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




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


                                   FORM 10-QSB

(Mark One)

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

                  For the quarterly period ended June 30, 2001

                                       OR

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

                        For the transition period from       to

                        Commission file number: 333-6440


                              Q-SEVEN SYSTEMS, INC.
        (Exact Name of Small Business Issuer as Specified in its Charter)


                  Utah                                        87-0567618
     (State or Other Jurisdiction of                       (I.R.S. Employer
     Incorporation or Organization)                      Identification No.)

 Boettgerstr. 25, 40789 Monheim, Germany                  011-49-2173-683350
(Address of Principal Executive Offices)             (Issuer's Telephone Number)


     Check whether the issuer: (1) has 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 [ ] NO [X]

     The number of shares outstanding of the issuer's common stock, $0.001 par
value, as of November 9, 2001 was 12,500,000.

     Transitional Small Business Disclosure Format:   YES [ ] NO [X]


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<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

Item 1.  Financial Statements.

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheet

                                     ASSETS
                                                   June 30,        December 31,
                                                     2001              2000
                                                ------------       ------------
                                                 (Unaudited)
CURRENT ASSETS
     Cash                                       $    106,972       $    108,941
     Accounts receivable                             213,252            293,197
     Due from related party                           11,439             11,868
     Interest receivable - related party               5,533              5,533
                                                ------------       ------------

         Total Current Assets                        337,196            419,539
                                                ------------       ------------

PROPERTY AND EQUIPMENT - NET                             214                350
                                                ------------       ------------

         TOTAL ASSETS                           $    337,410       $    419,889
                                                ============       ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES

     Accounts payable                           $    493,415       $    360,539
     Accounts payable - related party                 56,669             60,191
     Accrued expenses                                 36,353            216,649
     Income taxes payable                             35,674             35,674
     Investor deposit                                250,000            250,000
                                                ------------       ------------

         Total Current Liabilities                   872,111            923,053
                                                ------------       ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)

Preferred stock: 50,000,000 shares
  authorized of  $0.001 par value,
  -0- shares issued and outstanding                        -                  -
Common stock: 100,000,000 shares
  authorized of $0.001 par value,
  12,500,000 shares issued and outstanding            12,500             12,500
Additional paid-in capital (deficit)                  (8,343)            (8,343)
Retained deficit                                    (538,858)          (507,321)
                                                ------------       ------------

Total Stockholders' Equity (Deficit)                (534,701)          (503,164)
                                                ------------       ------------

TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY  (DEFICIT)                             $    337,410       $    419,889
                                                ============       ============

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

                                       2

<PAGE>


                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY

                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     For the                     For the
                                                 Six Months Ended           Three Months Ended
                                                     June 30,                    June 30,
                                            ------------------------    ------------------------
                                                2001          2000          2001         2000
                                            ----------    ----------    ----------    ----------
<S>                                         <C>           <C>           <C>           <C>
NET SALES                                     $462,110    $1,051,154      $162,930      $595,344
COST OF SALES                                  141,109       461,628        35,090       247,815
                                            ----------    ----------    ----------    ----------
GROSS PROFIT                                   321,001       589,526       127,840       347,529
                                            ----------    ----------    ----------    ----------
OPERATING EXPENSES
  Selling, general and administrative          352,402       904,079       219,533       644,187
  Depreciation and amortization                    136           114            45            57
                                            ----------    ----------    ----------    ----------
      Total Operating Expenses                 352,538       904,193       219,578       644,244
                                            ----------    ----------    ----------    ----------
NET LOSS FROM OPERATIONS                      (31,537)     (314,667)      (91,738)     (296,715)
OTHER INCOME                                         -         2,088             -         1,044
                                            ----------    ----------    ----------    ----------
NET LOSS BEFORE INCOME TAXES                  (31,537)     (312,579)      (91,738)     (295,671)
INCOME TAXES                                         -             -             -             -
                                            ----------    ----------    ----------    ----------
NET LOSS                                     $(31,537)    $(312,579)     $(91,738)    $(295,671)
                                            ==========    ==========    ==========    ==========
BASIC LOSS PER SHARE                          $ (0.00)      $ (0.03)      $ (0.00)      $ (0.02)
                                            ==========    ==========    ==========    ==========
WEIGHTED AVERAGE NUMBER
  OF SHARES                                 12,500,000    12,500,000    12,500,000    12,500,000
                                            ==========    ==========    ==========    ==========
</TABLE>

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

                                       3

<PAGE>


                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES

            Consolidated Statements of Stockholders' Equity (Deficit)


<TABLE>
<CAPTION>

                                                                                     Additional
                                            Common Stock             Paid-In          Retained
                                     ------------------------        Capital          Earnings
                                       Shares        Amount         (Deficit)         (Deficit)
                                     ----------    ----------      -----------       ----------
<S>                                  <C>           <C>             <C>               <C>
Balance, December 31, 1998            7,900,000        $7,900          $53,525          $72,010

Recapitalization                      4,600,000         4,600         (75,265)                -

Capital contributions, 1999                   -             -           13,397                -

Net loss for the year ended
  December 31, 1999                           -             -                -         (33,217)
                                     ----------    ----------      -----------       ----------

Balance,
  December 31, 1999                  12,500,000        12,500          (8,343)           38,793

Net loss for the year ended
  December 31, 2000                           -             -                -        (546,114)
                                     ----------    ----------      -----------       ----------

Balance,
  December 31, 2000                  12,500,000        12,500          (8,343)        (507,321)

Net loss for the six months
  ended June 30, 2001 (unaudited)             -             -                -         (31,537)
                                     ----------    ----------      -----------       ----------

Balance, June 30, 2001 (unaudited)   12,500,000       $12,500         $(8,343)       $(538,858)
                                     ==========    ==========      ===========       ==========
</TABLE>

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

                                       4

<PAGE>


                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                           For the
                                                                       Six Months Ended
                                                                           June 30,
                                                                -------------------------------
                                                                     2001              2000
                                                                --------------    -------------

<S>                                                             <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net loss                                                        $     (31,537)     $  (312,579)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
     Depreciation                                                          136              114
Changes in operating assets and liabilities:
     Increase in interest receivable                                         -          (6,263)
     (Increase) decrease in due from related parties                       429         (12,319)
     (Increase) decrease in accounts receivable                         79,945           31,461
     Increase (decrease) in accounts payable                           132,876            3,224
     Increase (decrease) in accounts payable - related party           (3,522)                -
     Increase in accrued expenses                                    (180,296)           86,130
                                                                --------------    -------------
         Net Cash (Used) Provided in Operating Activities              (1,969)         (210,232)
                                                                --------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES                                         -                -
                                                                --------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES

     Investor deposit                                                        -          250,000
                                                                --------------    -------------
         Net Cash Provided by Financing Activities                           -          250,000
                                                                --------------    -------------
NET INCREASE (DECREASE)  IN CASH                                       (1,969)           39,768

CASH AND CASH EQUIVALENTS,                                             108,941           57,534
  BEGINNING OF PERIOD                                           --------------    -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                         $     106,972     $     97,302
                                                                ==============    =============
SUPPLEMENTAL CASH FLOW INFORMATION

Cash Payments For:

     Income taxes                                                $           -     $          -
     Interest                                                    $           -     $          -
</TABLE>

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

                                       5

<PAGE>


                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES

                 Notes to the Consolidated Financial Statements
                                  June 30, 2001

NOTE 1 -  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

          The accompanying consolidated financial statements have been prepared
          by the Company without audit. In the opinion of management, all
          adjustments (which include only normal recurring adjustments)
          necessary to present fairly the financial position, results of
          operations and cash flows at June 30, 2001 and 2000 and for all
          periods presented have been made.

          Certain information and footnote disclosures normally included in
          consolidated financial statements prepared in accordance with
          generally accepted accounting principles have been condensed or
          omitted. It is suggested that these condensed consolidated financial
          statements be read in conjunction with the financial statements and
          notes thereto included in the Company's December 31, 2000 audited
          consolidated financial statements. The results of operations for
          period ended June 30, 2001 and 2000 are not necessarily indicative of
          the operating results for the full years.

NOTE 2 -  GOING CONCERN

          The Company's financial statements are prepared using generally
          accepted accounting principles applicable to a going concern which
          contemplates the realization of assets and liquidation of liabilities
          in the normal course of business. The Company has not yet established
          an ongoing source of revenues sufficient to cover its operating costs
          and allow it to continue as a going concern. The ability of the
          Company to continue as a going concern is dependent on the Company
          obtaining adequate capital to fund operating losses until it becomes
          profitable. If the Company is unable to obtain adequate capital, it
          could be forced to cease operations.

          In order to continue as a going concern, develop a reliable source of
          revenues, and achieve a profitable level of operations, the Company
          will need, among other things, additional capital resources.
          Management's plans to continue as a going concern include (1) raising
          additional capital through sales of common stock, the proceeds of
          which would be used to market the existing software and related
          rights, and (2) the acquisition of another subsidiary, Partner Air
          Plc., in which the Company is in negotiations with. However,
          management cannot provide any assurances that the Company will be
          successful in accomplishing any of its plans.

          The ability of the Company to continue as a going concern is dependent
          upon its ability to successfully accomplish the plans described in the
          preceding paragraph and eventually secure other sources of financing
          and attain profitable operations. The accompanying financial
          statements do not include any adjustments that might be necessary if
          the Company is unable to continue as a going concern.

                                       6

<PAGE>


Item 2.  Management's Discussion and Analysis.

                                    Overview

     Q-Seven Systems, Inc., a Utah corporation (collectively with its direct and
indirect subsidiaries Q-Seven Systems, Inc., a Nevada corporation ("Q-Seven
Nevada"), and X-Real Intertainment Inc. Ltd., a company organized under the laws
of the Bahamas ("X-Real"), unless otherwise noted or required by the context,
"our company," "we," or "us"), engages directly and through its subsidiaries in
two lines of Internet related businesses:

     o    the sale of licenses  to the Q-Seven  User  Management  Software  (the
          "User Management Software" or "our software"); and

     o    the operation of Internet adult entertainment websites.

     The principal shareholders of our company are Messrs. Kriependorf, Kamp and
Cordt, who are also the officers of our company. Messrs. Kriependorf and Kamp
are directors of our company. Mr. Cordt was a director of our company until
March 26, 2001.

     The following discussion should be read in conjunction with our financial
statements for the period ended June 30, 2001 and the notes thereto.

                       Consolidated Results of Operations

REVENUES

     The following table and discussion highlights our revenues for the three
and six months ended June 30, 2001 and June 30, 2000:

<TABLE>
<CAPTION>
                                                Three Months Ended                        Six Months Ended
                                                     June 30,                                 June 30,
                                             2001                2000                2001                 2000
                                      -----------------   -----------------    ----------------  -------------------
<S>                                   <C>          <C>    <C>        <C>       <C>       <C>     <C>          <C>
Revenues from the sale of                   $0      ---   $121,874   20.50%     $40,000   8.66%    $221,874   21.10%
licenses to the User Management

Software
Revenues from X-Real's adult          $162,930     100%   $473,470   79.50%    $422,110  91.34%    $829,280   78.89%
entertainment websites

Other revenues                             ---      ---        ---      ---         ---     ---         ---      ---

Total revenues                        $162,930     100%   $595,344     100%    $462,110    100%  $1,051,154     100%
</TABLE>

                                       7


     Our total revenues decreased substantially from $595,344 for the three
months ended June 30, 2000 to $162,930 for the three months ended June 30, 2001
and from $1,051,154 for the six months ended June 30, 2000 to $462,110 for the
six months ended June 30, 2001. During the three months ended June 30, 2001, we
did not generate any revenues from the sale of our software. During the same
period, revenues from X-Real's adult entertainment websites were $162,930. For
the three months ended June 30, 2000, revenues from the sale of our software
were $121,874, or approximately 20.50% of our total revenues for that period,
whereas revenues from X-Real's adult entertainment websites were $473,470, or
approximately 79.50% of our total revenues for that period. For the six months
ended June 30, 2001, revenues from the sale of our software were $40,000, or
approximately 8.66% of our total revenues for that period, whereas revenues from
X-Real's adult entertainment websites were $422,110, or approximately 91.34% of
our total revenues for that period. For the six months ended June 30, 2000,
revenues from the sale of our software were $221,874, or approximately 21.10% of
our total revenues for that period, whereas revenues from X-Real's adult
entertainment websites were $829,280, or approximately 78.89% of our total
revenues for that period. As discussed in more detail below, the substantial
decrease in our revenues was caused primarily by the absence of any new sales of
licenses to our software since the beginning of the 2001 fiscal year as well as
a sharp decrease in the number of customers who view X-Real's websites.

     Our net loss decreased from $(295,671) for the three months ended June 30,
2000 to $(91,738) for the three months ended June 30, 2001. Our net loss for the
six months ended June 30, 2000 decreased from $(312,579) to $(31,537) for the
six months ended June 30, 2001. The decrease in our net loss resulted primarily
from the fact that our operating expenses underwent a larger decrease than our
revenues did.

User Management Software Revenues

     During the three months ended June 30, 2001, we did not generate any
revenues from the sale of licenses to our software or the collection of
instalment payments arising from sales in earlier periods. During the three
months ended June 30, 2000, our revenues from the sale of licenses to our
software were $121,874. For the six months ended June 30, 2001, revenues from
the sale of licenses to our software were $40,000, in comparison to $221,874 for
the six months ended June 30, 2000.

     We did not send invoices to our customers in the three months ended June
30, 2001 relating to instalment payments arising from sales of licenses to our
software in earlier periods and, accordingly, did not receive any payments
during this period. During the three months ended September 30, 2001, we sent
invoices to our customers, but did not receive any payments. Management decided
not to send any invoices in the three months ended June 30, 2001 and not to take
steps to enforce payment of the invoices sent in the three months ended
September 30, 2001, because our customers had encountered intermittent problems
during the period from March through June, 2001 with a name server, which is now
operated by ITraffic GmbH, an affiliate of our company. Due to these problems,
the home pages of some of the Internet casinos operated by some of our customers
were not accessible from time to time during that period. These problems have
since then been resolved. In the fourth quarter of 2001, we started receiving
payments from customers on invoices sent during the three months ended September
30, 2001.

     During the three and six months ended June 30, 2001, we did not sell any
new licenses to our software. Therefore, all of our revenue from the sale of
licenses during the six months ended June 30, 2001 relates to instalment
payments arising from sales in earlier periods. Our management believes that the
slowdown in sales of licenses to the gaming module of our software has been
primarily caused by the following factors:

     o    Increased competition in the gaming software market. We are faced with
          many current and potential competitors in this market which have far
          greater resources than our

                                       8

<PAGE>


          company.  Our  management  expects  the number of  companies  offering
          online gaming software products and services to increase further.

     o    Decreased interest in gaming software resulting from the (i)
          saturation of the gaming software market, (ii) increased regulatory
          barriers in many jurisdictions for companies considering to operate
          Internet casinos, (iii) pending U.S. federal legislation directed
          against Internet gaming, and (iv) increased reluctance of credit card
          companies to authorize and effect credit card payments relating to the
          use of Internet casinos.

     In the three months ended June 30, 2001, we did not attend any tradeshows.

     Not all of the fees relating to the sale of licenses to our software during
previous reporting periods have been paid in full. Instalment payments relating
to the sale of licenses to Advanced Media Group, dominicana S.A., Setec
Astronomy Ltd., World Network Ltd., Global Net Gamble Limited, KGMB Ltd. and
Euflex AG, aggregating approximately $960,000, are not yet due. Instalment
payments relating to the sale of licenses to Setec Astronomy, World Network Ltd.
and Global Net Gamble Ltd., aggregating approximately $125,000, were overdue as
of June 30, 2001. As of November 9, 2001, instalment payments aggregating
approximately $199,000 were overdue.

     On May 10, 2000, the House Banking Committee Chairman James A. Leach
(R-Iowa) and the committee's ranking Democrat, Rep. John J. LaFalce (N.Y.),
introduced legislation, the Internet Gambling Funding Prohibition Act (H.R.
4419), that would prohibit the use of credit cards, checks, or electronic fund
transfers in internet gambling. The bill, intended to complement the Internet
Gambling Prohibition Act (H.R. 3125), which the House Judiciary Committee
approved in April 2000, would extend a current ban on gambling over telephone
lines to the Internet. The House Banking Committee approved on June 28, 2000 the
Internet Gambling Funding Prohibition Act (H.R. 4419) with an amendment offered
by Rep. John E. Sweeney (R-N.Y.), applying the restrictions only to betting that
is unlawful under state or federal law. The House voted on the Internet Gambling
Prohibition Act (H.R. 3125) on July 17, 2000. It was considered under a
suspension rule, which meant that it required a two-thirds majority to pass. It
failed by a vote of 245 to 159. The bill's sponsor Rep. Bob Godlatte
(R-Virginia) said he expects it to be returned to the floor soon under rules
that require a simple majority for passage. On February 12, 2001, Mr. Leach
reintroduced legislation, the Unlawful Internet Gambling Funding Prohibition Act
(H.R. 556), which is substantially similar to H.R. 4419. H.R. 556 has been
referred to the House Financial Services Committee and the House Judiciary
Committee. On July 20, 2001, Mr. LaFalce introduced legislation, the Internet
Gambling Payments Prohibition Act (H.R. 2579). H.R. 2579 has been referred to
the House Financial Services Committee and the House Judiciary Committee. If any
of these bills were enacted, it could affect our customers' interest in our
gaming module software and could have a material adverse effect on our business,
revenues, operating results and financial condition.

Adult Entertainment Revenues

     Revenues generated by X-Real from fees charged to viewers of its adult
entertainment websites decreased from $473,470 for the three months ended June
30, 2000 to $162,930 for the three months ended June 30, 2001, and decreased
from $829,280 for the six months ended June 30, 2000 to $422,110 for the six
months ended June 30, 2001. This revenue decrease was primarily attributable to
the temporary shutdown of X-Real's affiliate advertising program, pursuant to
which advertising affiliates place banner advertisements for X-Real's services
on their websites and receive compensation from X-Real. The temporary shutdown
was caused by the insolvency of Cyberotic Media AG in January 2001, which was
previously reported. Until its insolvency, Cyberotic Media AG handled the
payments to the advertising affiliates. Due to Cyberotic Media AG's insolvency,
payments to the advertising affiliates were no longer made on a timely basis
and, consequently, advertising affiliates ceased placing banner

                                       9


<PAGE>


advertisement  for X-Real on their websites,  which caused a decrease in the use
of X-Real's  services.  In August 2001, X-Real reactivated the affiliate program
with the assistance of Pay@EuroDebit GmbH.  Management believes that the decline
in X-Real's  revenues  was  reversed in October  2001,  when  X-Real's  revenues
started to increase again.

     We previously reported that, in March 2000, X-Real received the first
tranche of an investment (the "Infobridge Investment") by Infobridge
International Ltd. ("Infobridge"). The balance of the Infobridge Investment in
an amount of DM 500,000 (which equals approximately $228,420 on the basis of the
Federal Reserve Bank of New York November 9, 2001 noon buying rate of Euro 1 =
$0.8935 and the fixed exchange rate of Euro 1 = DM 1.95583), has not been paid
to X-Real, although our management on February 24, 2001 requested payment from
Infobridge, and X-Real has not yet issued any shares to Infobridge. After
further discussions with a representative of Infobridge, our management does not
expect that the second tranche of the Infobridge Investment will be paid. Based
on these discussions, our management currently does not expect that we will
repay to Infobridge the full amount of the first tranche. Instead, our
management expects to reach an agreement with Infobridge, pursuant to which we
will either repay a portion of the first tranche to Infobridge or issue a
reduced number of X-Real shares to Infobridge. X-Real plans to utilize the
remaining funds from the first tranche of the Infobridge Investment to improve
the marketing for X-Real's services and products, including the launch of an
advertising campaign for X-Real's portal site. There can be no assurance that
the contemplated marketing and advertising activities will have any positive
effects on X-Real's business. There is also a risk that we could be required to
repay the full amount of the first tranche of the Infobridge Investment, if no
agreement can be reached with Infobridge. If we had to repay the full amount of
the first tranche of the Infobridge Investment, this could have a material
adverse effect on our business, revenues, operating results and financial
condition. Revenues contributed by X-Real to our financial statements could
decrease in our 2001 fiscal year if we were to issue shares of X-Real to
Infobridge, because our ownership interest in X-Real and our share of X-Real's
revenues would decrease.

                               Costs and Expenses

     The following table and discussion highlight our costs and expenses for the
three and six months ended June 30, 2001 and June 30, 2000:

<TABLE>
<CAPTION>
                                       Three Months Ended                            Six Months Ended
                                            June 30,                                     June 30,
                                    2001                   2000                  2001                   2000
                             ------------------    -------------------   -------------------  ---------------------
<S>                          <C>        <C>        <C>         <C>       <C>          <C>     <C>            <C>
Total revenues               $162,930      100%    $595,344       100%   $462,110       100%  $1,051,154       100%

Cost of sales                 $35,090    21.54%    $247,815     41.62%   $141,109     30.54%    $461,628     43.92%

Total Operating expenses:    $219,578   134.77%    $644,244    108.21%   $352,538     76.29%    $904,793     86.08%

     Selling, general and    $219,533   134.74%    $644,187    108.20%   $352,402     76.26%    $904,679     85.07%
     administrative

     Depreciation and             $45     0.03%         $57      0.01%       $136      0.03%        $114      0.01%
     amortization

Total costs and expenses     $254,668   156.31%    $892,059    149.83%   $493,511    106.80%  $1,365,821    129.94%
</TABLE>

COST OF SALES

     Cost of sales for the three and six months ended June 30, 2001 includes
primarily transaction costs related to the settlement of payments by X-Real's
customers, costs in connection with charge-backs of payments by X-Real's
customers, and royalties paid to Q-Seven Systems GmbH for our right to license

                                       10


<PAGE>


the User Management Software. Cost of sales for the three and six months ended
June 30, 2000 included the same items.

     Cost of sales decreased from $247,815 for the three months ended June 30,
2000 to $35,090 for the three months ended June 30, 2001, and decreased as a
percentage of total revenues from approximately 41.62% to approximately 21.54%.
Cost of sales for the six months ended June 30, 2000 decreased from $461,628 to
$141,109 for the six months ended June 30, 2001, and decreased as a percentage
of total revenues from approximately 43.92% to approximately 30.54%. The
decrease in cost of sales is primarily attributable to decreased costs in
connection with charge-backs of payments by X-Real's customers. For the three
months ended June 30, 2001, all of our cost of sales in the amount of $35,090
was attributable to the operation of X-Real's websites. We did not incur any
cost of sales in connection with the sale of licenses of our software. For the
three months ended June 30, 2000, approximately $138,128, or 55.7%, of our total
cost of sales for that period were attributable to the operation of X-Real's
websites, whereas approximately $109,681, or 44.3%, of our total revenues for
that period related to the sale of licenses to our software. For the six months
ended June 30, 2001, approximately $36,000, or 25.51%, of our total cost of
sales for that period were attributable to the operation of X-Real's websites,
whereas approximately $105,109, or 74.49%, of our total cost of sales for that
period related to the sale of licenses to our software. For the six months ended
June 30, 2000, approximately $261,941, or 56.7%, of our total cost of sales for
that period were attributable to the operation of X-Real's websites, whereas
approximately $199,689, or 43.3%, of our total cost of sales for that period
related to the sale of licenses to our software. During the three and six months
ended June 30, 2001, we paid $10,000 to Q-Seven Systems GmbH as royalty fees for
the right to license the User Management Software to our customers. At June 30,
2001, we had accrued and unpaid payables in an amount of $99,000 due to Q-Seven
Systems GmbH for royalty fees incurred in the six months ended June 30, 2001.
For services in connection with the collection of credit card and electronic
on-line debit-entry payments from X-Real's customers, we paid to Pay@EuroDebit
GmbH during the three months ended June 30, 2001 approximately $19,000 in fees
and $16,000 in connection with charge-backs. During the six months ended June
30, 2001, we paid to Pay@EuroDebit GmbH approximately $63,000 in fees and
$42,000 in connection with charge-backs. All of these amounts were withheld by
Pay@EuroDebit GmbH from the funds transferred to X-Real.

SELLING, GENERAL AND ADMINISTRATIVE

     Selling, general and administrative expenses for the three and six months
ended June 30, 2001 consisted primarily of recurring legal and accounting
expenses in connection with the compliance with periodic reporting requirements
under the securities laws, costs associated with the management, operation and
maintenance of X-Real's websites, computer and network equipment costs in
connection with X-Real's servers, and advertising costs for X-Real's websites.
Selling, general and administrative expenses for the three and six months ended
June 30, 2000 consisted primarily of the same items.

     Selling, general and administrative expenses decreased from $644,187 in the
three months ended June 30, 2000 to $219,533 in the three months ended June 30,
2001. In the six months ended June 30, 2000, selling, general and administrative
expenses were $904,679, as compared to $352,402 in the six months ended June 30,
2001. The decrease in our selling, general and administrative expenses for the
three and six months ended June 30, 2001 was primarily attributable to decreased
expenses in connection with the operation and maintenance of X-Real's websites.
Approximately $117,276, or 53.42%, of our selling, general and administrative
expenses during the three months ended June 30, 2001 were attributable to our
operations relating to the sale of licenses to our software, whereas
approximately $102,257, or 46.58%, of such expenses were attributable to the
operation of X-Real's websites. Approximately $13,148, or 2.04%, of our selling,
general and administrative expenses during the three months ended June 30, 2000
were attributable to the operation of X-Real's websites, whereas

                                       11

<PAGE>

approximately $631,039, or 97.96%, of such expenses were attributable to the
sale of licenses to our software. Approximately $219,526, or 62.29%, of our
selling, general and administrative expenses during the six months ended June
30, 2001 were attributable to the operation of X-Real's websites, whereas
approximately $132.876, or 37.71%, of such expenses were attributable to the
sale of licenses to our software. Approximately $717,220, or 79.28%, of our
selling, general and administrative expenses during the six months ended June
30, 2000 were attributable to the operation of X-Real's websites, whereas
approximately $185,859, or 20.55%, of such expenses were attributable to the
sale of licenses to our software. During the three and six months ended June 30,
2001, we paid to Q-Seven Systems GmbH approximately $30,000 for managing,
operating and maintaining X-Real's websites during the period from January
through March, 2001. During the three and six months ended June 30, 2001, we
paid to ITraffic GmbH approximately DM 95,000 (which equals approximately
$41,161 on the basis of the Federal Reserve Bank of New York June 29, 2001 noon
buying rate of Euro 1 = $0.8474 and the fixed exchange rate of Euro 1 = DM
1.95583) for managing, operating and maintaining X-Real's websites since April
2001. Since there is a lag of billing us for legal services, the bills we have
actually received may not reflect all costs of this type which we may incur.

DEPRECIATION AND AMORTIZATION

     Depreciation and amortization expenses decreased from $57 for the three
months ended June 30, 2000 to $45 for the three months ended June 30, 2001.
Depreciation and amortization expenses increased from $114 for the six months
ended June 30, 2000 to $136 for the six months ended June 30, 2001.

                         Liquidity and Capital Resources

     We have been and are currently financing our operations primarily through
cash generated from operating activities. As discussed below, our company has
faced, and is still experiencing, liquidity problems.

     Net cash provided by (used in) operating activities was (1,969) and
$(216,941) in the three months ended June 30, 2001 and June 30, 2000,
respectively. Net cash used in operating activities was $(1,969) and $(210,232)
in the six months ended June 30, 2001 and June 30, 2000, respectively. No net
cash was provided by financing activities during the three and six months ended
June 30, 2001 and the three months ended June 30, 2000. Net cash provided by
financing activities was $250,000 for the six months ended June 30, 2000. We had
cash and cash equivalents of $106,972 at June 30, 2001 compared to cash and cash
equivalents of $97,302 at June 30, 2000. At June 30, 2000, June 30, 2001 and
November 9, 2001, no unused lines of credit were available to our company. We
expect to continue financing our ongoing operations primarily through cash
generated from operating activities. Our management expects that, after the
steps described below have been implemented, cash on hand, cash provided by
operating activities and cash available from the capital markets will be
sufficient to fund our operations for the next twelve months.

     As previously reported, our cash flow in the period from January through
July, 2001 was affected by delays in the receipt of payments from Pay@EuroDebit
GmbH. Pay@EuroDebit GmbH provides services to X-Real in connection with the
collection from X-Real's customers of credit card and electronic on-line
debit-entry payments from X-Real's customers. Pay@EuroDebit GmbH's services were
provided to X-Real during the three and six months ended June 30, 2001 pursuant
to an oral agreement between X-Real and Pay@EuroDebit GmbH. Since then, X-Real
and Pay@EuroDebit GmbH have entered into a written agreement dated July 13,
2001, pursuant to which such services are provided now. The cause for the
initial delays in the receipt of payments from Pay@EuroDebit GmbH seems to have
been resolved. During the last few months, Pay@EuroDebit GmbH has regularly
transferred to X-Real the amounts due to X-Real. At June 30, 2001, X-Real had
receivables from Pay@EuroDebit GmbH in the amount of

                                       12


<PAGE>


approximately DM 45,000 (which equals approximately $19,497 on the basis of the
Federal Reserve Bank of New York June 29, 2001 noon buying rate of Euro 1 =
$0.8474 and the fixed exchange rate of Euro 1 = DM 1.95583). At November 9,
2001, X-Real had no receivables from Pay@EuroDebit GmbH. Although Pay@EuroDebit
GmbH currently provides services to X-Real at approximately the same price as
such services were previously provided by Cyberotic Media AG and EuroDebit
Systems GmbH, the price for such services is likely to increase in the future.
There is also a risk that Pay@EuroDebit GmbH could decide to discontinue
providing services to X-Real. While our management has identified other
companies which could provide processing and collection services to X-Real at
the current cost level, the change from Pay@EuroDebit GmbH to a new processing
company could be difficult or even impossible to achieve because of the
following circumstances: Pay@EuroDebit GmbH has in its possession unique
electronic data containing information about X-Real's customers. This data is
essential for the processing and collection of recurring payments from X-Real's
customers. Our management believes that this data is the property of our
company. However, if Pay@EuroDebit GmbH would refuse to provide or delay the
provision of this data to us or a new processing company selected by us, it
might not be possible, for an indefinite period of time, to process continuing
payments by existing customers of X-Real. If this were to occur, it could have a
material adverse effect on our business, revenues, operating results and
financial condition.

     Our current assets decreased by $135,339 from $472,535 at June 30, 2000 to
$337,196 at June 30, 2001, while our current liabilities increased by $129,439,
or approximately 17.43%, from $742,672 to $872,111, for the corresponding
periods. The decrease in current assets was primarily attributable to a decrease
in cash and accounts receivable generated by our operations. The increase in our
current liabilities was primarily due to an increase in accrued expenses and
accounts payable resulting from accrued legal expenses and accrued payables to
Q-Seven Systems GmbH for license fees and for services to X-Real during the
three and six months ended June 30, 2001. Based on the foregoing, we had a
negative working capital of $(270,137) at June 30, 2000. At June 30, 2001, we
had a negative working capital of $(534,915). Our fixed assets at June 30, 2001
and June 30, 2000 consisted of office equipment valued at $214 and $508,
respectively.

     Due to the continued liquidity problems our company has faced and is still
experiencing, it has at certain times not been able to make timely payments to
all of its creditors. As of June 30, 2001 and November 9, 2001, we had past due
payables in the amount of approximately $130,000 and $141,000, respectively.

     Our management believes that our liquidity problems in the three and six
months ended June 30, 2001 were primarily caused by the following factors, which
have been discussed above in more detail:

     o    Absence of any new sales of licenses to our software since the
          beginning of the 2001 fiscal year due to increased competition and
          decreased interest in gaming software;

     o    Decreased interest in X-Real's services due to the temporary
          interruption in X-Real's affiliate advertising program; and

     o    Initial delays in the receipt of payments from Pay@EuroDebit GmbH, the
          company which in the three and six months ended June 30, 2001
          processed and collected electronic on-line debit-entry and credit card
          payments from X-Real's customers.

     If we were to issue shares of X-Real to Infobridge in connection with the
Infobridge Investment, cash generated by the activities of X-Real may become
even less available to us, because dividends and deemed dividends will then have
to be shared proportionally with Infobridge. Our management is currently
exploring different steps to address our liquidity problems, reduce our net loss
in future periods

                                       13

<PAGE>

and provide us with cash and working capital sufficient to fund both delinquent
balances and our ongoing operations. The following are among the steps our
management is considering:

     o    We are in discussions with Q-Seven Systems GmbH regarding the
          elimination or reduction of the royalty fee that we have to pay them
          for the right to license the User Management Software to our
          customers. Currently, this royalty fee is equal to 90% of the revenues
          that we generate from the sale of licenses to our software. Depending
          on the outcome of these discussions, we may decide to acquire the
          source code to the User Management Software from Q-Seven Systems GmbH,
          which would eliminate the payment of royalty fees. Alternatively, our
          discussion with Q-Seven Systems GmbH may result in a reduction of the
          royalty fee.

     o    We plan on escalating our efforts to sell new licenses to our software
          to increase the amount of our revenues. We have taken steps to
          reconfigure our software to make it compliant with the requirements
          imposed on gaming software by the regulators in Australia. We also
          have taken steps to redesign our software, so that it can be used in
          connection with gaming for fun, which does not require to put money at
          risk. Our management hopes that this may allow us to offer our
          software also as an online marketing tool.

     o    We would also consider raising funds by issuing and selling, publicly
          or privately, additional equity securities to one or more interested
          purchasers if this opportunity were to arise.

     o    We have offered to acquire all shares of Partner Air Plc, which we
          reported in our Current Report on Form 8-K filed on April 11, 2001,
          which is incorporated herein by reference. Our management expects to
          proceed with this transaction as soon as our company is current again
          in its periodic filing with the Securities and Exchange Commissions
          ("Commission").

     There can be no assurance that any of these measures will be successful and
sufficiently improve our liquidity and cash flow. If our liquidity and cash flow
problems persist, some or all of our creditors may decide to discontinue
providing services to us and/or enforce their claims for payment against us. In
addition, we would in all likelihood be unable to comply with our periodic
reporting requirement and would continue to face the risk of becoming the
subject of enforcement proceedings by the Commission. If one or more of these
events were to occur, it could have a material adverse effect on our business,
revenues, operating results and financial condition.

     At this time, management is unable to assess the potential impact of the
recent national tragedy on September 11, 2001 on our business.

                           Forward Looking Statements

     This report and other oral and written statements made by our company to
the public contain and incorporate by reference forward-looking statements
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. They use such words as "may," "will," "expect,"
"believe," "plan" and other similar terminology. In particular statements
regarding the following subjects are forward-looking: future financial and
operating results; new and developing markets, products, services, features and
content; the anticipated steps to reduce our liquidity problems and the effects
of such steps; regulatory developments; plans to attend additional tradeshows;
future developments with respect to the processing and collection of on-line
debit-entry and credit card payments from X-Real's

                                       14

<PAGE>


customers; future developments with regard to the acquisition of Partner Air,
Plc.; and the future developments with respect to the Infobridge Investment.
Forward-looking statements reflect our management's current expectations or
beliefs and involve a number of risks and uncertainties. Actual results could
differ materially from those described in the forward-looking statements. Some
of the factors and uncertainties that could cause actual results to differ
materially are: Commission enforcement proceedings against our company;
continued cash flow and liquidity problems; failure of Pay@EuroDebit GmbH to pay
to X-Real on a timely basis the funds collected from X-Real's customers; failure
of Pay@EuroDebit GmbH to provide us or a new processing company selected by us
with the data necessary to process electronic on-line debit-entry and credit
card payments by X-Real's customers; failure to consummate the Partner Air, Plc.
acquisition; repayment to Infobridge of the full amount of the first tranche of
the Infobridge Investment; success of operating initiatives, advertising and
promotional efforts; changes in global and local business and economic
conditions; terrorist attacks; currency exchange and interest rates; labor and
other operating costs; political or economic instability in local markets;
competition; consumer preferences, spending patterns and demographic trends;
legislation and government regulation, including regulation affecting
online-gaming and adult entertainment, and accounting policies and practices.

                                     PART II
                                OTHER INFORMATION

Item 5.  Other Information.

                                Office Relocation

     In April 2001, our offices were relocated to new premises at Boettgerstr.
25, 40789 Monheim, Germany, which consist of approximately 350 square meters of
office space. We share this office space with ITraffic GmbH, which rents it from
Hiller & Maldaner Alu-Profiltechnik GmbH, and Q-Seven System GmbH. Q-Seven
Systems GmbH pays a fee to ITraffic GmbH for the use of the office space. We do
not pay a fee to ITraffic GmbH or Q-Seven Systems GmbH for the use of the office
space. Q-Seven Systems GmbH is a company owned by Messrs. Kriependorf, Kamp and
Cordt, of which Mr. Kriependorf is the managing director. ITraffic GmbH is a
company owned by Messrs. Kamp and Cordt, of which Mr. Cordt is the managing
director. See also Part I, Item 2, "Management's Discussion and
Analysis--Overview," for a description of the relationship of Messrs.
Kriependorf, Kamp and Cordt to our company.

     Our direct and indirect subsidiaries Q-Seven Nevada and X-Real share with
us our new office space. We do currently not intend to rent our own office
space. The lack of any own facilities for our operations may work to our
detriment in the future. There can be no assurance that ITraffic GmbH and
Q-Seven Systems GmbH will continue to provide office space to us at no charge.

                        Sale of Two of X-Real's Websites

     Until the end of March 2001, X-Real operated six adult entertainment
websites. At that time, the results of a performance review that X-Real had
conducted for all of its websites revealed that two of the websites were not
profitable. These two websites, which operated both on a subscription and
non-subscription basis, were shut down by X-Real at the end of March 2001. At
the beginning of April 2001, X-Real entered into an oral agreement with a
webmaster who had offered to acquire the two websites that were shut down by
X-Real in consideration of the webmaster's payment of certain liabilities in an
aggregate amount of approximately $58,000 incurred by X-Real in connection with
the operation of these two websites in the period from December 2000 through the
end of March 2001.

                                       15

<PAGE>


                      Change in Service Provider For X-Real

     Until December 2000, all webdesign, server hosting, programming and content
delivery services were provided to X-Real by Cyberotic Media AG. From January
through March, 2001, such services were provided to X-Real by Q-Seven Systems
GmbH for a fee of approximately $10,000 per month. Since that time, these
services have been and are still being provided to X-Real by ITraffic GmbH
pursuant to an oral agreement for a fee of approximately $10,000 per month.
Cyberotic Media AG, against which insolvency proceedings have been initiated in
Germany in January 2001, is a company owned and controlled by Messrs. Kamp and
Cordt; Mr. Kriependorf is the chairman of Cyberotic Media AG's supervisory
board. Q-Seven Systems GmbH is a company owned by Messrs. Kriependorf, Kamp and
Cordt, of which Mr. Kriependorf is the managing director. ITraffic GmbH is a
company owned by Messrs. Kamp and Cordt, of which Mr. Kamp is the managing
director. See also Part I, Item 2, "Management's Discussion and
Analysis--Overview," for a description of the relationship of Messrs.
Kriependorf, Kamp and Cordt to our company.

                             Delinquent SEC Filings

     During the 2001 fiscal year and in prior periods, we have been unable to
file on a timely basis complete reports with the Commission. Our quarterly
report for the period ended September 30, 2001 is currently overdue. There is a
risk that the Commission might commence enforcement proceedings against us
because of this failure, in particular if we should be unable to file or amend
delinquent reports in a timely manner or if we should continue to fail complying
with our periodic filing obligations.

                     Other Developments since June 30, 2001

     In order to make its relevance clearer, certain information regarding
events which have occurred since June 30, 2001 is set forth in Part I, Item 2,
"Management Discussion and Analysis," and is incorporated by reference into Part
II, Item 5, "Other Information."

                                       16

<PAGE>

Item 6.  Exhibits and Reports on Form 8-K.

(a)      Index to Exhibits

<TABLE>
<CAPTION>
                                                                       Incorporated by Reference
                                                                  ----------------------------------
                                                                                 Date       Exhibit        Filed
 Exhibit Number               Exhibit Description                 Form Type     Filed        Number      Herewith
 --------------   --------------------------------------------    ---------    --------     -------      --------
<S>               <C>                                             <C>          <C>             <C>
      3.1         Articles of Incorporation, as amended             10-QSB      8/16/99         3.1
      3.2         Amended and Restated By-laws, as currently        10-QSB      8/14/00         3.2
                  in effect
      3.3         Form of Stock Certificate                            8-A     10/29/99         3.3
     10.1         License Agreement between Q-Seven Systems         10-QSB      8/16/99        10.1
                  GmbH and Q-Seven Nevada
     10.2         Agreement and Plan of Share Exchange dated           8-K       6/9/99         III
                  May 24, 1999
     10.3         Consulting Agreement dated May 27, 1999           10-KSB      4/14/00        10.3
                  between Q-Seven Systems, Inc. and
                  Mr. Barry A. Ellsworth
     10.4         Termination Agreement dated April 17, 2000        10-QSB      5/16/00        10.4
                  between Q-Seven Systems, Inc. and
                  Mr. Barry A. Ellsworth
     10.5         Agreement dated May 24, 2000 between            10-QSB/A      5/26/00        10.5
                  Q-Seven Systems, Inc. and Omni Software
                  Systems, Inc.*
</TABLE>

-----------
*    Certain material from this agreement has been omitted and confidential
     treatment has been requested therefor pursuant to Rule 24b-2 under the
     Securities Exchange Act of 1934, as amended. All such omitted material has
     been filed separately with the Commission.


(b)  Reports on Form 8-K

     We filed a Current Report on Form 8-K on April 11, 2001, in which we
reported information under Items 1, 5 and 7.

                                       17

<PAGE>


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



     Date:  November 16, 2001                 /s/ Philipp S. Kriependorf
                                              -----------------------------
                                              Philipp S. Kriependorf
                                              President, Chief Executive Officer
                                              and Chief Financial Officer



                                       18