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

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

                                  FORM 10-KSB/A
                               AMENDMENT NO. 1 TO

(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, 2000

                                       OR

     |_|  TRANSITION REPORT UNDER 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)

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

         Securities registered under Section 12(g) of the Exchange Act:

                    Common Stock, $0.001 Par Value Per Share
                                (Title of Class)

     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|

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer'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|

     The issuer's revenues for the fiscal year ended December 31, 2000 were
$1,766,395.

     As of December 8, 2000, the aggregate market value of voting stock held by
non-affiliates of the issuer based upon the closing price for the issuer's
common stock of $0.875 on such date, as quoted on the OTC Bulletin Board
service, was approximately $4,025,000 (calculated by excluding shares owned
beneficially by directors and officers of the issuer).

     The number of shares outstanding of the issuer's common stock, $0.001 par
value, as of September 4, 2001 was 12,500,000.

     Transitional Small Business Disclosure Format:  YES |_|   NO |X|

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<PAGE>

                                EXPLANATORY NOTE

     This annual report on Form 10-KSB/A amends Item 6, Management's Discussion
and Analysis, and Item 7, Financial Statements, to reflect changes resulting
from a restatement of the registrant's audited consolidated financial statements
for the fiscal year ended December 31, 2000. The reasons for the restatement are
explained in Note 12 to the Restated Consolidated Financial Statements, which
can be found beginning at page F-1 after the signature page of this Form
10-KSB/A. Pursuant to Rule 12b-15 promulgated under the Exchange Act, the
registrant is including the complete text of Items 6 and 7, as revised,
including a complete copy of the Restated Consolidated Financial Statements. No
attempt has been made in this report to update the registrant's disclosures for
events subsequent to the initial filing date of September 7, 2001.

Item 6.   Management's Discussion and Analysis or Plan of Operation.

     The following discussion should be read in conjunction with our restated
audited consolidated financial statements for the fiscal year ended December 31,
2000 and the notes thereto.

                       Consolidated Results of Operations

     REVENUES

     The following table and discussion highlights our revenues for the fiscal
years ended December 31, 2000 and December 31, 1999:

<TABLE>
<CAPTION>
                                                    Fiscal Year Ended           Fiscal Year Ended
                                                    December 31, 2000           December 31, 1999

<S>                                              <C>              <C>        <C>              <C>
Revenues from the sale of licenses to the User     $252,878       14.31%       $200,487       15.47%
Management Software

Revenues from X-Real's adult entertainment       $1,513,517       85.69%     $1,095,667       84.53%
websites

Total revenues                                   $1,766,395         100%     $1,296,154         100%
</TABLE>

     For the fiscal year ended December 31, 2000, our total revenues increased
from $1,296,154 to $1,766,395, or approximately 36.28%, over the fiscal year
ended December 31, 1999. For the fiscal year ended December 31, 2000, our net
loss increased from $(33,217) to $(427,656), or approximately 1,186%, over the
fiscal year ended December 31, 1999.

User Management Software Revenues

     Since September 1999, we have generated revenues from the sale of licenses
to our software. For the fiscal year ended December 31, 2000, revenues from the
sale of licenses to our software increased from $200,487 to $252,878 over the
fiscal year ended December 31, 1999.

     During the fiscal year ended December 31, 2000, we attended the following
tradeshows at which we presented our software: International Casino Exhibition
ICE 2000 (January 2000) in London, United Kingdom; Online Gaming Symposium (May
2000) in Montreal, Canada; and Interactive (IA) 2000

                                        2
<PAGE>

(September 2000) in New Orleans, Louisiana. Subsequently, we attended the
International Casino Exhibition ICE 2001 (January 2001) in London, United
Kingdom. Contacts made by our management during these tradeshows led to
discussions and negotiations with potential new customers. No assurance can be
made that any of these discussions and negotiations will ultimately result in
the sale of new licenses to our software.

     Not all of the fees relating to the sale of licenses to our software have
been paid in full. Instalment payments relating to the sale of licenses to
Advanced Media Group, domincana S.A., Setec Astronomy Ltd., World Network Ltd.,
Global Net Gamble Limited, KGMB and Euflex AG, aggregating approximately
$886,000, 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 $199,000, were overdue as of September 4, 2001.

Adult Entertainment Revenues

     Revenues generated by X-Real from fees charged to viewers of its adult
entertainment websites increased by approximately 38.14%, from $1,095,667 in the
fiscal year ended December 31, 1999 to $1,513,517 in the fiscal year ended
December 31, 2000. The revenue increase was primarily attributable to increased
subscriptions for X-Real's websites.

     We have previously reported that X-Real, in March 2000, 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 $226,706 on the basis of the
Federal Reserve Bank of New York September 4, 2001 noon buying rate of Euro 1 =
$0.8868 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 does currently 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 would have 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 the 2001 fiscal if we were to issue shares of X-Real to
Infobridge, because our ownership interest and our share of X-Real's revenues
would decrease.

                                        3
<PAGE>

                                Cost and Expenses

     The following table and discussion highlights our costs and expenses for
our fiscal years ended December 31, 2000 and December 31, 1999:

<TABLE>
<CAPTION>
                                           Fiscal Year Ended              Fiscal Year Ended
                                           December 31, 2000              December 31, 1999
                                           -----------------              -----------------

<S>                                     <C>             <C>            <C>             <C>
Total revenues                          $1,766,395         100%        $1,296,154         100%

Cost of sales                             $634,470       35.92%          $554,249       42.76%
Operating expenses:                     $1,685,775       95.44%          $743,623       57.37%
     Selling, general and
     administrative                     $1,369,864       77.55%          $743,533       57.36%
     Depreciation and
     amortization                             $272        0.02%               $90        0.01%
     Bad debt expense                     $315,639       16.87%               ---          ---

Total costs and expenses                $2,320,245      131.36%        $1,297,872      100.13%
</TABLE>


     COST OF SALES

     Cost of sales for our fiscal year ended December 31, 2000 includes
primarily costs associated with the management, operation and maintenance of
X-Real's adult entertainment websites, computer and network equipment costs in
connection with X-Real's servers and royalties paid to Q-Seven Systems GmbH for
our right to license the User Management software. Cost of sales for the fiscal
year ended December 31, 1999 includes the same items.

     For the fiscal year ended December 31, 2000, cost of sales increased from
$554,249 to $634,470 over the fiscal year ended December 31, 1999, and decreased
as a percentage of total revenues from approximately 42.76% to approximately
35.92%. The increase in cost of sales is primarily attributable to increased
costs associated with the operation of X-Real's websites and since September
1999 the payment of a royalty fee to Q-Seven Systems GmbH for our right to
license the User Management Software to our customers. For the fiscal year ended
December 31, 2000, approximately $406,880, or 64.13%, of our total cost of sales
were attributable to the operation of X-Real's websites, whereas approximately
$227,590, or approximately 35.87%, related to the sale of licenses of our
software. For the fiscal year ended December 31, 1999, approximately $373,254,
or 67.34%, of our total cost of sales were attributable to the operation of
X-Real's websites, whereas approximately $180,995 or 32.66% related to the sale
of licenses to our software. During the fiscal year ended December 31, 2000, we
paid to Cyberotic Media AG approximately DM 494,000 (which equals approximately
$237,000 on the basis of the Federal Reserve Bank of New York December 29, 2000
noon buying rate of Euro 1 = $0.9388 and the fixed exchange rate of Euro 1 = DM
1.95583) and to Alice Jay Productions Inc. approximately DM 263,000 (which
equals approximately $126,240 on the basis of the Federal Reserve Bank of New
York December 29, 2000 noon buying rate of Euro 1 = $0,9388 and the fixed
exchange rate of Euro 1 = DM

                                        4
<PAGE>

1.95583 and includes a fee in the amount of $82,000 for the termination of
X-Real's agreement with Alice Jay Productions Inc. at the end of March 2000) for
managing, operating and maintaining X-Real's websites. 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 EuroDebit Systems GmbH
approximately $291,000 in fees and $116,000 in connection with charge-backs;
these amounts were withheld by EuroDebit Systems GmbH from the funds transferred
by EuroDebit Systems GmbH to Cyberotic Media AG for release to X-Real. See also
Item 12, "Certain Relationships and Related Transactions," and "--Liquidity and
Capital Resources." During the same period, we paid approximately $227,590 to
Q-Seven Systems GmbH in royalty fees for our right to license the User
Management Software to our customers.

     SELLING, GENERAL AND ADMINISTRATIVE

     Selling, general and administrative expenses for the fiscal year ended
December 31, 2000 consisted primarily of recurring legal and accounting expenses
in connection with the compliance with periodic reporting requirements under the
securities laws, advertising costs for X-Real's websites and certain non-
recurring expenses discussed below. Selling, general and administrative expenses
for the fiscal year ended December 31, 1999 consisted primarily of non-recurring
legal and accounting expenses in connection with the Q-Seven Nevada Acquisition,
advertising costs for X-Real's websites and recurring legal and accounting
expenses in connection with the compliance with periodic reporting requirements
under the securities laws.

     Selling, general and administrative expenses increased substantially by
approximately 84.24% from $743,533 in the fiscal year ended December 31, 1999 to
$1,369,864 in the fiscal year ended December 31, 2000. Our selling, general and
administrative expenses as a percentage of total revenues in the fiscal year
ended December 31, 2000 were approximately 77.55% as compared to approximately
57.36% in the fiscal year ended December 31, 1999. Approximately $410,056, or
29.93%, of our selling, general and administrative expenses during the fiscal
year ended December 31, 2000 were attributable to the sale of licenses to our
software, whereas approximately $959,808, or 70.07%, of such expenses were
attributable to the operation of X-Real's websites. Approximately $506,976, or
68.18%, of the selling, general and administrative expenses during the 1999
fiscal year were attributable to the operation of X- Real's websites, whereas
approximately $236,557, or 31.82%, of such expenses were attributable to the
sale of licenses to our software.

     The substantial increase in our selling, general and administrative
expenses in the fiscal year ended December 31, 2000 was primarily attributable
to the following factors and events:

     o    increased legal and accounting expenses in connection with the
          compliance with periodic reporting requirements under the U.S.
          securities laws (since there is a lag in billing us for legal
          services, the bills we have actually received may not reflect all
          costs of this type which we may incur);

     o    increased advertising expenses relating to X-Real's websites; and

     o    the payment of certain non-recurring expenses incurred by us during
          the three months ended June 30, 2000 in connection with (i) the
          redesign and relaunch of three of X- Real's websites, (ii) the
          termination of an agreement between X-Real and Alice

                                       5
<PAGE>

          Jay Productions Inc. and (iii) the payment of commissions to certain
          freelance workers employed by X-Real.

     DEPRECIATION AND AMORTIZATION

     Depreciation and amortization expenses increased from $90 for the fiscal
year ended December 31, 1999 to $272 for the fiscal year ended December 31,
2000.

     BAD DEBT EXPENSE

     For the fiscal year ended December 31, 2000, we recorded a bad debt expense
in the amount of $315,639. The bad debt expense resulted from the write off of
receivables due to X-Real from Cyberotic Media AG as December 31, 2000 in the
amount of $427,707 and payables due from X-Real to Cyberotic Media AG at
December 31, 2000 in the amount of $112,068. The net amount of $315,639 was
expensed as bad debt. Insolvency proceedings were initiated in Germany against
Cyberotic Media AG in January 2001. Mr. Kamp, an officer, director and principal
shareholder of our company, is an officer and a principal shareholder of
Cyberotic Media AG. Mr. Cordt, an officer (and until March 2001, a director) of
our company, is an officer and a principal shareholder of Cyberotic Media AG.
See also "--Liquidity and Capital Resources," and Item 9, "Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act--Involvement in Certain Legal Proceedings." No bad debt expense was
recorded in the fiscal year ended December 31, 1999.

                         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 $(198,593) and
$44,133 in the fiscal years ended December 31, 2000 and December 31, 1999,
respectively. Net cash provided by financing activities was $250,000 and $13,397
for the fiscal years ended December 31, 2000 and December 31, 1999,
respectively, and increased primarily due to the receipt of the first tranche of
the Infobridge Investment in March 2000. We expect to continue financing our
ongoing operations primarily through cash generated from operating activities.
Our management anticipates 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.

     Our cash flow in the fiscal year ended December 31, 2000 was affected by
delays in the receipt of payments from Cyberotic Media AG. Cyberotic Media AG
was until December 2000 the reseller of services provided by EuroDebit Systems
GmbH, the company which until December 2000 processed and collected credit card
and electronic on-line debit-entry payments from X-Real's customers. EuroDebit
Systems GmbH's services were provided to X-Real pursuant to an oral agreement
and a written agreement dated March 6, 2000 between X-Real and Cyberotic Media
AG. From January through December, 2000, funds collected by EuroDebit Systems
GmbH from X-Real's customers were not transferred to X-Real by Cyberotic Media
AG within the time frame provided for in the oral agreement between X-Real and
Cyberotic Media AG. The delay in transferring such funds was caused by liquidity
problems at Cyberotic Media AG and its subsequent insolvency. Prior to Cyberotic
Media AG's insolvency, X-Real permitted Cyberotic Media AG to defer the payments
due to X-Real. At December

                                        6
<PAGE>

31, 2000, X-Real had past due receivables due from Cyberotic Media AG in an
amount of approximately DM 888,000 (which equals approximately $426,240 on the
basis of the Federal Reserve Bank of New York December 29, 2000 noon buying rate
of Euro 1 = $0.9388 and the fixed exchange rate of Euro 1 = DM 1.95583). Our
management does not expect that any of the amounts due to X-Real from Cyberotic
Media AG will be recoverable. Therefore, all receivables due to X-Real from
Cyberotic Media AG as of December 31, 2000 have been written off. See "--Costs
and Expenses--Bad Debt Expense." EuroDebit Systems GmbH ceased processing and
collecting credit card and electronic on-line debit-entry payments for X-Real on
December 15, 2000, at which time all of its assets were acquired by
Pay@EuroDebit GmbH (formerly known as E- Click Net Commerce GmbH). Since that
time, all such payments have been processed and collected for X- Real by
Pay@EuroDebit GmbH. EuroDebit Systems GmbH is currently also in insolvency
proceedings in Germany. EuroDebit Systems GmbH is a 90% owned subsidiary of
EuroDebit Systems, Inc., a company of which Messrs. Kriependorf, Kamp and Cordt
are the principal shareholders. Mr. Kamp was the Chief Financial Officer of
EuroDebit Systems, Inc. until November 2000 and is the managing director of
EuroDebit Systems GmbH. Cyberotic Media AG is a company owned by Messrs. Kamp
and Cordt. Mr. Kriependorf is the chairman of Cyberotic Media AG's supervisory
board. See Item 1, "Description of Business--Business Development," for a
description of the relationship of Messrs. Kriependorf, Kamp and Cordt to our
company, and Item 12, "Certain Relationships and Related Transactions."

     The initial delays in the receipt of payments from Pay@EuroDebit GmbH,
which we previously reported, seem to have been resolved. During the last few
months, Pay@EuroDebit GmbH has regularly transferred to X-Real the amounts due
to X-Real from the collection of credit card and electronic on-line debit-entry
payments from X-Real's customers. Currently, receivables due from Pay@EuroDebit
GmbH to X-Real equal approximately DM 6,000 (which equals approximately $2,720
on the basis of the Federal Reserve Bank of New York September 4, 2001 noon
buying rate of Euro 1 = $0.8868 and the fixed exchange rate of Euro 1 = DM
1.95583). 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 near 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 to be made 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 $25,757 from $445,646 at December 31, 1999
to $419,889 at December 31, 2000, while our current liabilities increased by
$519,735, or approximately 128.87%, from $403,318 to $923,053, over the same
period. 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 our operations. At December 31, 1999, our
current assets and liabilities were $445,646 and $403,318, respectively, as
compared to current assets and liabilities at December 31, 2000 of $419,889 and

                                        7
<PAGE>

$923,053, respectively. Based on the foregoing, our working capital at December
31, 1999 was $42,328. At December 31, 2000, we had a negative working capital of
$(503,164). Our fixed assets at December 31, 2000 and December 31, 1999
consisted of office equipment valued at $350 and $622, respectively.

     Due to the decrease in the amount of cash available to us and in our
working capital, our company has faced, and is still experiencing liquidity
problems and, consequently, has not been able to make timely payments to all of
our creditors. As of December 31, 2000 and September 4, 2001, we had past due
payables in the amount of approximately $136,000 and approximately $120,000,
respectively. Among the creditors which we at certain times have not been able
to pay on a timely basis are our auditors, the accounting firm which previously
assisted us in preparing our financial statements, and our legal advisers. Our
failure to timely pay our auditors and the accounting firm resulted in delays in
the preparation and completion of our interim financial statements for the
periods ended June 30, 2000 and September 30, 2000, our financial statements for
the fiscal year ended December 31, 2000 and our interim financial statements for
the period ended March 31, 2001. Due to these delays, we were unable to file on
a timely basis complete reports with the United States Securities and Exchange
Commission (the "Commission") for the quarterly periods ended June 30, 2000 and
September 30, 2000 as well as for the fiscal year ended December 31, 2000 and
the quarterly periods ended March 31, 2001 and June 30, 2001. Although the
reports for the quarterly periods ended June 20, 2000 and September 30, 2000
have since then been filed, our reports on Form 10-QSB for the periods ended
March 31, 2001 and June 30, 2001 are currently overdue. There is a risk that the
Commission might commence enforcement proceedings against us because of these
incidents, in particular if we should continue to fail complying with our
periodic filing obligations in a timely manner.

     Our management believes that our liquidity problems in the fiscal year
ended December 31, 2000 were primarily caused by the following factors, which
have been discussed above in more detail:

     o    slow sales of our software;

     o    substantially increased operating expenses; and

     o    delays in the receipt of payments from the companies which 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 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 a 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.

     o    We plan on escalating our efforts (e.g., by attending additional
          tradeshows) to sell additional licenses to our software to increase
          the amount of our revenues.

                                        8
<PAGE>

     o    We plan to take steps to ensure and, if necessary, enforce the timely
          payment of balances due from the company which processes and collects
          credit card and electronic on-line debit-entry payments from X-Real's
          customers.

     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 April 11, 2001. See
          Item 11, "Security Ownership of Certain Beneficial Owners--Change in
          Control Arrangements."

     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.

                           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 customers; 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; 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; 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.

Item 7.           Financial Statements.

                                        9
<PAGE>

     The restated audited consolidated financial statements of our company,
including notes thereto, and the report of independent auditors are included in
this annual report beginning at page F-1 after the signature page and are
incorporated herein by reference.

                                       10
<PAGE>

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


                                           Q-SEVEN SYSTEMS, INC.


          Date: October 12, 2001     By:   /s/ Philipp S. Kriependorf
                                           -----------------------------
                                           Name:  Philipp S. Kriependorf
                                           Title: President, Chief Executive
                                                  Officer, Chief Financial
                                                  Officer and Chief Accounting
                                                  Officer


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


          Date: October 12, 2001           /s/ Philipp S. Kriependorf
                                           -----------------------------
                                           Philipp S. Kriependorf
                                           Director


          Date: October 12, 2001           /s/ Philip Kamp
                                           -----------------------------
                                           Philip Kamp
                                           Director


          Date: October 12, 2001           /s/ Hans L. Kuhnen
                                           -----------------------------
                                           Hans L. Kuhnen
                                           Director

                                       11
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES

                   RESTATED CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2000



                                       F-1
<PAGE>

                                 C O N T E N T S


Independent Auditors' Report................................................ F-3

Consolidated Balance Sheet.................................................. F-4

Consolidated Statements of Operations....................................... F-5

Consolidated Statements of Stockholders' Equity (Deficit)................... F-6

Consolidated Statements of Cash Flows....................................... F-7

Notes to the Consolidated Financial Statements.............................. F-8

                                       F-2
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Q-Seven Systems, Inc. and Subsidiaries
Monheim, Germany

We have audited the accompanying consolidated balance sheet of Q-Seven Systems,
Inc. and Subsidiaries at December 31, 2000 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 2000 and 1999. 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
audits.

We conducted our audits 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 consolidated
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
audits provide 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-Seven
Systems, Inc. and Subsidiaries as of December 31, 2000 and the consolidated
results of their operations and their cash flows for the years ended December
31, 2000 and 1999 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 8 to the
financial statements, the Company's recurring losses from operations and working
capital deficit raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
8. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

As discussed in Note 12 to the consolidated financial statements, a certain
error was discovered regarding accounts payable and general and administrative
expenses which resulted in the understatement of the net loss and retained
deficit for the year ended December 31, 2000.


/s/ HJ & Associates, LLC
------------------------
HJ & Associates, LLC
Salt Lake City, Utah
August 3, 2001, except for Note 12 which is dated October 4, 2001

                                       F-3
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheet


                                     ASSETS
                                                                December 31,
                                                                    2000
                                                                ------------
                                                                 (Restated)

CURRENT ASSETS

   Cash                                                         $    108,941
   Accounts receivable (Notes 1 and 3)                               293,197
   Due from related party (Note 9)                                    11,868
   Interest receivable - related party (Note 9)                        5,533
                                                                ------------
     Total Current Assets                                            419,539
                                                                ------------
PROPERTY AND EQUIPMENT - NET (Notes 1 and 2)                             350
                                                                ------------
     TOTAL ASSETS                                               $    419,889
                                                                ============


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES

   Accounts payable                                             $    360,539
   Accounts payable - related party (Note 7)                          60,191
   Accrued expenses (Note 5)                                         216,649
   Income taxes payable (Note 1)                                      35,674
   Investor deposit (Note 6)                                         250,000
                                                                ------------
     Total Current Liabilities                                       923,053
                                                                ------------
COMMITMENTS AND CONTINGENCIES (Note 4)

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
   Additional paid-in capital (deficit)                               (8,343)
   Retained deficit                                                 (507,321)
                                                                ------------
     Total Stockholders' Equity (Deficit)                           (503,164)
                                                                ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)       $    419,889
                                                                ============


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

                                       F-4
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations


                                                      For the Years Ended
                                                           December 31,
                                                 ------------------------------
                                                      2000            1999
                                                 --------------  --------------
                                                   (Restated)

SALES                                            $    1,766,395  $    1,296,154

COST OF SALES                                           634,470         554,249
                                                 --------------  --------------
GROSS MARGIN                                          1,131,925         741,905
                                                 --------------  --------------
OPERATING EXPENSES

   Depreciation                                             272              90
   Selling, general and administrative                1,369,864         743,533
   Bad debt expense                                     315,639               -
                                                 --------------  --------------
     Total Operating Expenses                         1,685,775         743,623
                                                 --------------  --------------
OPERATING (LOSS)                                       (553,850)         (1,718)
                                                 --------------  --------------
OTHER INCOME

   Interest income                                        7,736           4,175
                                                 --------------  --------------
     Total Other Income                                   7,736           4,175
                                                 --------------  --------------
NET INCOME (LOSS) BEFORE INCOME TAXES                  (546,114)          2,457

INCOME TAXES (Note 1)                                         -          35,674
                                                 --------------  --------------
NET INCOME (LOSS)                                $     (546,114) $      (33,217)
                                                 ==============  ==============
BASIC INCOME (LOSS) PER SHARE (Note 1)           $        (0.04) $        (0.00)
                                                 ==============  ==============
WEIGHTED AVERAGE NUMBER OF SHARES
 OUTSTANDING                                         12,500,000      10,685,206
                                                 ==============  ==============

              The accompanying notes are an integral part of these
                        consolidatedfinancial statements.

                                       F-5
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
            Consolidated Statements of Stockholders' Equity (Deficit)

                                                        Additional
                                    Common Stock          Paid-In     Retained
                              ------------------------    Capital     Earnings
                                Shares        Amount     (Deficit)    (Deficit)
                              -----------  -----------  -----------  ----------

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 -
 restated                               -            -            -    (546,114)
                              -----------  -----------  -----------  ----------

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

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

                                       F-6
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                               For the Years Ended
                                                                    December 31,
                                                          ------------------------------
                                                               2000            1999
                                                          --------------  --------------
                                                            (Restated)
<S>                                                       <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES

   Net (loss)                                             $     (546,114) $     (33,217)
   Adjustments to reconcile net loss to net cash (used)
    provided by operating activities:
     Depreciation                                                    272             90
     Bad debt expense                                            315,639              -
   Changes in operating assets and liabilities:
     Increase in interest receivable                              (5,533)             -
     (Increase) in due from related parties                      (11,868)             -
     (Increase) in accounts receivable                          (220,724)      (285,826)
     Increase in accounts payable                                159,968        200,571
     Increase in accounts payable - related party                 60,191              -
     Increase in accrued expenses                                 49,576        126,841
     Increase in income taxes payable                                  -         35,674
                                                          --------------  -------------
       Net Cash (Used) Provided in Operating Activities         (198,593)        44,133
                                                          --------------  -------------
CASH FLOWS FROM INVESTING ACTIVITIES                                   -              -
                                                          --------------  -------------
CASH FLOWS FROM FINANCING ACTIVITIES

   Investor deposit                                              250,000              -
   Capital contribution                                                -         13,397
                                                          --------------  -------------
       Net Cash Provided by Financing Activities                 250,000         13,397
                                                          --------------  -------------
NET INCREASE  IN CASH                                             51,407         57,530

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                      57,534              4
                                                          --------------  -------------
CASH AND CASH EQUIVALENTS, END OF YEAR                    $      108,941  $      57,534
                                                          ==============  =============
SUPPLEMENTAL CASH FLOW INFORMATION

Cash Payments For:

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


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

                                       F-7
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2000 and 1999


NOTE 1 -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          a. Organization

          Q-Seven Systems, Inc., formerly known as Downstream Incorporated - DSI
          ("the Company"), was incorporated under the laws of the State of Utah
          on November 26, 1996 to engage in the business of financial
          consulting.

          Q-Seven Systems, Inc. ("Q-Seven Nevada") was incorporated under the
          laws of the State of Nevada on May 18, 1999 for the purpose of
          acquiring marketing rights to certain Internet user management
          software programs, and to acquire X-Real Intertainment, Inc. Ltd., a
          corporation organized under the laws of the Bahamas on April 23, 1999
          ("X-Real").

          X-Real acquired on May 18, 1999 from X-Real GbR, a German partnership,
          all of X-Real GbR's assets which consist of six Internet pay sites.

          On May 24, 1999, the Company, Q-Seven Nevada and the shareholders of
          Q-Seven Nevada entered into an Agreement and Plan of Share Exchange
          whereby the Company acquired 100% of the issued and outstanding shares
          of Q-Seven Nevada for 7,900,000 shares of its common stock (the
          "Q-Seven Nevada Acquisition"). The Q-Seven Nevada Acquisition has been
          accounted for as a reverse merger.

          On May 26, 1999, Q-Seven Nevada acquired all issued and outstanding
          shares of common stock of X-Real (the "X-Real Acquisition"). The
          X-Real Acquisition was accounted for as a recapitalization because the
          partners of X-Real GbR became the shareholders of Q-Seven Nevada.
          Prior to the X-Real Acquisition, Q-Seven Nevada had no operations,
          assets or liabilities.

          b. Principles of Consolidation

          The accompanying consolidated financial statements include the
          accounts of the Company and its wholly-owned subsidiaries, Q-Seven
          Nevada and X-Real. Intercompany accounts and transactions have been
          eliminated in consolidation.

          c. Accounting Method

          The Company's financial statements are prepared using the accrual
          method of accounting. The Company has elected a December 31, year end.

          d. Cash and Cash Equivalents

          The Company considers all highly liquid investments with a maturity of
          three months or less when purchased to be cash equivalents.

                                       F-8
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2000 and 1999


NOTE 1 -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)

          e. Accounts Receivable

          Accounts receivable are shown net of the allowance for doubtful
          accounts of $-0- at December 31, 2000.

          f. Basic (Loss) Per Share

          The computations of basic loss per share of common stock are based on
          the weighted average number of common shares outstanding during the
          period of the consolidated financial statements as follows:

                                                   For the Years Ended
                                                       December 31,
                                             -------------------------------
                                                 2000              1999
                                             -------------     -------------
                                               (Restated)
          Basic (loss) per share:

            (Loss) (numerator)               $    (546,114)    $     (33,217)
            Shares (denominator)                12,500,000        10,685,206
            Per share amount                         (0.04)    $       (0.00)

          There were no common stock equivalents outstanding for the years ended
          December 31, 2000 and 1999. Accordingly, only the basic (loss) per
          share has been calculated.

          g. Change in Accounting Principle

          The Company has adopted the provisions of FASB Statement No. 138
          "Accounting for Certain Derivative Instruments and Hedging Activities
          (an amendment of FASB Statement No. 133)". Because the Company had
          adopted the provisions of FASB Statement No. 133, prior to June 15,
          2000, this statement is effective for all fiscal quarters beginning
          after June 15, 2000. The adoption of this principle had no material
          effect on the Company's consolidated financial statements.

                                       F-9
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2000 and 1999


NOTE 1 -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)

          g. Change in Accounting Principle (Continued)

          The Company has adopted the provisions of FASB Statement No. 140
          "Accounting for Transfers and Servicing of Financial Assets and
          Extinguishments of Liabilities (a replacement of FASB Statement No.
          125)". This statement provides accounting and reporting standards for
          transfers and servicing of financial assets and extinguishments of
          liabilities. Those standards are based on consistent application of a
          financial-components approach that focuses on control. Under that
          approach, the transfer of financial assets, the Company recognized the
          financial and servicing assets it controls and the liabilities it has
          incurred, derecognizes financial assets when control has been
          surrendered, and derecognizes liabilities when extinguished. This
          statement provides consistent standards for distinguishing transfers
          of financial assets that are sales from transfers that are secured
          borrowings. This statement is effective for transfers and servicing of
          financial assets and extinguishments of liabilities occurring after
          March 31, 2001. This statement is effective for recognition and
          reclassification of collateral and for disclosures relating to
          securitization transactions and collateral for fiscal years ending
          after December 15, 2000. The adoption of this principle had no
          material effect on the Company's consolidated financial statements.

          The Company has adopted the provisions of FIN 44 "Accounting for
          Certain Transactions Involving Stock Compensation (an interpretation
          of APB Opinion No. 25)". This interpretation is effective July 1,
          2000. FIN 44 clarifies the application of Opinion No. 25 for only
          certain issues. It does not address any issues related to the
          application of the fair value method in Statement No. 123. Among other
          issues, FIN 44 clarifies the definition of employee for purposes of
          applying Opinion 25, the criteria for determining whether a plan
          qualifies as a noncompensatory plan, the accounting consequence of
          various modifications to the terms of a previously fixed stock option
          or award, and accounting for an exchange of stock compensation awards
          in a business combination. The adoption of this principle had no
          material effect on the Company's consolidated financial statements.

          h. Property and Equipment

          Property and equipment is recorded at cost. Major additions and
          improvements are capitalized. The cost and related accumulated
          depreciation of equipment retired or sold are removed form the
          accounts and any differences between the undepreciated amount and the
          proceeds from the sale are recorded as gain or loss on sale of
          equipment. Depreciation is computed using the straight- line method
          over a period of five years.

                                      F-10
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2000 and 1999


NOTE 1 -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)

          i. Provision for Taxes

          A provision for income taxes charged to operations from inception on
          November 4, 1997 through December 31, 1999 has been established for
          the amount of $35,674. This amount is based on income tax rates in
          Germany and has been converted to U.S. dollars. At this time, no
          current operating losses have been taken back to claim any reduction
          in this or prior year amounts. X- Real was organized under the laws of
          Bahamas, however, even though X-Real has its statutory seat outside
          Germany, it is still subject to unlimited tax liability in Germany
          since the Company had its effective place of management in Germany.

          j. Estimates

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

          k. Advertising

          The Company follows the policy of charging the costs of advertising to
          expense as incurred. For the years ended December 31, 2000 and 1999,
          the Company incurred advertising expenses of $336,480 and $67,527,
          respectively.

          l. Revenue Recognition Policy

          Revenue is recognized as the service is provided to and accepted by
          the customer.

          m. Concentrations of Risk

          Since the financial statements of X-Real must be translated in U.S.
          dollars, major changes in the currency exchange rate between the
          foreign denominations and U.S. dollars may have a significant impact
          on operations of the Company. Although the Company does not anticipate
          the currency exchange rate to be significantly different over the next
          12 months, no such assurances can be given.

                                      F-11
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2000 and 1999


NOTE 1 -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)

          n.  Income Taxes

          The income tax benefit differs from the amount computed at the federal
          statutory rates as follows:

                                                               For the
                                                             Period Ended
                                                             December 31,
                                                                 2000
                                                            -------------

          Income tax benefit at statutory rate              $     139,855
          Change in valuation allowance                          (139,855)
                                                            -------------
                                                            $           -
                                                            =============

          Deferred tax assets at December 31, 2000 are comprised of the
          following:

          Net operating loss carryforward                   $     232,044
          Depreciation                                                  -
          Valuation allowance                                    (232,044)
                                                            -------------
                                                            $           -
                                                            =============

          At December 31, 2000, the Company had net operating loss carryforwards
          of approximately $232,044 that may be offset against future taxable
          income through 2020. If substantial changes in the Company's ownership
          should occur, there would also be an annual limitation of the amount
          of the NOL carryforwards which could be utilized. No tax benefit had
          been reported in the financial statements, because the Company
          believes there is a 50% or greater chance the carryforwards will
          expire unused. The tax benefits of the loss carryforwards are offset
          by a valuation allowance of the same amount.

NOTE 2 -  PROPERTY AND EQUIPMENT

          Property and equipment consists of the following at December 31, 2000:

          Office equipment                                  $       1,359
          Accumulated depreciation                                 (1,009)
                                                            -------------
          Net property and equipment                        $         350
                                                            =============

          Depreciation expense for the years ended December 31, 2000 and 1999
          was $272 and $90, respectively.

                                      F-12
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2000 and 1999


NOTE 3 -  ACCOUNTS RECEIVABLE

          X-Real conducts all of its business on the Internet, and all revenues
          are collected electronically. All revenue collections and refunds are
          managed by a corporation with which X-Real has a service agreement
          (Note 4). Collected funds are held by the service company for
          approximately 60 days before they are released to X-Real. The cost of
          sales under the service agreement related to the receivables are
          deducted from the amount released. These costs are classified as
          accounts payable and accrued expenses as of the balance sheet date.

          The servicing companies are Cyberotic Media A.G. and EuroDebit Systems
          GmbH. Cyberotic Media A.G. is controlled and operated by two principal
          shareholders of the Company who also served as officers and directors
          during 2000. EuroDebit Systems GmbH is a 90% owned subsidiary of Euro
          Debit Systems, Inc., a Nevada corporation. Shareholders of the Company
          own approximately 42% of the outstanding common stock of EuroDebit
          Systems, Inc.

          In January 2001, insolvency proceedings were initiated against
          Cyberotic Media A.G., one of the corporations that X-Real entered into
          a service agreement. At December 31, 2000, X-Real had a receivable of
          $427,707 from the collection of X-Real's revenue. X-Real also had a
          payable to this company in the amount of $112,068 for web page design.
          Both items have been written off with the net amount, $315,639, being
          expensed as bad debt. These items have been directly written off
          without an allowance created due to the uncollectability.

NOTE 4 -  COMMITMENTS AND CONTINGENCIES

          Service Agreement

          X-Real owns several Internet pay sites, which are managed by a
          corporation (the "Provider"). The Provider assumes responsibility for
          the costs of operating the sites. In exchange, the Provider receives a
          percentage of the gross revenues of the sites as a service fee. This
          agreement was terminated in February of 2000. At the same time X-Real
          entered into a new agreement with a new provider in which the provider
          is compensated for the same services but on a hourly basis.

          Licensing Agreement

          Q-Seven Nevada has an exclusive licensing agreement with Q-Seven
          Systems GmbH, a German corporation that develops software. Under the
          agreement, the Company has the unlimited right to sell licenses of the
          software worldwide for perpetuity. The Company incurs a royalty fee of
          90% of the licensing income.

          Royalty expense was $227,590 and $180,995 for the years ended December
          31, 2000 and 1999, respectively.

                                      F-13
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2000 and 1999


NOTE 5 -  ACCRUED EXPENSES

          At December 31, 2000, accrued expenses consisted of the following:

                                                             December 31,
                                                                 2000
                                                            -------------
          Advertising                                       $     216,648
                                                            -------------
                   Total Accrued Expenses                   $     216,648
                                                            =============

          This amount is due to other internet pay sites which the Company has
          advertisements and links to their own internet pay sites.

NOTE 6 -  INVESTOR DEPOSIT

          During the year ended December 31, 2000, X-Real verbally agreed to
          issue new shares to a Bahamian company for cash consideration of 1
          million German marks (approximately $500,000 U.S. dollars based on the
          exchange rate at the end of March). The number of shares to be issued
          will be approximately equal to the number of X-Real's shares currently
          outstanding. The shares are to be issued when the entire consideration
          is received. As of December 31, 2000, only $250,000 had been received
          by X-Real. Negotiations are still ongoing to complete the sale.

NOTE 7 -  ACCOUNTS PAYABLE - RELATED PARTY

          The Company owes Q-Seven Systems GmbH, a German corporation which
          shares common ownership with the Company but neither entity owns any
          stock in each other, $61,069 as part of the Licensing Agreement
          discussed in Note 4.

NOTE 8 -  GOING CONCERN

          The Company's consolidated financial statements are prepared using
          generally accepted accounting principles applicable to a going
          concern. However, the Company has experienced operating losses and has
          a working capital deficit. The Company has not established revenues
          sufficient to cover its operating costs and allow it to continue as a
          going concern. It is the intent of the Company to acquire a new
          subsidiary, as discussed in Note 10.

NOTE 9 -  RELATED PARTY RECEIVABLES

          During the year ended December 31, 2000, the Company advanced $11,868
          to two shareholders in the Company. The Company has accrued $5,533 of
          interest on the receivable.

                                      F-14
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2000 and 1999

NOTE 10 - SUBSEQUENT EVENT

          The Company has entered into negotiations to acquire Partner Air Plc.,
          an Irish corporation. The Company has entered into a Letter of Intent
          with a principal shareholder of Partner Air Plc., in which the parties
          have expressed their intent that the Company acquire a majority of the
          shares of Partner Air Plc. in exchange for newly issued shares of the
          Company.

NOTE 11 - PRONOUNCEMENTS ISSUED NOT YET ADOPTED

          In July, 2001, the Financial Accounting Standards Board issued two
          statements - Statement 141, Business Combinations, and Statement 142,
          Goodwill and Other Intangible Assets, which will potentially impact
          the Company's accounting for its reported goodwill and other
          intangible assets.

          Statement 141:

          o    Eliminates the pooling method for accounting for business
               combinations.

          o    Requires that intangible assets that meet certain criteria be
               reported separately from goodwill.

          o    Requires negative goodwill arising from a business combination to
               be recorded as an extraordinary gain.

          Statement 142:

          o    Eliminates the amortization of goodwill and other intangibles
               that are determined to have an indefinite life.

          o    Requires, at a minimum, annual impairment tests for goodwill and
               other intangible assets that are determined to have an indefinite
               life.

          Upon adoption of these Statements, the Company is required to:

          o    Re-evaluate goodwill and other intangible assets that arose from
               business combinations entered into before July 1, 2001. If the
               recorded other intangible assets do not meet the criteria for
               recognition, they should be reclassified to goodwill. Similarly,
               if there are other intangible assets that meet the criteria for
               recognition but were not separately recorded from goodwill, they
               should be reclassified from goodwill.

          o    Reassess the useful lives of intangible assets and adjust the
               remaining amortization periods accordingly.

          o    Write-off any remaining negative goodwill.

          The company has not yet completed its full assessment of the effects
          of these new pronouncements on its financial statements and so is
          uncertain as to the impact. The standards generally are required to be
          implemented by the Company in its 2002 financial statements.

                                      F-15
<PAGE>

                     Q-SEVEN SYSTEMS, INC. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                           December 31, 2000 and 1999


NOTE 12 - CORRECTION OF ERROR

          Subsequent to the original issuance of the December 31, 2000
          consolidated financial statements, the Company determined that certain
          legal expenses were improperly not accrued in the amount of $118,458.
          Correction of this error had the following effect on the previously
          reported net loss for the year ended December 31, 2000 and has an
          equal understatement of the retained deficit as of December 31, 2000.

                                Originally         As
                                 Reported       Restated         Difference
                                -----------    -----------    ---------------

          Liabilities           $   242,081    $   360,539    $   118,458 (1)
          Net loss                  427,656        546,114        118,458 (1)
          Loss per share        $     (0.03)   $     (0.04)   $     (0.01)(2)

          (1) Relates to the additional accrual of legal expense.

          (2) Loss per share increased by $0.01 per share.

                                      F-16