SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               AMENDMENT NO. 1 TO
                                   FORM 10-KSB

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

                   For the fiscal year ended December 31, 1999

                                       OR

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

             For the transition period from _________ to ___________

                                    333-6440
                            (Commission File Number)

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


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

            MITTELSTR. 11-13                              011-49-2173-392 20
        40789 MONHEIM, GERMANY                       (Issuer's Telephone Number)
(Address of Principal Executive Offices)

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

                                                    Name of Each Exchange
              Title of Each Class                    on Which Registered
              -------------------                   ---------------------
                       N/A                                  N/A

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

                                 Title of Class

                    COMMON STOCK, $0.001 PAR VALUE PER SHARE




<PAGE>




     Check whether the issuer: (i) 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 Amendment No. 1 to Form
10-KSB or any further amendments to Form 10-KSB. [X]

     The  issuer's  revenues  for the fiscal year ended  December  31, 1999 were
$1,296,154.

     The  aggregate   market  value  of  the  issuer's   common  stock  held  by
non-affiliates  of the issuer as of May 11,  2000,  computed by reference to the
close price as at May 11, 2000 of $1.0625 of the issuer's common stock as quoted
on the OTC Bulletin Board service on such date, was approximately $4,887,500.

     The number of shares  outstanding of the issuer's common stock as of May 1,
2000 was 12,500,000.

     Transitional Small Business Disclosure Format: Yes [ ] No [X]




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<PAGE>



                                     PART I

Item 1.   Description of Business.

          BUSINESS DEVELOPMENT

     Q-Seven  Systems,  Inc.,  formerly  known as Downstream  Incorporated - DSI
(collectively with the subsidiaries  specified in Exhibit 21.1, unless otherwise
noted or required by the context,  "our company" or "we"),  was  incorporated in
November  1996 under the laws of the State of Utah to engage in the  business of
financial consulting. In July 1997, we completed a public offering of our common
stock, in which we issued to the public 1,034,000  shares.  On May 24, 1999, our
company and the  shareholders  of Q-Seven  Systems,  Inc., a Nevada  corporation
("Q-Seven  Nevada"),  entered  into an  Agreement  and  Plan of  Share  Exchange
pursuant to which our company acquired from Messrs. Kriependorf, Kamp and Cordt,
who are now our  officers,  directors and  principal  shareholders,  100% of the
issued and  outstanding  shares of Q-Seven  Nevada for  7,900,000  newly  issued
shares  of our  common  stock.  On June 10,  1999,  we  changed  our  name  from
Downstream Incorporated - DSI to Q-Seven Systems, Inc.

     Q-Seven Nevada,  which is now a wholly owned subsidiary of our company, has
been granted by Q-Seven  Systems GmbH (see Item 12 - Certain  Relationships  and
Related  Transactions)  the exclusive right to sell licenses  relating to the so
called Q-Seven User Management  Software which is described in detail below (see
Item 1 - Business of Issuer).  At the end of 1999 Q-Seven  Nevada also owned all
issued and  outstanding  shares of common  stock of X-Real  Intertainment,  Inc.
Ltd., a corporation  organized under the laws of the Bahamas  ("X-Real"),  which
owns and operates six adult entertainment  websites.  See also Item 12 - Certain
Relationships and Related  Transactions.  X-Real has since received a commitment
from Infobridge  International  Ltd., a company  organized under the laws of the
Bahamas  ("Infobridge"),  to  invest in X-Real  DM  1,000,000  (the  "Infobridge
Investment"),  which amount  equals  approximately  $456,000 on the basis of the
Federal  Reserve  Bank of New York May 17,  2000 noon  buying  rate of $1 = Euro
0.8921 and the fixed exchange rate of Euro 1 = DM 1.95583.  X-Real has agreed to
issue  a  certain  number  of its  shares  to  Infobridge  in  exchange  for the
Infobridge  Investment.  At  this  time,  no  written  agreement  regarding  the
Infobridge  Investment  exists  between  X-Real and  Infobridge.  In March 2000,
X-Real  received the first tranche of the Infobridge  Investment in an amount of
DM  500,000,  which  amount  equals  approximately  $228,000 on the basis of the
Federal  Reserve  Bank of New York May 17,  2000 noon  buying  rate of $1 = Euro
0.8921 and the fixed exchange rate of Euro 1 = DM 1.95583.  The remainder of the
Infobridge Investment is to be paid to X-Real upon our management's request. Our
management  expects that the number of shares to be issued to Infobridge will be
approximately  equal to the  number  of shares  that are  currently  issued  and
outstanding;  Q-Seven  Nevada  intends  to retain an equity  interest  in X-Real
slightly exceeding 50% in order to allow us to continue to consolidate  X-Real's
results in our financial  statements.  As a result,  Q-Seven Nevada will soon in
all likelihood own only slightly more than 50% of X-Real's stock.

     On October 29, 1999, we filed with the Securities  and Exchange  Commission
(the  "Commission") a registration  statement on Form 8-A to register our common
stock under Section 12(g) of the Securities Exchange Act of 1934.


                                        3


<PAGE>



          BUSINESS OF ISSUER

User Management Software

     We sell licenses  relating to a modulized  software suite, the Q-Seven User
Management  Software (the "User Management  Software" or "our  software"),  that
allows  Internet  content  providers to  efficiently  build,  operate and manage
Internet  environments,  especially  entertainment  environments.  Our  software
consists of different  modules  which can be combined and  customized to provide
Internet  solutions  for our  customers'  specific  needs.  The User  Management
Software  has been  developed  and is owned by Q-Seven  Systems  GmbH,  a German
corporation,  which has  granted  us the  exclusive  right to  license  the User
Management Software. Q-Seven Systems GmbH is not a subsidiary of our company but
is owned by Messrs.  Kriependorf,  Kamp and Cordt,  our officers,  directors and
principal  shareholders.  See  Item  12  -  Certain  Relationships  and  Related
Transactions.  The licenses  that we sell with regard to our software  allow our
customers  to  use  the  User  Management  Software  in  accordance  with  their
respective  license agreements with us. Our customers pay us a fee for the grant
of such  licenses  and the use of our  software.  Our  customers  usually make a
downpayment  on the  license  fee at the time we  grant  them a  license  to our
software;  the remainder of the license fee is paid to us in equal  installments
over a period of one to two years.

     Q-Seven Systems GmbH delivers the User Management Software to our customers
and installs and  configures it on our  customers'  servers.  These services are
included in the license fee that our customers pay to us.  Q-Seven  Systems GmbH
provides  these  services  to our  customers  at no charge to us other  than the
portion of our fee that we must pay to them for our own license.

     The User Management System is a modulized  software suite which can be used
to  distribute  or sell  products and  services  and collect  payments for those
products and services through the Internet,  and which offers users a system for
the backend administration of various types of e-commerce sites on the Internet.
The software currently consists of the following software modules,  which can be
combined  and  customized  by  Internet  content  providers  into  any  kind  of
commercial online  entertainment,  shopping or service system,  including online
gaming and adult  entertainment,  to service and handle user  administration and
online transactions:

     o    Q-7 User Account Management Server;

     o    Q-7 Billing Module; and

     o    Q-7 Casino Module.

     Our software is designed to allow Internet service  providers to administer
their  sites and  manage  the users of their  sites;  it also  provides a secure
online payment  system.  The User Management  Software  provides  frequent,  and
management  believes,  accurate  feedback  to  the  administrator  of a  website
regarding the customers of such website and their  activities.  Our software can
quickly be integrated into existing  Internet  environments  and allows Internet
service providers to keep up with the rapid pace of technological  change in the
Internet.  The User  Management  Software is designed for the use with  standard
webbrowsers by  non-computer  professionals;  our  management  believes that our
software is so easy to use that even non-computer professionals can administer a
system that utilizes our software.


                                        4


<PAGE>



     The user account  management server is the central module of every Internet
environment  that uses our  software.  It manages not only the  accounts of each
user who uses our customers'  websites but also each user's account balances and
other  information.  Each user can transfer money to his/her  individual account
and can then spend this money on our customers' websites.

     The billing  module is the  interface  between the user account  management
server and any online payment  software that our customers might use.  Currently
it  supports  only the  different  payment  mechanisms,  e.g.,  credit  card and
electronic on-line debit-entry  payments,  that EuroDebit Systems,  Inc. offers.
See also Item 12 - Certain Relationships and Related Transactions.

     The casino  module  allows  online  casino  operators  to create and manage
online  casinos  and offers a variety of online  games.  Numerous  jurisdictions
impose  licensing  requirements  or other  restrictions  on,  or even  ban,  the
operation,  or the  utilization  of the  services,  of online  casinos  in their
territory.  Our company does not operate online  casinos,  but only provides the
software  that  enables our  customers  to operate  online  casinos.  The casino
software  module that we license to our  customers as well as the other parts of
our software are installed  and operated on our clients'  servers and not on any
servers or systems that belong to us or Q-Seven Systems GmbH. Consequently,  our
management  believes  that our  company  is not  directly  affected  by laws and
regulations  prohibiting  or  restricting  Internet  gaming and the operation of
online  casinos.  However,  there is a high degree of uncertainty  regarding the
scope  and  the  potential  addressees  of  Internet  gaming  regulations,   and
regulators  could take the position that our business  falls within the scope of
such  regulation  and  initiate  enforcement  actions  against us. In  addition,
Internet  gaming  regulation  could  change in the  future and the laws could be
tightened, which could affect our ability to license our casino software module.
If criminal or civil  proceedings were initiated  against us or the licensees of
our casino software module in jurisdictions  that prohibit or restrict  Internet
gaming,  such  proceedings  could  involve  substantial   litigation   expenses,
penalties, fines, diversion of the attention of our key executives,  injunctions
or the  invocation  of other  prohibitions  against us or the  licensees  of our
casino  software  module.  Such  proceedings,  their results and the uncertainty
surrounding  the regulation of Internet  gaming in general could have a material
adverse  effect on our  business,  revenues,  operating  results  and  financial
condition.  Our  management  believes that the sale of licenses to our software,
including the casino module,  is in accordance  with currently  applicable  U.S.
Federal and State laws.

     On May 10,  2000,  the House  Banking  Committee  Chairman  James A.  Leach
(R-Iowa) and the  committee's  ranking  Democrat,  Rep. John J. LaFalce  (N.Y.),
introduced  legislation (H.R. 4419) that would prohibit the use of credit cards,
checks, or electronic fund transfers in internet gambling. The bill, intended to
complement the Internet Gambling  Prohibition Act (H.R.  3125),  which the House
Judiciary  Committee  approved in April,  would extend a current ban on gambling
over  telephone  lines to the Internet.  If these bills were  enacted,  it could
affect our  customers'  interest in our gaming module  software and could have a
material  adverse  effect  on our  business,  revenues,  operating  results  and
financial condition.

     Our  management  believes that our main  competitors  in the area of online
gaming  software  are  Starnet  Communications  International  Inc.,  a Delaware
corporation  ("Starnet"),  Boss  Media AB, a  Swedish  company  ("Boss  Media"),
Microgaming, a South African company ("Microgaming"),  and Cryptologic,  Inc., a
Canadian company ("Cryptologic").

     Starnet's  products are the most common online gaming software  products at
the moment.  They offer the largest  number of different  games.  Our management
believes that Starnet's products differ from our products in the following ways:
Starnet only licenses casinos co-hosted on their own servers in


                                        5


<PAGE>



Antigua,  which  requires the licensee to obtain an Antigua gaming  license.  In
addition,  our management believes that Starnet's licensees must share up to 40%
of their net gaming revenues with Starnet. In contrast, our software runs on our
customers' own servers and our customers only pay us a fixed license fee, but do
not  have to pay us a  percentage  of  their  gaming  revenues.  Our  management
believes  that  this  could  make our  software  more  attractive  to  potential
customers.

     Boss Media was one of the first  companies to offer online gaming  software
that featured  multi-player  games.  Our  management  believes that Boss Media's
gaming software also can be used only on Boss Media's own servers in Antigua. In
addition,  our management  believes that Boss Media's  customers are required to
pay a setup  fee and a  royalty  fee  based on a  percentage  of the net  gaming
revenues generated by Boss Media's customers.

     Microgaming  was also  among the first  companies  that  offered  an online
casino software solution.  Our management believes that Microgaming's  customers
are  required  to pay a setup fee and are then  charged a royalty fee based on a
percentage  of the net gaming  revenues  generated by  Microgaming's  customers.
Microgaming  is one of the companies with the highest number of licensees in the
online casino software market.

     Cryptologic  offers a software solution for online casinos.  Our management
believes that Cryptologic charges its customers a setup fee and a royalty fee of
up to 50% of the net gaming revenues generated by the customer.

     At this time, we have only licensed our software to five  customers,  i.e.,
Global Net Gamble Ltd., Bahamas,  Futura Internet Services Ltd., Bahamas,  World
Network Ltd., Bahamas,  Setec Astronomy Ltd., Bahamas,  and Advanced Media Group
S.A., Dominican Republic.

     New modules for our software are  currently  being  developed and tested by
Q-Seven Systems GmbH. Our management  believes that some of the new modules will
be completed and available for licensing to our customers in the near future. We
have not spent any amounts on research or the  development of our software.  All
research and  development  activities with respect to our software are conducted
by Q-Seven  Systems GmbH,  which also bears all costs and expenses in connection
with  such  research  and  development   activities.   See  Item  12  -  Certain
Relationships  and  Related  Transactions.   Q-Seven  Systems  GmbH,  since  its
inception  in 1999,  spent  on the  research  and  development  of our  software
approximately DM 1,500,000,  which amount equals  approximately  $684,000 on the
basis of the Federal  Reserve  Bank of New York May 17, 2000 noon buying rate of
$1 = Euro 0.8921 and the fixed exchange rate of Euro 1 = DM 1.95583.

     Currently,  neither we nor Q-Seven  Systems  GmbH owns any patents or other
intellectual  property  rights  regarding  the  User  Management  Software.  Our
Management believes that Q-Seven Systems GmbH will apply for the registration of
such intellectual property rights in the near future. Our name "Q-Seven Systems"
and the Q-7 logo  are  currently  not  protected  in the  United  States  by any
trademarks.  Q-Seven  Systems GmbH has filed a trademark  application in Germany
concerning the name "Q-Seven Systems" and the Q-7 logo. We own the rights to the
Internet domain names  "q-sevensystems.com"  and  "q-sevensystems.net."  Q-Seven
Systems GmbH owns the rights to the Internet domain name "q-sevensystems.de."


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<PAGE>



     At this time, neither we nor Q-Seven Nevada has any employees;  however, we
entered  into a  Consulting  Agreement,  dated May 27,  1999,  with Mr. Barry A.
Ellsworth,  our former  president,  treasurer and director,  who currently  owns
approximately  7.59% of our common stock.  Pursuant to the Consulting  Agreement
Mr.  Ellsworth was to provide certain  consulting  services to our company for a
monthly fee of $2,500.  The  Consulting  Agreement  with Mr.  Ellsworth has been
terminated. See also Item 12 - Certain Relationships and Related Transactions.

Internet Adult Entertainment

     Our indirect subsidiary, X-Real Intertainment, Inc. Ltd., owns and operates
six adult entertainment  websites,  which are exclusively directed to viewers in
Germany. Four of these websites operate on a subscription basis.

     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 our
management  believes that some of X-Real's  websites  have achieved  significant
brand recognition in Germany. Although the number of competitors in this area is
increasing,  our  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. An organization with the name Jugendschutz.net has been
formed in Germany  which  tries to ensure  that  minors will not be able to gain
access to adult content of webpages.  X-Real cooperates with Jugendschutz.net as
well as with  German  regulators  to maintain a process  for its  wegpages  that
ensures  that only  adults are able to gain  access to the  restricted  areas of
those webpages.  Our management  believes that the content of X-Real's  websites
complies  with  German  law and that the areas of  X-Real's  webpages  which are
accessible  for every  viewer  comply with German law and are suitable for every
viewer.

     Our management  believes that the restricted areas of X-Real's websites can
only be accessed by German citizens,  since every viewer who wishes to visit the
restricted   areas  of  X-Real's   websites  needs  to  enter  certain  personal
information from his/her official German ID card. The process (the "Verification
Process")  that X-Real uses to ensure that only German adults can gain access to
the  restricted  areas of its  websites  has been  developed  and is provided to
X-Real by Cyberotic Media A.G., which manages the operation of X-Real's websites
for a fee. See also Item 12 - Certain  Relationships  and Related  Transactions.
The  Verification  Process  has  been  developed  with  the  help of the  German
authorities that issue the official German ID cards.  The  Verification  Process
requires every person who would like to gain access to the  restricted  areas of
X-Real's  websites to first  register  with X-Real as a member and pay a certain
membership  fee to X-Real.  One step in the  registration  process  requires the
potential  new member to enter  his/her ID card  number  from  his/her  official
German ID card.  This 26 digit number is based on a certain  logical  format and
includes various coded information, including the holder's date of birth. The ID
card  number  also  contains  certain  verification  digits  that are based on a
mathematical algorithm.  The Verification Process allows Cyberotic to decode the
date of birth from the ID number and check,  based on the  verification  digits,
the plausibility of the ID card number that was provided. A potential new member
who enters an ID card number that is not plausible or was issued to a person who
is too young will automatically be rejected by X-Real as a new member.

     Numerous  jurisdictions  prohibit  and  restrict  the  operation  of  adult
entertainment  websites.  As users of the Internet are located around the globe,
there is uncertainty regarding which government has


                                        7


<PAGE>



jurisdiction to regulate  various aspects of the Internet  industry.  Regulators
could  take the  position  that  X-Real's  websites  fall  within  the  scope of
regulations regarding adult entertainment websites imposed by their jurisdiction
and initiate enforcement actions against X-Real. In addition, the regulations in
Germany  regarding adult  entertainment  websites could change in the future and
laws  could be  tightened,  which  could  affect  X-Real's  ability to offer its
services to the German market.  If criminal or civil  proceedings were initiated
against X-Real in jurisdictions that prohibit or restrict the operation of adult
entertainment  websites,  such proceedings could involve substantial  litigation
expenses,  penalties,  fines,  diversion of the attention of our key executives,
injunctions  or the invocation of other  prohibitions  against us. Such changes,
proceedings and their results, and the uncertainty surrounding the regulation of
the operation of Internet adult  entertainment  websites in general could have a
material  adverse  affect on  X-Real's  and our  business,  revenues,  operating
results and financial  condition.  Our management believes that the operation of
X-Real's adult entertainment websites is in accordance with currently applicable
U.S. Federal and State laws.

     Neither we nor X-Real own any  intellectual  property rights  regarding the
name "X-Real." X-Real owns the domain names of the six websites that it owns and
operates.

     X-Real, since its inception,  has not conducted any research or development
activities regarding its business and, consequently,  has not spend any funds on
such activities.

     X-Real does not have any  employees.  It utilizes the services of Cyberotic
Media A.G.,  from which it also leases the  content of its  webpages.  Cyberotic
Media A.G. manages the operation of X-Real's websites, provides the Verification
Process  that limits the access to  X-Real's  websites,  updates  the  websites,
collects, through EuroDebit Systems GmbH, the payments of X-Real's customers and
provides  maintenance  services with respect to X-Real's servers.  X-Real pays a
fee  to  Cyberotic  Media  A.G.  for  such  services.  In  1999,  this  fee  was
approximately $295,000.  Cyberotic Media A.G. provides these services and X-Real
pays a fee for these  services  solely on the basis of oral  agreements  between
Cyberotic  Media A.G.  and X-Real.  Until the end of 1999,  support  services to
X-Real  were  also  provided  by  Alice  Jay   Productions   Inc.   X-Real  paid
approximately  $78,000 to Alice Jay Productions  Inc. in 1999 for such services.
See also Item 12 - Certain Relationships and Related Transactions.

Item 2.   Description of Property.

     We do not own any real property.  Since August 1999, our world headquarters
has been located in a recently  completed  office building in Monheim,  Germany,
and consists of  approximately  430 square meters of office space. We share this
space   with   Q-Seven   Systems   GmbH,   which   rents  it  from   Mediacenter
Betriebsgesellschaft  mbH. The office space is provided to us by Q-Seven GmbH at
no charge. See also Item 12 - Certain Relationships and Related Transactions. We
do  currently  not  intend  to rent our own  office  space.  The lack of any own
facilities  for our  operations  may work to our  detriment  in the future.  Our
wholly owned subsidiary Q-Seven Systems, Inc., a Nevada corporation,  as well as
our indirect subsidiary X-Real  Intertainment,  Inc. Ltd. share our office space
in Monheim, Germany.

Item 3.   Legal Proceedings.

     There are no actions,  suits,  proceedings or  governmental  investigations
pending,  or to the knowledge of our management,  threatened against our company
or any of our subsidiaries.


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<PAGE>



Item 4.   Submission of Matters to a Vote of Security Holders.

     There  were no  matters  submitted  to a vote of the  holders of our common
stock through the solicitation of proxies or otherwise during the fourth quarter
of the fiscal year covered by this report.

                                     PART II

Item 5.   Market For Common Equity and Related Stockholder Matters.

          MARKET INFORMATION

     Prior to June 15, 1999, our common stock was traded on the Over-The-Counter
Bulletin Board under the trading symbol DWNS.  Since that date, our common stock
has traded under the trading  symbol  QSSY.  Effective  April 25, 2000,  the OTC
Bulletin Board changed our trading symbol from QSSY to QSSYE to indicate that we
were not in compliance with NASD Rule 6530(a)(2) and that our common stock would
be ineligible  for further  quotation  on, and subject to removal from,  the OTC
Bulletin  Board  should  we not,  within  thirty  calendar  days,  file with the
Commission  all  reports  required  to be filed by Section 13 of the  Securities
Exchange Act of 1934, as amended (the "Exchange Act").  Our management  believes
that the filing with the  Commission  of this  Amendment to our Annual Report on
Form  10-KSB and of an  Amendment  to our Report on Form  10-QSB for the quarter
ended March 31, 2000 will cause our company to be current  again in its periodic
filings with the Commission.  Accordingly,  our management  expects that the OTC
Bulletin Board will shortly reverse the change of our trading symbol. Our common
stock is also  traded  on the  over-the-counter  market of the  Frankfurt  Stock
Exchange  under the trading  symbol QSV. From August 1999 through  January 2000,
our common  stock was also traded on the  over-the-counter  market of the Berlin
Stock Exchange.

     The following table sets forth high and low bid prices of the shares of our
common stock for the periods  indicated.  Such quotations  reflect  inter-dealer
prices,  without retail  mark-up,  mark-down or commission and may not represent
actual  transactions.  The  quotations  set forth  below  were  provided  by the
Over-The-Counter Bulletin Board.

                                         Bid Prices
                                         ----------
                                  High                 Low
                                  ----                 ---
                                            1998
                                            ----
Quarter Ended

March 31, 1998                            ---*                ---*
June 30, 1998                             ---*                ---*
September 30, 1998                    $0.375**          $0.15625**
December 31, 1998                    $0.4375**              $0.125




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<PAGE>





                                            1999
                                            ----

March 31, 1999                          $1.375                $0.25
June 30, 1999                        $2.625***              $0.5***
                                      $5.25***              $1.5***
September 30, 1999                    $5.78125             $1.78125
December 31, 1999                       $2.875               $1.125

          --------
          * High and low bid prices are not  available  for our common stock for
          the first and second  quarter of 1998  according  to the OTC  Bulletin
          Board. The prices that were reported in our 1998 Annual Report on Form
          10-KSB  were  provided  by  certain  market  makers  and the  National
          Quotation Bureau.

          ** These prices  differ from the prices that were provided in our 1998
          Annual  Report on Form 10-KSB.  The prices used in last year's  report
          were based on  information  that was provided by certain market makers
          and  the  National  Quotation  Bureau.  This  year's  information  was
          provided by the OTC Bulletin Board.  Our management  believes that the
          information set forth in the table above is accurate.

          *** The OTC Bulletin Board provided us with two sets of bid prices for
          this period due to the fact that our trading symbol was changed in the
          second quarter of 1999.  The first set of bid prices  reflects the low
          and high bid prices of our common stock for the time during the second
          quarter of 1999 when it was traded under the symbol  DWNS;  the second
          set of bid prices  reflects  the low and high bid prices of our common
          stock  for the time  during  the  second  quarter  of 1999 when it was
          traded under the symbol QSSY.

          HOLDERS

     As of April 5, 2000,  there were  approximately 28 holders of record of our
common stock. Some of these holders were institutions that probably were holding
our stock on behalf of various beneficial owners.

          DIVIDENDS

     We have never paid cash dividends on our common stock and do not anticipate
paying dividends in the foreseeable future.

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

          OVERVIEW

     For accounting purposes, our acquisition (the "Q-Seven Nevada Acquisition")
in May 1999 of Q-Seven Systems,  Inc., a Nevada corporation  ("Q-Seven Nevada"),
is considered a reverse  merger,  i.e., an acquisition of our company by Q-Seven
Nevada and its wholly owned direct subsidiary X-Real  Intertainment,  Inc. Ltd..
At the time of the Q-Seven  Nevada  Acquisition,  our  company  was  essentially
inactive and had no  operations  and minimal  assets.  The exchange of 7,900,000
shares of our common


                                       10


<PAGE>



stock for all shares of common  stock of Q-Seven  Nevada had the effect that the
former   shareholders  of  Q-Seven  Nevada  obtained  control  of  our  company.
Accordingly, Q-Seven Nevada and its wholly owned direct subsidiary X-Real became
the  continuing   entities  for  accounting  purposes  and  the  Q-Seven  Nevada
Acquisition  was accounted for as a  recapitalization  of Q-Seven Nevada and its
wholly  owned  subsidiary  X-Real  with no  adjustments  to the basis of Q-Seven
Nevada's and X-Real's  assets and  liabilities  that were  acquired and assumed,
respectively.  For legal purposes, our company is the surviving entity of the Q-
Seven Nevada Acquisition.

     Due to the  accounting  treatment of the Q-Seven  Nevada  Acquisition  as a
reverse  merger,  all results which relate to the fiscal year ended December 31,
1998 and appear in our audited 1999  financial  statements  or in the  following
Management's  Discussion  and  Analysis  solely  reflect  the results of Q-Seven
Nevada and its wholly owned  subsidiary  X-Real.  Any results that relate to the
operations  of  our  company  prior  to  the  Q-Seven  Nevada  Acquisition  were
eliminated.  The reader should keep this in mind when comparing our 1999 audited
financial  statements to financial statements of our company relating to periods
prior to the Q-Seven Nevada Acquisition.

     As a result of the Q-Seven  Nevada  Acquisition,  our  business has changed
considerably. Currently, we only engage in two lines of business, i.e., the sale
of licenses to the User  Management  Software and Internet  adult  entertainment
through X-Real Intertainment, Inc. Ltd.

          CONSOLIDATED RESULTS OF OPERATIONS

          Revenues

     The  following  table  and  discussion  highlights  the  revenues  that  we
generated in our fiscal years ended December 31, 1999 and December 31, 1998:

<TABLE>
<CAPTION>
                                                    Fiscal Year Ended                  Fiscal Year Ended
                                                    December 31, 1999                  December 31, 1998

<S>                                                <C>                 <C>        <C>            <C>
Revenues from the sale of licenses to the User     $200,487            15.47%             $0             0%
Management Software

Revenues from X-Real's adult entertainment       $1,095,667            84.53%       $340,293           100%
websites

Total revenues                                   $1,296,154              100%       $340,293           100%
</TABLE>


     We generate revenues from two lines of business, i.e., the sale of licenses
to  the  User   Management   Software  and  the  provision  of  Internet   adult
entertainment,  through  X-Real.  Our total  revenues rose from $340,293 for the
fiscal  year ended  December  31, 1998 to  $1,296,154  for the fiscal year ended
December 31, 1999.  In the fiscal year ended  December 31, 1999,  revenues  from
X-Real's adult entertainment websites were $1,095,667 or approximately 84.53% of
our total revenues for that year,  whereas revenues from the sale of licenses to
our software,  which commenced in September 1999, were $200,487 or 15.47% of our
total  revenues.  Our  management  expects  that  during our fiscal  year ending
December 31, 2000, the amount and the importance of revenues  generated from the
sale of licenses to our software  will  increase  because we expect to sell more
licenses to our  software in the 2000 fiscal year as compared to the 1999 fiscal
year. In addition, our management expects that revenues generated by X-Real


                                       11


<PAGE>



which can be  reflected  in our  financial  statements  are  likely to  decrease
substantially  in the 2000  fiscal  year due to the fact that in all  likelihood
after the completion of the Infobridge Investment we will own only slightly more
than 50% of X-Real's stock. See also Item 1 - Description of Business - Business
Development.

X-Real's Adult Entertainment Websites

     X-Real  generates  revenues  by charging a fee to viewers who access any of
its six adult  entertainment  websites.  Four of X-Real's  websites operate on a
subscription  basis.  Subscribers to these sites pay X-Real a monthly membership
fee.   X-Real's  two  other  websites   operate  on  both  a  subscription   and
non-subscription  basis.  Certain  areas of those  websites  are  accessible  to
subscribing  members only;  other areas are accessible also to non-members,  who
pay a fee based on the amount of time they spend viewing the site.  Our revenues
generated  through  X-Real  increased  from  $340,293  for the fiscal year ended
December  31, 1998 to  $1,095,667  for the fiscal year ended  December 31, 1999.
This increase was primarily attributable to the addition, in spring 1999, of two
new  websites  to  X-Real's   adult   entertainment   business   and   increased
subscriptions  for X-Real's  websites as a result of an  affiliate  program with
webmasters which advertise  X-Real's websites for a percentage of the additional
revenues  generated  by X-Real  from new  subscriptions  that  result  from such
advertisements.

Sale of Licenses to the User Management Software

     Since September 1999, we have generated  revenues from the sale of licenses
to our software. In 1999, we generated $200,487 from the sale of licenses to our
software.  In the fourth quarter of 1999, we concentrated on selling licenses to
the newly developed casino module of the User Management Software, while Q-Seven
Systems GmbH  concentrated on research and  development  with regard to the User
Management  Software.  See also Item 1 -  Description  of Business - Business of
Issuer; and Item 12 - Certain Relationships and Related Transactions. In October
1999, we attended Interactive 2000 in Miami,  Florida, an audiotext and Internet
business  show,  as well as Exponet in  Duesseldorf,  Germany,  one of Germany's
largest  Internet  and network  tradeshows.  In January  2000,  we attended  the
International  Casino  Exhibition  ICE  2000  in  London.  Contacts  made by our
management  during these  tradeshows led to discussions  and  negotiations  with
potential  new  customers of our  software.  In October  1999, we entered into a
license  agreement with Setec  Astronomy  Ltd., a Bahamian  company,  which will
utilize our software to operate the Seaside Online Casino.  In November 1999, we
sold a license to our software and its casino  module to World  Network  Ltd., a
Bahamian company, which plans to operate an online casino with our software. Our
management  expects  that most of our  revenues  in the 2000 fiscal year will be
generated from the sale of licenses to our software.

          COSTS AND EXPENSES

     The following  table and  discussion  highlights our costs and expenses for
our fiscal years ended December 31, 1999 and December 31, 1998:



                                       12


<PAGE>




<TABLE>
<CAPTION>
                                                        Fiscal Year Ended                  Fiscal Year Ended
                                                        December 31, 1999                  December 31, 1998

<S>                                             <C>                 <C>                <C>              <C>
Total revenues                                     $1,296,154                            $340,293

Costs and expenses:
Cost of sales                                        $554,249           42.70%            $77,008          28.56%
Selling, general and administrative                  $743,533           57.29%           $192,633          71.44%
Depreciation and amortization                             $90            0.01%                 $0              0%

Total costs and expenses                           $1,297,872             100%           $269,641            100%
</TABLE>


Cost of Sales

     Cost of  sales  for our  fiscal  year  ended  December  31,  1999  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.

     Our cost of sales  during  the  fiscal  year ended  December  31,  1998 was
$77,008,  as compared to $554,249  for the fiscal year ended  December 31, 1999.
This increase is primarily  attributable to increased costs  associated with the
operation of X-Real's  websites due to the addition,  in spring 1999, of two new
webpages  and the payment,  since  September  1999,  of a royalty fee to Q-Seven
Systems  GmbH for our  right to  license  the User  Management  Software  to our
customers.  Approximately  $373,254  or 67.34%  of our  total  cost of sales are
attributable  to the  operation  of  X-Real's  websites,  whereas  approximately
$180,995  or 32.66%  relate to the sale of  licenses  to our  software.  We paid
approximately  $295,000 to  Cyberotic  Media A.G. and  approximately  $78,000 to
Alice Jay  Productions  Inc. for managing,  operating and  maintaining  X-Real's
websites. See also Item 12 - Certain Relationships and Related Transactions.  We
paid  $180,995 to Q-Seven  Systems  GmbH as royalty fee for our right to license
the User Management  Software to our customers.  Our management expects that the
cost of sales  relating to X-Real's  websites  which is to be  reflected  in our
financial statements is likely to decrease substantially in the 2000 fiscal year
due to the fact that in all  likelihood  after the  completion of the Infobridge
Investment we will own only slightly more than 50% of X-Real's  stock.  See also
Item 1 Description of Business - Business Development. The aggregate royalty fee
that we pay to Q-Seven  Systems GmbH for the right to license our software  will
increase in the 2000 fiscal year,  if we sell more  licenses to our software and
generate higher license fees,  since the fee we pay to Q-Seven Systems GmbH is a
percentage of the fee we receive from our customers.


                                       13


<PAGE>



Selling, General and Administrative

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

     Our selling,  general and  administrative  expenses  during the fiscal year
ended  December 31, 1998 were  $192,633,  as compared to $743,533 for the fiscal
year ended  December  31,  1999.  This  increase is  primarily  attributable  to
increased  legal and accounting  expenses in connection  with the Q-Seven Nevada
acquisition and the compliance with the periodic  reporting  requirements  under
the  securities  laws  as well  as  increased  advertising  costs  for  X-Real's
websites.   Approximately  $506,976  or  68.18%  of  the  selling,  general  and
administrative  expenses  during the 1999  fiscal year are  attributable  to the
operation of X-Real's websites, whereas approximately $236,557 or 31.82% of such
expenses are attributable to the sale of licenses to our software.

Depreciation and Amortization

     Depreciation  and  amortization  expenses  increased from $0 for the fiscal
year ended December 31, 1998 to $90 for the fiscal year ended December 31, 1999.

          LIQUIDITY AND CAPITAL RESOURCES

     We are currently financing our operations  primarily through cash generated
from  operations.  Net cash provided by operating  activities was $44,133 in the
fiscal  year ended  December  31, 1999  compared  to net cash used in  operating
activities of $5,754 in the fiscal year ended December 31, 1998. The increase in
net cash provided by operating activities is primarily due to an increase in net
income before taxes.  Net cash provided by financing  activities was $13,397 and
$758 for the fiscal  years  ended  December  31,  1999 and  December  31,  1998,
respectively. These were proceeds from additional capital contributions.

     We expect to continue  financing our ongoing  operations  primarily through
cash generated from  operations.  Our management  anticipates that 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 current  assets  increased by $343,356,  from  $102,290 at December 31,
1998 to $445,646 at December 31, 1999, while our current  liabilities  increased
by $378,796,  from $24,522 to  $403,318,  over the same period.  The increase in
current  assets was primarily  attributable  to our new lines of business and an
increase in cash and accounts receivable  generated by such new operations.  The
increase in current  liabilities  was primarily due to our new lines of business
and an increase in accrued expenses and accounts payable resulting from such new
operations.  Our fixed assets at December 31, 1999 consisted of office equipment
valued at $622.

          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.


                                       14


<PAGE>



These date code fields need to distinguish  21st century dates from 20th century
dates and, as a result,  many companies' software and computer systems had to be
upgraded or  replaced  in order to comply  with such "Year  2000"  requirements.
Neither we nor any of our  subsidiaries  have  experienced any significant  Year
2000 disruptions, and neither we nor our subsidiaries have incurred any material
costs in connection with Year 2000 remediation.

          FORWARD LOOKING STATEMENTS

     Our company has made  certain  forward-looking  statements  in this report.
They use such  words as "may,"  "will,"  "expect,"  "believe,"  "plan" and other
similar   terminology.   These  statements  reflect  our  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,  continuing 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.

Item 7.   Financial Statements.

     Our audited  financial  statements  for the fiscal year ended  December 31,
1999 are  included in Item 13,  Exhibit  99.1,  and are  incorporated  herein by
reference.  The company which audited our 1999 financial statements has recently
changed its name from Jones, Jensen & Company LLC to HJ & Associates LLC.

Item 8.   Changes  in and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure.

     There were no changes in, or  disagreements  with accountants on accounting
and financial disclosure for our two most recent fiscal years.


                                       15


<PAGE>



                                    PART III

Item 9.   Directors,   Executive   Officers,   Promoters  and  Control  Persons;
          Compliance with Section 16(a) of the Exchange Act.

          DIRECTORS AND EXECUTIVE OFFICERS

     As of May 1, 2000,  the following  directors and executive  officers of our
company held the offices  indicated,  to serve until their successors are chosen
and qualified after the next annual meeting of shareholders:

Name                          Age       Title(s)
----                          ---       --------
Philipp S. Kriependorf        26        President, Chief Executive Officer and
                                        Director since May 1999

Philip Kamp                   26        Vice President, Treasurer and Director
                                        since May 1999

Olaf D. Cordt                 29        Secretary and Director since May 1999

     The  following is certain  additional  information  concerning  each of the
executive officers and directors of our company.

PHILIPP SEBASTIAN  KRIEPENDORF serves as President,  Chief Executive Officer and
Director  of our  company.  He also  serves as a  Managing  Director  of Q-Seven
Systems  GmbH and as Director of  EuroDebit  Systems,  Inc.,  a company that has
developed an electronic  on-line  debit-entry  payment and clearing system.  Mr.
Kriependorf   also   serves  as  a   management   consultant   for   Mediacenter
Betriebsgesellschaft  mbH and has  prior  experience  as a project  manager  for
T.N.P./Q-5 Internet Marketing GmbH. Mr. Kriependorf is the chairman of Cyberotic
Media A.G.'s  supervisory  board. Mr.  Kriependorf has studied  economics at the
University of Cologne in Germany.  See also Item 12 - Certain  Relationships and
Related Transactions.

PHILIP KAMP serves as Vice President,  Treasurer and Director of our company. He
also  serves as Chief  Financial  Officer  of  EuroDebit  Systems,  Inc.  and as
Managing Director of EuroDebit Systems GmbH, a 90% owned subsidiary of EuroDebit
Systems,  Inc., of which X-Real, our indirect Bahamian subsidiary,  is currently
the  main  customer.  Mr.  Kamp  also  serves  as a  management  consultant  for
Mediacenter  Betriebsgesellschaft  mbH. Mr. Kamp has previously  worked for D.M.
Griffith,  Inc.  Consulting.  In 1997,  Mr.  Kamp  founded  T.N.P./Q-5  Internet
Marketing GmbH and, in 1999, Cyberotic Media AG. Mr. Kamp has a bachelors degree
in economics,  specializing in international business  administration,  from the
University  of  Utrecht  in  the  Netherlands.   See  also  Item  12  -  Certain
Relationships and Related Transactions.

OLAF  DOMINIK  CORDT serves as  Secretary  and Director of our company.  He also
serves as a consultant  for Q-Seven  Systems GmbH and as a Director of EuroDebit
Systems, Inc. He also works as a consultant for Mediacenter Betriebsgesellschaft
mbH. Mr. Cordt has  Internet-related  experience  through his work at T.N.P./Q-5
Internet Marketing GmbH, of which he is currently the Managing Director. Mr.


                                       16


<PAGE>



Cordt has studied  computer  sciences at the  University of Dortmund in Germany.
See also Item 12 - Certain Relationships and Related Transactions.

          SIGNIFICANT EMPLOYEES

     Our company has  currently no  employees.  We utilize at no charge  certain
employees of Q-Seven Systems GmbH, none of which we would consider a significant
employee.

          FAMILY RELATIONSHIPS

     Our  management  is  not  aware  of  any  family  relationships  among  our
directors,  executive  officers or other  persons  nominated  or chosen by us to
become officers or executive officers of our company.

          INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

     Our management is not aware of any material legal proceedings involving any
of our directors,  director nominees,  executive officers,  promoters or control
persons,  including  bankruptcy  petitions  filed by or against any  business of
which such person was a general partner or executive  officer either at the time
of the bankruptcy or within two years prior to that time;  criminal  convictions
or pending criminal  proceedings  (excluding  traffic violations and other minor
offenses);  any order, judgment or decree, not subsequently reversed,  suspended
or vacated, of any court of competent  jurisdiction,  permanently or temporarily
enjoining, barring, suspending or otherwise limiting the involvement in any type
of business,  securities or banking activities; any order, judgment or decree of
a competent  jurisdiction  (in a civil action),  the Commission or the Commodity
Futures  Trading  Commission to have  violated a federal or state  securities or
commodities law, which judgment has not been reversed, suspended or vacated.

          SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act, requires our officers and directors, and
persons who own more than ten percent of a registered class of our common stock,
to file  with the  Commission  initial  reports  of  ownership  and  changes  in
ownership.  Officers, directors and persons who own more than ten percent of our
common  stock are  required  to  furnish  us with  copies of all forms they file
pursuant to Section 16(a) of the Exchange Act.

     Based  solely on our review of the copies of such forms  received by us, or
written  representations from certain reporting persons, our management believes
that,  during the fiscal year ended December 31, 1999,  all filing  requirements
applicable  to our  officers,  directors  and more than ten  percent  beneficial
owners were complied with.


                                       17


<PAGE>



Item 10.  Executive Compensation.

     The following  table  summarizes the total  compensation of (A) our current
President, Chief Executive Officer and Director, Mr. Kriependorf, (B) our former
President,  Treasurer and Director (until May 24, 1999), Mr. Ellsworth,  and (C)
our other most highly compensated executive officers  (collectively,  the "Named
Executive Officers"). At this time, none of our executive officers receives from
us a salary or other  compensation for their services.  Mr.  Kriependorf did not
receive any compensation  from us in 1999. He received,  however,  payments from
our affiliate Mediacenter  Betriebsgesellschaft  mbH, which are reflected in the
compensation  table below. See also Item 12 - Certain  Relationships and Related
Transactions.

<TABLE>
<CAPTION>
                                 Annual Compensation                     Long-Term Compensation
                                                                         Awards                    Payouts
                                 ------------------------------------------------------------------------------------------------
                                                                               Restricted Securities
                                                                 Other Annual  Stock      Underlying     LTIP      All Other
                                       Salary         Bonus      Compensation  Award(s)   Optional SARs  Payouts   Compensation
Name and Principal Position     Year   ($)            ($)        ($)           ($)        (#)            ($)       ($)
(a)                             (b)    (c)            (d)        (e)           (f)        (g)            (h)       (i)
<S>                            <C>     <C>           <C>        <C>           <C>         <C>            <C>       <C>
Philipp S. Kriependorf          1999    approximately          0             0          0              0         0              0
President, Chief Executive                $50,000***
Officer and Director*

Barry A. Ellsworth              1999           $6,000          0    $5,000****          0              0         0              0
Director, President and         1998          $22,000    $19,300             0          0              0         0              0
Treasurer**                     1997          $12,000     $2,535             0          0              0         0              0
-------------------------       ------ -------------- ---------- ------------- ---------- -------------- --------- --------------
</TABLE>

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

     *    Since May 24, 1999.
     **   Until May 24, 1999.
     ***  Mediacenter  Betriebsgesellschaft  mbH paid to Mr. Kriependorf in 1999
          the amount of DM 100,000, which amount equals approximately $45,000 on
          the basis of the  Federal  Reserve  Bank of New York May 17, 2000 noon
          buying rate of $1 = Euro 0.8921 and the fixed  exchange rate of Euro 1
          = DM 1.95583.  This amount includes the monetary  benefits relating to
          the use of a car  provided to Mr.  Kriependorf.  Approximately  90% of
          this  compensation  was paid for his services as managing  director of
          Q-Seven  Systems GmbH.  The remaining 10% was paid to Mr.  Kriependorf
          for  services  that he  provided  in 1999 to  other  Internet  related
          companies owned by Messrs. Kriependorf,  Kamp and Cordt. See also Item
          12 - Certain Relationships and Related Transactions.
     **** This  amount  was  paid  to Mr.  Ellsworth  pursuant  to a  Consulting
          Agreement with us dated May 27, 1999.  This  Consulting  Agreement has
          been  terminated.  See Item 12 -  Certain  Relationships  and  Related
          Transactions.

     We have not granted to the Named Executive  Officers during the fiscal year
ended  December  31, 1999 any options or SARs or any  long-term  incentive  plan
awards.

          COMPENSATION OF DIRECTORS

     The members of our Board of Directors do neither  receive any  compensation
from us for their service as directors of our company nor are they reimbursed by
us for actual  expenses  incurred  by them in  attending  our board  meetings or
otherwise.



                                       18


<PAGE>



          EMPLOYMENT  CONTRACTS AND  TERMINATION  OF  EMPLOYMENT,  AND CHANGE IN
          CONTROL ARRANGEMENTS

     There are neither any written employment contracts between us and the Named
Executive Officers nor any compensatory plans or arrangements  involving a Named
Executive  Officer.  Oral  employment  contracts  exist  between each of Messrs.
Kriependorf, Kamp and Cordt, our officers, directors and principal shareholders,
and  Mediacenter  Betriebsgesellschaft  mbH,  relating to  services  rendered by
Messrs. Kriependorf, Kamp and Cordt to Internet related companies that are owned
by  them,  including  Q-Seven  Systems  GmbH.  None  of  these  oral  employment
agreements provides for an annual compensation exceeding, in each case, $100,000
or  includes  any  change-in-control  arrangements.  See also  Item 12 - Certain
Relationships and Related Transactions.

Item 11.  Security Ownership of Certain Beneficial Owners and Management.

     The table below sets forth information,  as of May 1, 2000, with respect to
the  beneficial  ownership  of our common stock by each person known by us to be
the beneficial owner of more than 5% of our outstanding common stock, by each of
our directors,  by each Named  Executive  Officer and by all of our officers and
directors as a group. Unless otherwise noted, each such shareholder has the sole
investment and voting power with respect to the shares owned.


<TABLE>
<CAPTION>
                                                                           Amount and Nature of
                                                                           Beneficial Ownership
Title of         Name And Address of                                       of Common Stock as of         Percent of
Class            Beneficial Owner                    Position              May 1, 2000                   Class
-----            -----------------                   --------              -----------                   -----
<S>             <C>                                 <C>                   <C>                           <C>
Common           Philipp S. Kriependorf              President, Chief      2,633,334 shares              21.07%
Stock,           c/o Q-Seven Systems, Inc.,          Executive
$0.001 par       Mittelstr. 11-13, D-40789           Officer and           Record and Beneficial
value per        Monheim, Germany                    Director*
share

Common           Philip Kamp                         Vice President,       2,633,333 shares              21.07%
Stock,           c/o Q-Seven Systems, Inc.,          Treasurer and
$0.001 par       Mittelstr. 11-13, D-40789           Director*             Record and Beneficial
value per        Monheim, Germany
share

Common           Olaf D. Cordt                       Secretary and         2,633,333 shares              21.07%
Stock,           c/o Q-Seven Systems, Inc.,          Director*
$0.001 par       Mittelstr. 11-13, D-40789                                 Record and Beneficial
value per        Monheim, Germany
share



                                       19


<PAGE>




Common           Barry A. Ellsworth                  President,            948,500 shares                7.59%
Stock,           6120 W. Tropicana Ave.              Treasurer and
$0.001 par       A16-299, Las Vegas, NV              Director**            Record and Beneficial
value per        89103
share

Common           All directors and executive officers of our               7,900,000 shares              63.2%
Stock,           company as a group (3 persons).
$0.001 par                                                                 Record and Beneficial
value per
share
</TABLE>

         ----------
         *        Since May 24, 1999.
         **       Until May 24, 1999.


Item 12.   Certain Relationships and Related Transactions.

     Some of the  stockholders,  directors  and officers of our company are also
controlling  shareholders,  directors  and  officers of other  Internet  related
companies. In certain instances,  our company engages in transactions with these
companies.

     Q-Seven  Systems  GmbH,  a German  corporation  founded  in  February  1999
("Q-Seven  GmbH"),  is  owned  by  Messrs.  Kriependorf,  Kamp  and  Cordt,  our
directors,  officers  and  controlling  shareholders.  Mr.  Kriependorf  is  the
managing  director of Q-Seven GmbH and receives a salary for such  services from
Mediacenter  Betriebsgesellschaft  mbH (see below).  We use at no charge Q-Seven
GmbH's offices in Monheim,  Germany, as well as certain of Q-Seven GmbH's office
equipment (e.g., telephone,  facsimile, etc.). We also utilize free of charge to
us the services of certain of Q-Seven GmbH's  employees.  No written  agreements
exist between us and Q-Seven GmbH regarding the use of Q-Seven  GmbH's  offices,
office equipment and employees.  Q-Seven GmbH owns the User Management  Software
that we license to our customers.  We have entered into a License Agreement with
Q-Seven GmbH  pursuant to which we have been granted the exclusive and unlimited
right to license the User Management  Software to our customers.  We pay Q-Seven
GmbH a royalty fee of 90% of the fees  arising upon the sale of licenses for the
User Management Software.

     EuroDebit  Systems,  Inc,  a Nevada  corporation  which  has  developed  an
electronic on-line  debit-entry  payment and clearing system  ("EuroDebit"),  is
approximately 42% owned by Messrs.  Kriependorf,  Kamp and Cordt, our directors,
officers  and  controlling  shareholders.   EuroDebit  Systems  GmbH,  a  German
corporation ("EuroDebit GmbH"), is a 90% owned subsidiary of EuroDebit.  X-Real,
our indirect  Bahamian  subsidiary,  is currently,  through Cyberotic Media A.G.
(see below), the main customer of EuroDebit GmbH.

     Mediacenter Betriebsgesellschaft mbH, a German corporation ("Mediacenter"),
is owned by Messrs.  Kriependorf,  Kamp and Cordt,  our directors,  officers and
controlling shareholders.  Q-Seven GmbH leases from Mediacenter the office space
in Monheim  that we are using and certain of the office  equipment  that Q-Seven
GmbH and we are using.  Mr.  Kriependorf  is an  employee  of  Mediacenter  and,
pursuant to an oral agreement  between  Mediacenter and Q-Seven Systems GmbH and
an oral employment


                                       20


<PAGE>



agreement between Mediacenter and Mr.  Kriependorf,  receives from Mediacenter a
salary for his services as Managing  Director of Q-Seven  Systems GmbH. See Item
10 - Executive Compensation,  in Footnote "***". Messrs. Kamp and Cordt are also
employees  of  Mediacenter  and,  pursuant to oral  employment  agreements  with
Mediacenter,  each received from Mediacenter in 1999 a salary for their services
to Internet  related  companies  owned by Messrs.  Kriependorf,  Kamp and Cordt,
including  Q-Seven  GmbH.  This  salary  was DM  100,000,  which  amount  equals
approximately  $45,000 on the basis of the Federal  Reserve Bank of New York May
17, 2000 noon buying  rate of $1 = Euro  0.8921 and the fixed  exchange  rate of
Euro 1 = DM 1.95583.

     Cyberotic Media A.G., a German corporation,  which is controlled by Messrs.
Kamp and Cordt,  two of our directors,  officers and  controlling  shareholders,
resells EuroDebit GmbH's services to X-Real,  our indirect Bahamian  subsidiary.
Cyberotic Media A.G. also manages the operations of X-Real,  leases to X-Real to
content for its X-Real websites and provides  maintenance  services with respect
to X- Real's servers.  Cyberotic Media A.G. provides such services to X-Real and
X-Real  pays  a fee  to  Cyberotic  for  such  services  solely  based  on  oral
agreements. The fee paid to Cyberotic in 1999 was approximately $295,000.

     Alice Jay Productions Inc.  provided support services to X-Real in 1999 and
received  $78,000 for such  services.  Our officers,  directors and  controlling
shareholders  Messrs. Kamp and Cordt are among the persons who control Alice Jay
Productions Inc.

     In other  instances,  as is the case with  respect to  T.N.P./Q-5  Internet
Marketing  GmbH,  whose  managing  director  is  Mr.  Cordt,  our  Director  and
Secretary,  there are no  intercompany  transactions,  but only  commonality  of
ownership and control.  Because  control of these  companies is held by a common
group of people, under certain  circumstances our company could possibly be held
liable for the debt of one of those other  companies,  if that  company  were to
become  insolvent.  If this were to occur,  it could have a significant  adverse
effect on our business and financial condition.

     Mr. Barry A. Ellsworth was the President and Treasurer of our Company until
May 24, 1999 and currently  owns  approximately  7.59% of our common  stock.  We
entered  into a  Consulting  Agreement  with Mr.  Ellsworth  dated May 27, 1999,
pursuant to which Mr. Ellsworth was to provide certain consulting services to us
in  exchange  for a monthly fee of $2,500.  The  Consulting  Agreement  has been
terminated  effective as of August 5, 1999 pursuant to a  Termination  Agreement
dated April 17, 2000.


                                       21


<PAGE>



Item 13.  Exhibits, List and Reports on Form 8-K.

                                    EXHIBITS

EXHIBIT NO.                                 DESCRIPTION

3.1                 Articles of Incorporation,  as amended:  Incorporated herein
                    by reference to Exhibit 3.1 to the Report on Form 10-QSB for
                    the quarter ended June 30, 1999.

3.2                 By-laws,  as amended:  Incorporated  herein by  reference to
                    Exhibit  3.2 to the Report on Form  10-QSB  for the  quarter
                    ended September 30, 1999.

3.3                 Form of Stock Certificate:  Incorporated herein by reference
                    to Exhibit 3.3 to the  Registration  Statement  on Form 8-A,
                    filed on October 29, 1999.

10.1                License  Agreement  between Q-Seven Systems GmbH and Q-Seven
                    Systems, Inc., undated:  Incorporated herein by reference to
                    Exhibit  10.1 to the Report on Form  10-QSB for the  quarter
                    ended June 30, 1999.

10.2                Agreement  and Plan of Share  Exchange,  dated May 24, 1999:
                    Incorporated  herein  by  reference  to  Exhibit  III to the
                    Report on Form 8-K filed on June 9, 1999.

10.3                Consulting  Agreement  dated May 27,  1999  between  Q-Seven
                    Systems,  Inc.  and Mr.  Barry  A.  Ellsworth:  Incorporated
                    herein by  reference  to Exhibit  10.3 to the Report on Form
                    10-KSB for the fiscal year ended December 31, 1999.

10.4                Termination  Agreement  dated April 17, 2000 between Q-Seven
                    Systems,  Inc.  and Mr.  Barry  A.  Ellsworth:  Incorporated
                    herein by  reference  to Exhibit  10.4 of the Report on Form
                    10-QSB for the period ended March 31, 2000.

21.1                Subsidiaries:  Incorporated  herein by  reference to Exhibit
                    21.1 to the Report on Form  10-KSB for the fiscal year ended
                    December 31, 1999.

27.1                Financial Data Schedule.*

99.1                Consolidated Audited Financial Statements (December 31, 1999
                    and 1998).*

         --------
         *    Filed herewith.



                                       22


<PAGE>



          REPORTS ON FORM 8-K

     On November  15,  1999,  we filed with the  Commission  an amendment to our
report on Form 8-K of June 8,  1999,  to amend  and  restate  certain  financial
statements that were filed as exhibits to such report.


                                       23


<PAGE>



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

                                   Q-SEVEN SYSTEMS, INC.


         Date: May 19, 2000        By:      /s/ Philipp S. Kriependorf
                                            __________________________
                                   Name:    Philipp S. Kriependorf
                                   Title:   President

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

         Date: May 19, 2000        /s/ Philipp S. Kriependorf
                                   _________________________
                                   Philipp S. Kriependorf
                                   President, Chief Executive Officer
                                   Chief Financial Officer, Chief
                                   Accounting Officer and Director


         Date: May 19, 2000        /s/ Olaf D. Cordt
                                   _______________________
                                   Olaf D. Cordt
                                   Director






                                       24


<PAGE>


                                INDEX TO EXHIBITS



EXHIBIT NUMBER                              DESCRIPTION OF EXHIBIT

3.1                 Articles of Incorporation,  as amended:  Incorporated herein
                    by reference to Exhibit 3.1 to the report on Form 10-QSB for
                    the period ended June 30, 1999.

3.2                 By-laws,  as amended:  Incorporated  herein by  reference to
                    Exhibit  3.2 to the  report on Form  10-QSB  for the  period
                    ended September 30, 1999.

3.3                 Form of Stock Certificate:  Incorporated herein by reference
                    to Exhibit 3.3 to the  Registration  Statement  on Form 8-A,
                    filed on October 29, 1999.

10.1                License  Agreement  between Q-Seven Systems GmbH and Q-Seven
                    Systems, Inc., undated:  Incorporated herein by reference to
                    Exhibit  10.1 to the  report on Form  10-QSB  for the period
                    ended June 30, 1999.

10.2                Agreement  and Plan of Share  Exchange,  dated May 24, 1999:
                    Incorporated  herein  by  reference  to  Exhibit  III to the
                    Report on Form 8-K filed on June 9, 1999.

10.3                Consulting  Agreement  dated May 27,  1999  between  Q-Seven
                    Systems,  Inc.  and Mr.  Barry  A.  Ellsworth:  Incorporated
                    herein by  reference  to Exhibit  10.3 of the Report on Form
                    10-KSB for the fiscal year ended December 31, 1999.

10.4                Termination  Agreement  dated April 17, 2000 between Q-Seven
                    Systems,  Inc.  and Mr.  Barry  A.  Ellsworth:  Incorporated
                    herein by  reference  to Exhibit  10.4 of the Report on Form
                    10-QSB for the period ended March 31, 2000.

21.1                Subsidiaries:  Incorporated  herein by  reference to Exhibit
                    21.1 of the Report on Form  10-KSB for the fiscal year ended
                    December 31, 1999.

27.1                Financial Data Schedule.*

99.1                Consolidated Audited Financial Statements (December 31, 1999
                    and 1998).*

         -------
         *    Filed herewith.



                                       25