services that were provided by
         Qincom. Trial for this action was originally set for late August 2002
         but has been postponed to April 2004. The Company anticipates that any
         funds that can be recovered in this action will be used to pay a
         telecommunications provider for network services that the Company
         purchased in order to enable us to provide wholesale long distance
         services to Sunny. If the Company is not successful in recovering
         against Sunny, then the telecommunications provider may commence action
         against the Company to recover the amounts owed.

(b)      One of the Company's investors filed a lawsuit in the Court of Common
         Pleas of Philadelphia, Pennsylvania on November 12, 2002 against the
         Company, alleging rescission of promissory note and the subscription
         agreement along with fraudulent and negligent misrepresentation. The
         Company filed an Answer to the Complaint and discovery is pending. On
         June 3, 2003, the Company has consented to the entry of a partial
         judgment against us in the amount of $51,500. This amount represents a
         return of the $50,000 principal that the investor loaned to the Company
         plus interest. According to the promissory note, the Company has to
         bear the legal cost incurred by the investor in pursuant to the
         promissory note but the amount to be involved cannot be determined at
         the current date.

NOTE 19 - SUBSEQUENT EVENTS

a.       In January 2003, the Company received 200,000 share subscription of the
         Company's stock at a price $0.075 per share totaling $15,000.

b.       In February 2003, the Company received the subscription of $10,000 for
         the sale of 100,000 shares of the stock of Company at a price of $0.10
         per share.

c.       In February 2003, the company issued 75,000 shares of its common stock
         to two employees in China for their services rendered to the company.
         The transaction was valued at $0.11 per share. The company recognized
         compensation expense totaling $8,250 at the time of issuance of the
         shares.

d.       In April 2003, the company issued 300,000 shares of its common stock to
         the attorney of the Company for legal services related to the Company's
         corporate and securities matters. The transaction was valued at $0.06
         per share. The company recognized legal expenses totaling $18,000 at
         the time of issuance of the shares.

e.       In June 2003, the Company received the subscriptions of $11,250 for the
         sale of 450,000 shares of the stock of Company at a price of $0.025 per
         share.

f.       In August 2003, the Company issued 700,000 shares of its common stock
         to the attorney of the Company for legal services related to the
         Company's corporate and securities matters. The transaction was valued
         at $0.025 per share. The company recognized legal expenses totaling
         $17,500 at the time of issuance of the shares.

g.       In August 2003, the company issued 855,000 shares of its common stock
         to a consultant in exchange for sales and marketing consulting
         services. The transaction was valued at $0.025 per share. The company
         recognized a stock-based compensation expense totaling $21,375 at the
         time of issuance of the shares.

                                      F-24
<PAGE>
                            Q-NET TECHNOLOGIES, INC.
                           (FORMERLY QINNET.COM, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001

NOTE 19 - SUBSEQUENT EVENTS - CONTINUED

h.       In August 2003, the Company entered into a letter of intent to form a
         joint venture with einfo Solutions, in Adelaide, Australia to produce a
         new version of the Q-Reader for marketing to the Australasian market.
         This joint venture will be 50% owned by the Company and 50% owned by
         eInfo Solutions. The Australian government has agreed to fund $52,000
         Australian to the joint venture to aid in its formation and the
         development of a prototype for the Australasian market. The prototype
         will be based upon the existing Q-Reader with a color screen and
         upgraded English language capability and documentation and is expected
         to be produced by the end of the first quarter of 2004. The joint
         venture will have certain royalty rights to this new Q-Reader on a
         worldwide basis.

NOTE 20 - QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
                                                  First         Second          Third         Fourth
                                                 Quarter        Quarter        Quarter        Quarter        Total
                                                ---------      ---------      ---------      ---------    -----------
<S>                                          <C>            <C>            <C>            <C>            <C>
Fiscal 2002 (Unaudited) :
Net revenue                                  $       229    $     1,165    $       517    $    27,134    $    29,045
Gross profit (loss)                                 (808)         1,165            421         12,047         12,825
Operating loss                                  (384,744)      (574,906)      (656,459)      (592,928)    (2,209,037)
Loss from discontinued operations                (82,587)        (3,525)       (21,498)       (26,833)      (134,443)
Net loss                                        (444,683)      (502,178)      (760,820)      (511,089)    (2,218,770)
Basic and diluted earnings per share               (0.03)         (0.03)         (0.05)         (0.04)         (0.15)

Fiscal 2001 (Unaudited) :
Net revenue                                  $     2,655    $        --    $    11,483    $    (1,689)   $    12,449
Gross profit (loss)                                   27             --             19        (70,990)       (70,944)
Operating loss                                  (583,141)      (589,415)      (643,361)    (1,560,220)    (3,376,137)
Income (Loss) from discontinued operations         5,767        (18,852)         6,628       (128,199)      (134,656)
Net loss                                        (516,950)      (562,184)      (576,968)    (1,821,099)    (3,477,201)
Basic and diluted earnings per share               (0.04)         (0.04)         (0.04)         (0.13)         (0.24)
</TABLE>


                                      F-25
<PAGE>
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>

EXHIBIT
NUMBER             DESCRIPTION OF EXHIBIT
------             ----------------------
<S>                <C>

Exhibit 10.7       Employment Agreement dated January 1, 2003 between Q-Net Technologies, Inc. and James D. Baker.

Exhibit 31.1       Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
                   pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2       Certification of the Principal Financial and Accounting Officer Pursuant to 18 U.S.C.
                   Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (7)

Exhibit 31.3       Certification of the Chairman Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                   Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1       Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
                   pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2       Certification of the Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section
                   1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.3       Certification of the Chairman Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                   Section 906 of the Sarbanes-Oxley Act of 2002.

</TABLE>