THE FOLLOWING ITEMS WERE SUBJECT OF A
                                      FORM 12B-25 AND ARE INCLUDED HEREIN:
                                      (A) PART I, ITEM 1 (FINANCIAL STATEMENTS);
                                      AND (B) PART I, ITEM 2 (CERTAIN PARTS OF
                                      THE MANAGEMENT'S DISCUSSION AND ANALYSIS).



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               AMENDMENT NO. 1 TO
                                   FORM 10-QSB

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

                                       OR

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

                     FOR THE QUARTERLY PERIOD ENDED 6/30/99

                                    333-6440
                            (Commission file number)

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


                  UTAH                                  87-0567618
     (State or Other jurisdiction of           (IRS Employer Identification
      Incorporation or Organization)                       No.)

              FROHNKAMP 18                          011-49-2173-330360
          40789 MONHEIM, GERMANY                (Issuer's telephone number)
     (Address of Principal Executive
                Offices)

                          DOWNSTREAM INCORPORATED - DSI
                 6337 HIGHLAND DRIVE, SALT LAKE CITY, UTAH 84121
              (Former Name, Former Address and Former Fiscal Year,
                          if changed since last Report)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

                               Yes [X]     No [ ]

                                                      SHARES OUTSTANDING
              CLASS                                   AT AUGUST 1, 1999
              -----                                   ------------------

           COMMON STOCK                                    12,500,000
     $0.001 PAR VALUE PER SHARE


<PAGE>

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                                            Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                                      (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                                                   (A DEVELOPMENT STAGE COMPANY)

                                               Consolidated Financial Statements

                                                                   June 30, 1999

<PAGE>

                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                                TABLE OF CONTENTS

                                                                         Page(s)

Accountants' compilation report..............................................1

Consolidated balance sheet...................................................2

Consolidated statements of operations........................................3

Consolidated statements of stockholders' equity..............................4

Consolidated statements of cash flows........................................5

Notes to consolidated financial statements..................................6-10

<PAGE>
                               Salibello & Broder
                          Certified Public Accountants
                               510 Seventh Avenue
                               New York, NY 10019


                         ACCOUNTANTS' COMPILATION REPORT


Board of Directors
Q-Seven Systems, Inc. and Subsidiary
(A Development Stage Company)
Salt Lake City, Utah


     We have compiled the accompanying  balance sheet of Q-Seven  Systems,  Inc.
and Subsidiary (a development stage company) as of June 30, 1999 and the related
statements  of  operations,  stockholders'  equity  and cash flows for the three
months  and six  months  ended  June 30,  1999 and  1998 and from  inception  on
November  26,  1996  through  June 30, 1999 in  accordance  with  Statements  on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants.

     A compilation is limited to presenting in the form of financial  statements
information  that is the  representation  of management.  We have not audited or
reviewed the accompanying financial statements and, accordingly,  do not express
an opinion or any other form of assurance on them.

     We  are  not  independent  with  respect  to  Q-Seven  Systems,   Inc.  and
Subsidiary.


New York, New York
August 17, 1999

                                      -1-
<PAGE>

                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                   (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                          (A DEVELOPMENT STAGE COMPANY)

                           CONSOLIDATED BALANCE SHEET

                                  JUNE 30, 1999
                                   (UNAUDITED)


     ASSETS
     ------
Current assets:
  Cash                                                 $    31,800
  Accounts receivable                                      161,535
                                                       -----------
         Total current assets                              193,335

Fixed assets, net                                              712

         Total assets                                  $   194,047
                                                       ===========

     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------

Current liabilities:
  Accounts payable and accrued expenses                $    80,968
                                                       -----------
Commitments

Stockholders' equity:
  Preferred stock, 50,000,000 shares authorized
    of $0.001 par value, no shares issues 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                                 196,169

Deficit accumulated during the development stage           (95,590)
                                                       -----------
     Total stockholders' equity                            113,079
                                                       -----------
     Total liabilities and stockholders' equity        $   194,047
                                                       ===========


          See accountants' compilation report and accompanying notes.

                                       -2-
<PAGE>

<TABLE>
<CAPTION>
                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                   (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

                                       For the Three Months             For the Six Months         From Inception
                                          Ended June 30,                  Ended June 30,           on November 26,
                                   ---------------------------     ---------------------------      1996 Through
                                       1999            1998            1999            1998         June 30, 1999
                                   -----------     -----------     -----------     -----------     ---------------
<S>                                <C>             <C>             <C>             <C>               <C>
Net sales                          $   224,248     $   107,365     $   434,917     $   279,856       $   891,902

Cost of sales                           68,679          53,916         181,093         126,197           303,574
                                   -----------     -----------     -----------     -----------       -----------
Gross profit                           155,569          53,449         253,824         153,659           588,328
                                   -----------     -----------     -----------     -----------       -----------
Operating expenses

  General and administrative           103,732          59,408         221,422         106,777           613,225

  Depreciation and amortization             68              83             136             167               966
                                   -----------     -----------     -----------     -----------       -----------
     Total operating expenses          103,800          59,491         221,558         106,944           614,191
                                   -----------     -----------     -----------     -----------       -----------
Net income (loss) from operations       51,769          (6,042)         32,266          46,715           (25,863)

Other income                                 0             358              21             581             2,283
                                   -----------     -----------     -----------     -----------       -----------
Net income (loss)                  $    51,769     $    (5,684)    $    32,287     $    47,296       $   (23,580)
                                   ===========     ===========     ===========     ===========       ===========
Net earnings (loss) per share      $         0     $         0     $         0     $         0


Weighted average number of shares
  outstanding                       12,500,000      12,234,000      12,491,500      12,234,000
                                   ===========     ===========     ===========     ===========
</TABLE>

           See accountants' compilation report and accompanying notes.

                                       -3-
<PAGE>



                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                   (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                          (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                    Deficit
                                                                                                  Accumulated
                                                     Common Stock               Additional        During the
                                         ------------------------------------     Paid-In         Development
                                                Shares           Amount           Capital            Stage                 Total
                                         -------------------------------------------------------------------------------------------

<S>                                      <C>                 <C>               <C>                <C>                <C>
Balance, November 26, 1996                              0              $0                 $0                $0                  $0

Common stock issued for services
 rendered valued at $0.005 per share            1,500,000           1,500              6,000                 0               7,500

Common stock issued for cash
 valued at $0.005 per share                     1,800,000           1,800              7,200                 0               9,000

Net loss from inception on
 November 26, 1996
 through December 31, 1996                              0               0                  0           (10,991)            (10,991)
                                              ============    ============       ============       ============       ============
Balance, December 31, 1996                      3,300,000           3,300             13,200           (10,991)              5,509

Common stock issued for cash
 valued at $0.05 per share                      1,034,000           1,034             50,666                 0              51,700

Stock offering costs                                    0               0            (13,696)                0             (13,696)

Net loss for the year ended
 December 31, 1997                                      0               0                  0           (25,446)            (25,446)
                                              ============    ============       ============       ============       ============
Balance, December 31, 1997                      4,334,000           4,344             50,170           (36,437)             18,067

Common stock issued for services
 at $0.50 per share                               166,000             166             82,834                 0              83,000

Net loss for the year ended
 December 31, 1998                                      0               0                  0           (91,440)            (91,440)
                                              ============    ============       ============       ============       ============
Balance, December 31, 1998                      4,500,000           4,500            133,004          (127,877)             (9,627)

Common stock issued for cash
  valued at $0.05 per share                       100,000             100              4,900                 0               5,000

Common stock valued at $0.008
  per share issued in exchange
  for 100% of the issued and
  outstanding shares of Q-7                     7,900,000           7,900             58,265                 0              66,165
Net income for the six months
 ended June 30,  1999 (unaudited)                       0               0                  0            32,287              32,287
                                              ============    ============       ============       ============       ============
Balance, June 30, 1999 (unaudited)             12,500,000     $    12,500        $   196,169        $  (95,590)        $   113,079
                                              ============    ============       ============       ============       ============
</TABLE>


           See accountants' compilation report and accompanying notes.

                                       -4-

<PAGE>


<TABLE>
<CAPTION>

                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                   (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)


                                                        For the Three Months Ended        For the Six Months Ended   From Inception
                                                                 June 30,                         June 30,           on November 26,
                                                  -----------------------------------------------------------------   1996 Through
                                                          1999             1998           1999            1998       June 30, 1999
                                                  ----------------------------------------------------------------------------------
<S>                                               <C>                 <C>             <C>             <C>            <C>
Cash flows from operating activities:

 Net income (loss)                                        $51,769       $(5,684)        $32,287         $47,296           $(23,580)

 Adjustments to reconcile net income (loss)
  to net cash (used in) provided by
  operating activities:

   Depreciation and amortization expense                       68            83             136             167                956

   Decrease (increase) in accounts receivable             (28,885)       (5,134)        (59,249)        (70,126)          (161,535)

   Increase (decrease) in accounts payable                (22,182)       (9,180)         31,329          37,993             55,968

   Stock issued for services                                    0             0               0               0             90,500
                                                         ---------     ---------       ---------       ---------          ---------
      Net cash (used) provided by operating
         activities                                           770       (19,915)          4,503          15,330            (37,691)

      Cash flows from investing activities:

        Purchase of fixed assets                                0             0               0               0             (1,359)

        Organization costs paid                                 0             0               0               0               (309)
                                                         ---------     ---------       ---------       ---------          ---------
          Net cash provided by investing activities             0             0               0               0             (1,668)
                                                         ---------     ---------       ---------       ---------          ---------
      Cash flows from financing activities:

        Stock issuance cost                                     0             0               0               0            (13,696)

        Additional paid-in capital                              0             0          13,397               0             19,155

        Common stock issued for cash                            0             0           5,000               0             65,700
                                                         ---------     ---------       ---------       ---------          ---------
          Net cash provided by financing activities             0             0          18,397               0             71,159
                                                         ---------     ---------       ---------       ---------          ---------
      Net increase in cash and cash equivalents               770       (19,915)         22,900          15,330             31,800

      Cash and cash equivalents at beginning of period     31,030        56,951           8,900          21,706                  0
                                                         ---------     ---------       ---------       ---------          ---------
      Cash and cash equivalents at end of period         $ 31,800      $ 37,036        $ 31,800        $ 37,036           $ 31,800
                                                         ---------     ---------       ---------       ---------          ---------
</TABLE>



           See accountants' compilation report and accompanying notes.

                                       -5-


<PAGE>

                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                   (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 1999


Note 1 - Organization and summary of significant accounting policies

     Business organization

     Q-Seven  Systems,  Inc.,  formerly  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-7") was incorporated under the laws of the State
of Nevada on May 18, 1999 for the  purpose of  acquiring  marketing  rights to a
certain  Internet  user  management  software  program,  and to  acquire  X-Real
Intertainment,  Ltd., which owns six Internet pay sites.  X-Real  Intertainment,
Inc. Ltd. (formerly X-Real GbR, a partnership) ("X-Real") was incorporated under
the laws of the Bahamas on April 23, 1999. X- Real was originally organized as a
partnership  under the laws of the  Federal  Republic  of  Germany  to engage in
various  forms of  Internet  commerce.  The  acquisition  of  X-Real  by Q-7 was
accounted for as a pooling of interest.

     On May 24, 1999,  the Company in  accordance  with an agreement and plan of
share exchange,  acquired 100% of the issued and  outstanding  shares of Q-7 for
7,900,000  shares of its common stock.  The  acquisition  was accounted for as a
pooling of interest.  Accordingly, there is no adjustment to the carrying values
of assets or liabilities.

     Principles of consolidation

     The accompanying  consolidated financial statements include the accounts of
the Company and its wholly-owned  subsidiary,  Q-7. The  consolidated  financial
statements of Q-7 include the accounts of its wholly-owned  subsidiary,  X-Real.
Intercompany accounts and transactions have been eliminated in consolidation.

     Basis of presentation

     The following table represents a reconciliation of net sales and net income
previously  reported  by the  Company  to those  presented  in the  accompanying
consolidated financial statements.




                                      - 6 -

<PAGE>

                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                   (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 1999



Note 1 - Organization and summary of significant accounting policies (continued)

<TABLE>
<CAPTION>
                                     Three Months Ended June 30,               Six Months Ended June 30,
                                      1999                 1998                 1999               1998
<S>                               <C>                <C>                   <C>                <C>
Net sales:
  Q-Seven Systems, Inc.            $        0         $       410           $        0         $  104,017
  Q- 7                                      0                   0                    0                  0
  X-Real                              224,248             106,995              434,917            175,839
                                   ----------         -----------           ----------         ----------
        Consolidated               $  224,248         $   107,365           $  434,917         $  279,856
                                   ==========         ===========           ==========         ==========

Net income:
  Q-Seven Systems, Inc.            $  (15,654)        $   (19,998)          $  (25,447)        $   20,163
  Q- 7                                      0                   0                    0                  0
  X-Real                               67,423              14,314               57,734             27,133
                                   ----------         -----------           ----------         ----------
        Consolidated               $   51,769         $    (5,684)          $   32,287         $   47,296
                                   ==========         ===========           ==========         ==========
</TABLE>



     Cash and cash equivalents

     Cash  equivalents  include  short-term,   highly  liquid  investments  with
maturities of three months or less at the time of acquisition.

     Translation of foreign currency

     The  financial   position  and  results  of  operations  of  Q-7's  foreign
subsidiary are measured using Deutsche mark as the functional currency. Revenues
and expenses have been  translated into U.S.  Dollars at average  exchange rates
prevailing during the period. Assets and liabilities have been translated at the
rates of exchange at the balance  sheet date.  Translation  gains and losses are
deferred as a separate component of shareholders' equity, unless there is a sale
or complete liquidation of the underlying foreign investment.  Aggregate foreign
currency transaction gains and losses are included in determining net earnings.

     Fixed assets and depreciation

     Fixed  assets are carried at cost.  Depreciation  is  calculated  using the
straight-line method over their estimated useful lives of 5 years.


                                      - 7 -



<PAGE>

                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                   (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 1999



Note 1 - Organization and summary of significant accounting policies (continued)

     Basic loss per share

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

     Provision for taxes

     At June 30,  1999,  the Company had net  operating  loss  carryforwards  of
approximately  $78,000 that may be offset  against future taxable income through
2013. No tax benefit has been reported in the financial  statements  because the
Company's  U.S.  operations  have not  commenced and future  earnings  cannot be
determined.  Accordingly,  the potential tax benefits of the net operating  loss
carryforwards are offset by a valuation allowance of the same amount.

     Income taxes are not imposed on corporations in the Bahamas.

     Use of estimates

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

Note 2 - Accounts receivable

     X-Real  conducts all of its business on the Internet,  and all revenues are
collected by electronic  means. 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 60 days before they are  released to
X-Real. Funds collected in 1998 and released to X-Real in 1999 are classified as
accounts  receivable.  The cost of sales related to the receivables are deducted
from the amount  released.  These costs are  classified as accounts  payable and
accrued expenses.





                                      - 8 -


<PAGE>

                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                   (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 1999



Note 3 - Fixed assets

         Fixed assets at June 30, 1999 consisted of the following:

                  Fax machine                             $     935
                  Televisions                                   424
                                                          ---------
                                                              1,359
                  Less accumulated depreciation                (647)
                                                          ---------
                  Net fixed assets                        $     712
                                                          =========

Note 4 - 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. The agreement  can be terminated  any time with a
notice of 180 days.

Note 5 - Stock transactions

     On December 10, 1996, the Company issued  1,500,000  shares of common stock
for services  rendered by a related party.  The shares were valued at $0.005 per
share.

     On December 10, 1996, the Company issued 1,800,000 shares of stock for cash
at $0.005 per share.

     During the year ended December 31, 1997, the Company issued common stock in
a public offering valued at $0.05 per share.

     On October 2, 1998, the Company issued 166,000 shares of stock for services
rendered by a related party. The shares were valued at $0.50 per share.

     On January 16, 1999, the Company issued 100,000 shares of stock for cash at
$0.05 per share.

     On May 24, 1999,  the Company  issued  7,900,000  shares of stock valued at
$0.008 per share in exchange for the issued and outstanding shares of Q-7.





                                      - 9 -


<PAGE>

                      Q-SEVEN SYSTEMS, INC. AND SUBSIDIARY
                   (FORMERLY - DOWNSTREAM INCORPORATED - DSI)
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 1999


Note 6 - Commitments

         The Company  committed to pay the former  officer of the Company $2,500
per month, under a consulting agreement.












                                     - 10 -
<PAGE>


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     On May 24, 1999, the Company acquired all issued and outstanding  shares of
common stock of Q-Seven Systems,  Inc. ("Q-Seven Nevada"),  a Nevada corporation
(the  "Q-Seven  Acquisition").  Q-Seven  Nevada,  which  is now a  wholly  owned
subsidiary of the Company, owns the exclusive, worldwide rights to market the so
called User Management  Software (the  "software")  developed by Q-Seven Systems
GmbH,  a German  corporation,  and all of the issued and  outstanding  shares of
X-Real Intertainment, a Bahamian corporation ("X-Real"), which owns and operates
six adult entertainment websites.

     The software is a modulized  suite  offering users a system for the backend
administration  of various types of e-commerce sites on the Internet,  including
online gaming,  adult  entertainment,  and online  shopping.  The software gives
frequent  and,  management  believes,  accurate  feedback  to the  administrator
concerning clients and their activities.  Management  believes that the software
is extremely easy to use and that non-computer  professionals can administer the
system. The software also allows for secure online billing over the Internet.

     Portions  of the  software  are still being  developed  and no sales of the
software have yet been made. The main server and three of the casino modules for
the use with an online gaming  application  of the software are currently in the
beta testing phase,  and management  believes that it will be ready for shipment
by the end of August 1999.

     The next  modules  that the Company  plans to develop  include a sportsbook
module,  a  multi-player  casino games  module,  a live video module and several
client-specific  modules. The number of programmers assisting in the development
of the software has been increased in an effort to make the development  process
quicker and more efficient.

     The Company believes that its main competitors in the area of online gaming
software are Starnet  Communications  International Inc., in Vancouver,  British
Columbia, and Bossmedia AB, a Swedish company.

     Starnet's  products are the most common online gaming software  products at
the  moment.  They  offer the  largest  number of  different  games.  Management
believes that Starnet's products differ from the products

                                       11
<PAGE>

of the Company in the following ways: Starnet only licenses co-hosted casinos on
their own servers in Antigua  which  requires  the licensee to obtain an Antigua
gaming license.  In addition,  Management believes that Starnet's licensees must
share up to 40% of their net gaming revenues with Starnet.

     Bossmedia  was  one of the  first  companies  that  offered  online  gaming
software that featured multi-player games.  Management believes that Bossmedia's
gambling  software also can be used only on Bossmedia's  own servers in Antigua.
In addition,  management believes that Bossmedia's customers are required to pay
a high  setup fee and a royalty  fee  based on a certain  percentage  of the net
gaming revenues.

     The Company's wholly owned indirect  subsidiary,  X-Real, owns and operates
six adult entertainment  websites directed to viewers in Germany.  Four of these
websites operate on a subscription  basis. The other two pages operate both on a
subscription  and a  per-minute  basis.  In April 1999,  X-Real  entered into an
affiliate  program with  webmasters  that advertise its websites.  Participating
webmasters  can share in up to 50% of the revenues that were generated by X-Real
as a result of their  advertising of X-Real's  websites.  The affiliate  program
increased  subscriptions  for X-Real's websites by over 200% within one month of
inception. No assurances can be given that this increase is permanent.

     The  competition  in the area of adult  entertainment  websites is steadily
increasing.  X-Real's  sites  were some of the first to enter this  market,  and
management believes that some of its websites have achieved a significant market
brand  recognition  in Germany.  Although the number of X-Real's  competitors in
this  area  is  increasing,  management  believes  that  X-Real  will be able to
maintain and perhaps extend its market position in Germany.

     German  regulators  impose  strict  regulations  on the  content  of  adult
entertainment  websites that are published on the Internet. An organization with
the name Jugendschutz.net has been formed which tries to ensure that minors will
not be able to gain access to adult content on webpages.  X-Real cooperates with
Jugendschutz.net  as well as the German regulators to maintain a process for its
webpages  that  ensures  that  only  adults  are  able to gain  access  to those
webpages.  Management  believes  that the areas of X-Real's  webpages  which are
accessible  for every  viewer  comply with German law and are suitable for every
viewer.

                                       12
<PAGE>

     Results of  Operations.  Since the  Q-Seven  Acquisition  the  Company  has
derived all of its revenues  from its  Internet  adult  entertainment  business,
which is operated by the Company's  indirectly  wholly owned subsidiary  X-Real.
Although the Company has not yet derived any revenues  from the sale of its user
management  software,  management  believes that once the Company begins selling
the software,  which is expected to occur by the end of August 1999,  such sales
will favorably impact the Company's  results of operations  during the remainder
of the Company's 1999 fiscal year and thereafter.

     The following  tables set forth,  on a non-pro-forma  basis,  the Company's
operations  data for the three months ended June 30, 1999 and June 30, 1998, the
six months  ended June 30, 1999 and June 30, 1998,  and the twelve  months ended
December 31, 1998.


<TABLE>
<CAPTION>
                                 Operations Data

                          For the Three         For the Three         For the Six           For the Six            For the Twelve
                          Months Ended          Months Ended          Months Ended          Months Ended            Months Ended
                          June 30, 1999         June 30, 1998         June 30, 1999         June 30, 1998         December 31, 1998
                          -------------         -------------         -------------         -------------         -----------------
<S>                      <C>                   <C>                   <C>                   <C>                   <C>
Net Sales                     $224,248                  $410            $434,917              $104,017                $104,017
Cost of Sales                  $68,679                $1,055            $181,093               $45,473                 $45,473
Gross Profits                 $155,569                $(645)            $253,824               $58,544                 $58,544
Operating Expenses            $103,800               $19,711            $221,558               $38,962                $150,888
Net Income (Loss)              $51,769             $(20,356)             $32,266               $19,582               $(92,344)
from Operations
Net Income (Loss)              $51,769             $(19,998)             $32,287               $20,163               $(91,440)
</TABLE>


     The Company's net sales, cost of sales, gross profits,  operating expenses,
net income  from  operations  and net income for the three and six months  ended
June 30,  1999  increased  significantly  compared  with its net sales,  cost of
sales,  gross profit,  operating  expenses,  net income from  operations and net
income for the three and six months ended June 30, 1998.  This  increase as well
as the  significant  increase of the  Company's  total  assets from $9,744 as of
December  31, 1998 to $194,047 as of June 30,  1999,  is a direct  result of the
Q-Seven Acquisition, which considerably changed the business of the Company.

     Currently all of the Company's revenues are derived from its Internet adult
entertainment  business,  which is carried out through the Company's  indirectly
wholly owned subsidiary  X-Real.  On a pro-forma basis,  X-Real's net sales rose
from $106,995 for the three months ended June 30, 1998 to $224,248 for the three
months ended June 30, 1999. X-Real's net sales for the six months ended June 30,
1999 increased to $434,917 from $175,839 for the six months ended June 30, 1999.
Also on a pro-forma  basis,  X-Real's net income for the three months ended June
30, 1999  increased  to $67,423 from $14,314 for the three months ended June 30,
1998.  X-Real's  net income for the six month ended June 30, 1999  increased  to
$57,734  from  $27,133  for the six  months  period  ended  June 30,  1998.  The
considerable  increase of X-Real's net sales and net income on a pro-forma basis
is a result of X-Real's opening of two new adult  entertainment  websites during
that period.

     Liquidity and Capital Resources. At June 30, 1999, the Company had cash and
cash  equivalents of $31,800 compared to $8,896 at December 31, 1998 and $37,036
at June 30, 1998.


                                       13
<PAGE>

     Year 2000. Many currently  installed computer systems and software products
are coded to accept  only two digit  entries  in the date code  field and cannot
distinguish  21st century dates from 20th century dates.  These date code fields
will need to  distinguish  21st century  dates from 20th century dates and, as a
result, many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements.

     The Company has completed  assessing  the Year 2000 issue.  The Company has
not incurred material costs to date in this analysis,  and management  currently
does not believe  that the cost of any  additional  actions will have a material
effect on the Company's results of operations or financial condition. Management
currently  believes  that the  Company's  systems  and  products  are Year  2000
compliant  in all material  respects;  however,  those  systems and products may
contain  undetected  errors or defects  with Year 2000 date  functions  that may
result in  material  costs.  Although  management  is not aware of any  material
operational  issues or costs associated with preparing the Company's systems and
products for the Year 2000,  the Company may  experience  serious  unanticipated
negative  consequences  (such as  significant  downtime  for one or more  X-Real
servers)  or  material  costs  caused by  undetected  errors or  defects  in the
technology  used in the  Company's  systems  and  products,  which  could have a
material  adverse  effect on the  Company's  business,  results of operation and
financial condition.

     In  addition,  the Company  utilizes  third-party  equipment,  software and
content,  including non-information  technology systems ("non-IT systems"), such
as the Company's  telephone system,  that might not be Year 2000 compliant.  The
Company is in the process of  developing  a plan to assess  whether  these third
parties  are  adequately  addressing  the Year 2000 issue and whether any of the
Company's non-IT systems have material Year 2000 compliance problems. Failure of
such third-party equipment,  software or content to operate properly with regard
to the year 2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems,  which could have a material  adverse effect on
the Company's business, results of operation, and financial condition.

     The Company has not yet fully developed a comprehensive contingency plan to
address situations that may result if the Company is unable to achieve Year 2000
readiness of its critical  operations.  The cost of developing and  implementing
such a plan may itself be material.

     Forward-Looking  Statements.  The Company has made certain  forward-looking
statements in this report. They use such words

                                       14
<PAGE>

as "may," "will,"  "expect,"  "believe,"  "plan" and other similar  terminology.
These statements reflect  management's current expectations and involve a number
of risks and  uncertainties.  Actual results could differ  materially due to the
success of operating initiatives, advertising and promotional efforts, Year 2000
compliance  efforts,  as well as  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; and accounting policies and practices.

PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          Not applicable.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

     In connection with the Q-Seven  Acquisition,  the Company issued on May 25,
1999, a total of 7,900,000 shares of its common stock to the three  shareholders
of Q-Seven  Nevada in exchange  for their  transfer to the Company of all issued
and  outstanding   shares  of  common  stock  of  Q-Seven  Nevada.  Mr.  Philipp
Kriependorf  received  2,634,000,  and  Messrs.  Philip Kamp and Olaf Cordt each
received 2,633,333 shares of the Company's common stock.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          Not applicable.

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

     A special shareholders' meeting was held on June 10, 1999. The shareholders
present  at that  meeting  approved  the  proposal  of the  Company's  board  of
directors to change the Company's  name from  Downstream  Incorporated  - DSI to
Q-Seven Systems, Inc.

ITEM 5.   OTHER INFORMATION

     Material  Contracts.  Q-Seven Nevada and Q-Seven  Systems GmbH have entered
into an Agreement  (the "License  Agreement")  which grants  Q-Seven  Nevada the
exclusive  and unlimited  right to sell  licenses of the software  worldwide for
perpetuity. The License Agreement provides that Q-Seven Nevada shall pay Q-Seven
Systems  GmbH a  royalty  fee of 90% of the  revenue  generated  by the  sale of
licenses for the software.  A copy of the License Agreement has been filed as an
exhibit to this report. For a

                                       15
<PAGE>

complete  understanding of the terms of the License  Agreement,  you should read
this exhibit.

     Change of Independent Accountant. The Company is in the process of changing
its  independent  accountant as part of the process of preparing to establish an
office in New York. The new  independent  accountant has not yet been appointed.
Contrary to what was inadvertently  reported incorrectly in the Company's report
on Form  10-QSB  that was filed  with the  Commission  on August 16,  1999,  the
accounting  firm  Salibello  & Broder in New York has not been  retained  by the
Company as its new  independent  accountant.  Salibello  & Broder  assisted  the
Company in compiling its quarterly financial statements.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

          EXHIBIT NO.         DESCRIPTION

                  3.1         Articles of Incorporation, as amended

                  3.2         By-laws

                 10.1         License Agreement between Q-Seven Systems GmbH and
                              Q-Seven Nevada

                 27.1         Financial Data Schedule

          (b)  Reports on Form 8-K

     On June 8,  1999,  the  Company  filed a report  on Form  8-K in which  the
following items were reported:  (i) the Q-Seven Acquisition;  (ii) the change in
control that  resulted  from the issuance of 7,900,000  shares of the  Company's
common stock to the three shareholders of Q-Seven Nevada;  (iii) the resignation
of then serving directors and officers and (iv) the appointment of new directors
and officers.

     On June 15, 1999,  the Company filed another report on Form 8-K in which it
was reported that (i) a special  shareholders' meeting was held on June 10, 1999
during  which it was  decided  to change  the  Company's  name  from  Downstream
Incorporated  - DSI  to  Q-Seven  Systems,  Inc.;  (ii)  Articles  of  Amendment
regarding  the change of the  Company's  name were filed with the State of Utah;
and (iii) that the  Company's OTC Bulletin  Board trading  symbol was changed to
QSSY.

                                       16
<PAGE>

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


     Date:  August 19, 1999                       /s/ Philipp Kriependorf
                                                  ----------------------------
                                                  Philipp Kriependorf
                                                  President


     Date: August 19, 1999                        /s/ Philip Kamp
                                                  ----------------------------
                                                  Philip Kamp
                                                  Vice President and Treasurer

                                       17
<PAGE>

                                INDEX TO EXHIBITS

    EXHIBIT NUMBER            DESCRIPTION

    3.1                       Articles of Incorporation, as amended

    3.2                       By-laws

    10.1                      License Agreement between Q-Seven Systems GmbH and
                              Q-Seven Nevada

    27.1                      Financial Data Schedule



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