<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB


(X)      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 
         For the quarterly period ended March 31, 1999.

( )      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT 
         For the transition period from ___________ to ___________.

                       Commission File Number: 33-18600-D


                               QCS.net CORPORATION
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

   DELAWARE                                             98-0132465              
   -------------------------------------                ------------------------
   (State or other jurisdiction                         (IRS Employer
   of incorporation or organization)                    Identification No.)

              650 CASTRO STREET, SUITE 210, MOUNTAIN VIEW, CA 94041
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (650) 966-1214
-------------------------------------------------------------------------------
                           (Issuer's telephone number)

                                       N/A
-------------------------------------------------------------------------------
(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.

                                  X  YES     NO
                                 ---     ---

Shares of Common Stock outstanding as of May 13, 1999: 22,525,437 shares

Transitional Small Business Disclosure Format          YES        X  NO
                                                   ---           ---

<PAGE>

                               QCS.net CORPORATION

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                                 PAGE
<S>                                                                                             <C>
PART I      FINANCIAL INFORMATION

ITEM 1      Financial Statements

                Consolidated Balance Sheets as of
                March 31, 1999 (unaudited) and June 30, 1998                                       3

                Consolidated Statements of Operations
                for the three and nine month periods ended March 31, 1999 and 1998 (unaudited)     4

                Consolidated Statements of Cash Flows
                for the nine months ended March 31, 1999 and 1998 (unaudited)                      5

                Notes to Consolidated Financial Statements (unaudited)                             6

ITEM 2      Management's Discussion and Analysis of Financial Condition and Results
            of Operations                                                                          7

PART II     OTHER INFORMATION

ITEM 2      Changes in Securities and Use of Proceeds                                             12

ITEM 5      Other Information                                                                     13

ITEM 6      Exhibits and Reports on Form 8-K                                                      13

            SIGNATURE                                                                             13

</TABLE>


                                      2
<PAGE>

PART I      FINANCIAL INFORMATION

ITEM 1      FINANCIAL STATEMENTS

                               QCS.net CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                     MARCH 31,                 JUNE 30,
    ASSETS                                                                             1999                      1998
                                                                                --------------------      -------------------
<S>                                                                               <C>                         <C>
Current assets:                                                                     (Unaudited)
    Cash and cash equivalents                                                         $   1,266,880             $    473,170
    Accounts receivable (net of allowance for doubtful accounts of
    $35,121 at March 31, 1999 and $29,657 at June 30, 1998)                                 222,769                  203,921
    Other current assets                                                                      7,111                    5,345
                                                                                --------------------      -------------------
         Total current assets                                                             1,496,760                  682,436

Property and equipment, net                                                                 185,286                  248,871
Security deposits                                                                            12,839                   27,942
                                                                                --------------------      -------------------
         Total assets                                                                 $   1,694,885             $    959,249
                                                                                ====================      ===================

    LIABILITIES
Current liabilities:

    Accounts payable                                                                   $    207,303              $   344,436
    Accrued liabilities                                                                     524,807                  590,526
    Capital lease obligations, current portion                                                8,201                    8,423
    Preference dividends payable                                                              9,247                   65,051
                                                                                --------------------      -------------------
         Total current liabilities                                                          749,558                1,008,436

Capital lease obligations, net of current portion                                                                      
                                                                                         -                             6,468
                                                                                --------------------      -------------------
         Total liabilities                                                                  749,558                1,014,904

    STOCKHOLDERS' EQUITY (DEFICIT)

Series A convertible preferred stock, par value $.001 per share:

    Authorized: 5,000,000 shares; issued and outstanding 3,816,023 and                        3,816                    4,680
    4,680,102 shares at March 31, 1999 and June 30, 1998, respectively
    (aggregate liquidation preference: $3,930,504)

Common stock, par value $.001 per share:  Authorized: 40,000,000 shares;
    issued and outstanding 22,525,437 and 18,831,552 at March 31, 1999 and                   22,501                   18,832
    June 30, 1998, respectively

Additional paid in capital                                                               15,298,525               12,898,284
Subscriptions receivable from stockholders                                                        -                (200,100)
Common stock note receivable                                                               (40,000)
Accumulated deficit                                                                    (14,420,409)             (12,928,630)
Cumulative foreign currency translation adjustments                                          80,894                  151,279
                                                                                --------------------      -------------------
    Total stockholders' equity (deficit)                                                    945,327                 (55,655)
                                                                                --------------------      -------------------
         Total liabilities and stockholders' equity (deficit)                         $   1,694,885             $    959,249
                                                                                ====================      ===================

</TABLE>

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




                                      3
<PAGE>

                               QCS.net CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED MARCH 31,                  NINE MONTHS ENDED MARCH 31,
                                       ---------------------------------------       --------------------------------------
                                             1999                  1998                   1999                  1998
                                       ------------------    -----------------       ---------------     ------------------
<S>                                      <C>                  <C>                    <C>                   <C>
Revenue:
           Network                           $   175,851          $   144,805            $  480,082            $   539,971
           Consulting                             64,749              105,000               260,915                105,000
                                       ------------------    -----------------       ---------------     ------------------
                                                 240,600              249,805               740,997                644,971

Cost of revenue:
           Network                                72,466               73,624               201,032                356,357
           Consulting                             64,749              105,000               260,915                105,000
                                       ------------------    -----------------       ---------------     ------------------
                                                 137,215              178,624               461,947                461,357

Gross profit                                     103,385               71,181               279,050                183,614

Operating expenses:

           Selling, general and                                                                                            
           administrative                        554,434              521,496             1,371,269              1,636,805
           Research and development              182,564              118,347               479,416                281,910
           Adjustment to long-term                                                                                         
           contract                                                 (156,702)                                    (156,702)
                                       ------------------    -----------------       ---------------     ------------------
Total operating expenses                         736,998              483,141             1,850,685              1,762,013

Operating loss                                 (633,613)            (411,960)           (1,571,635)            (1,578,399)

Other income (expense), net                     (18,569)             (28,982)                62,056               (65,146)
Interest income                                   11,752                1,320                17,800                 17,570
                                       ------------------    -----------------       ---------------     ------------------
Net loss                                    $  (640,430)         $  (439,622)          $(1,491,779)          $ (1,625,975)

Preferred dividend                                                   (64,537)                                    (188,503)
                                       ------------------    -----------------       ---------------     ------------------
Net loss attributed to common                                                                                              
stockholders                                $  (640,430)         $  (504,159)          $(1,491,779)          $ (1,814,478)
                                       ==================    =================       ===============     ==================

                                       ------------------    -----------------       ---------------     ------------------
Net loss per share (basic and diluted)       $    (0.03)          $    (0.03)            $   (0.07)           $    ( 0.11)
                                       ==================    =================       ===============     ==================

Weighted average number of shares
used in per share calculation (basic                                                                                       
and diluted)                                  21,994,373           17,474,312            20,193,250             17,264,914
                                       ==================    =================       ===============     ==================

</TABLE>

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



                                      4
<PAGE>

                                                 QCS.net CORPORATION
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (Unaudited)

<TABLE>
<CAPTION>

                                                                                          NINE MONTHS ENDED
                                                                               ----------------------------------------
                                                                                   MARCH 31,              MARCH 31,
                                                                                     1999                   1998
                                                                               -----------------      -----------------
<S>                                                                            <C>                   <C>
Cash flows from operating activities:
     Net loss                                                                     $ (1,491,779)          $ (1,625,975)
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization expense                                               81,549                 50,803
     Unrealized exchange (gain) loss                                                   (64,329)                 64,516
     Write-off of fixed assets                                                            4,809                 15,181
     Compensation related to stock options & warrants                                                          107,250
     Changes in operating assets and liabilities:
        Changes in accounts receivable                                                 (18,848)               (97,961)
        Changes in other current assets and security deposits                            13,337                 24,904
        Changes in accounts payable                                                   (137,133)                 86,931
        Changes in accrued and other liabilities                                       (65,719)                (3,601)
                                                                               -----------------      -----------------
             Net cash used in operating activities                                  (1,678,113)            (1,377,952)

Cash flows from investing activities:
     Purchases of fixed assets                                                         (22,773)               (44,034)
     Proceeds from sale of fixed assets                                                                         19,405
                                                                               -----------------      -----------------
             Net cash used in investing activities                                     (22,773)               (24,629)
Cash flows from financing activities:
        Proceeds from issuance of common stock                                        2,507,342                611,585
        Exercise of stock options                                                             -                    750
        Payments on capital leases                                                      (6,690)                (6,703)
                                                                               -----------------      -----------------
             Net cash provided by financing activities                                2,500,652                605,632
Effect of exchange rate changes on cash                                                 (6,056)                (2,063)
                                                                               -----------------      -----------------
             Net increase (decrease) in cash and cash equivalents                       793,710              (799,012)
Cash and cash equivalents, beginning of the period                                      473,170              1,274,157
                                                                               -----------------      -----------------
Cash and cash equivalents, end of the period                                        $ 1,266,880             $  475,145
                                                                               =================      =================

Supplemental disclosure of cash flow information:
     Cash paid during the period for interest                                         $   1,573             $    3,225
     Cash paid during the period for taxes                                                  800                      -
Non-cash financing transactions:
     Conversion of preference dividend payable to common stock                           55,804                      -
     Issuance of note receivable for exercise of employee stock options                  40,000                      -

</TABLE>


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

<PAGE>

                               QCS.net CORPORATION
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION:

The consolidated financial statements of QCS.net Corporation ("QCS" or the 
"Company") are unaudited and reflect all adjustments (consisting only of 
normal recurring adjustments), which are, in the opinion of management, 
necessary for a fair presentation, in all material respects, of the financial 
position and operating results of the Company for the interim periods. The 
results of operations for the three and nine month periods ended March 31, 
1999 are not necessarily indicative of the results to be expected for the 
entire fiscal year ending June 30, 1999. The year-end balance sheet data at 
June 30, 1998 was derived from the audited financial statements.

This financial information should be read in conjunction with the audited 
financial statements and notes thereto included in the Company's Form 10-KSB 
for the fiscal year ended June 30, 1998 as filed with the Securities and 
Exchange Commission on September 28, 1998.

2.  COMPUTATION OF NET LOSS PER SHARE:

The Company adopted the provisions of Statement of Financial Accounting 
Standard ("SFAS") 128 "Earnings per Share" effective December 31, 1997. SFAS 
128 requires the presentation of basic and diluted earnings per share. Basic 
earnings per share is computed by dividing the income available to holders of 
Common Stock by the weighted average number of shares of Common Stock 
outstanding for the period. Diluted earnings per share are computed by giving 
effect to all dilutive potential shares of Common Stock that were outstanding 
during the period. For the Company, dilutive potential shares of Common Stock 
consist of incremental shares of Common Stock issuable upon the exercise of 
stock options and warrants and conversion of preferred stock for all periods. 
In accordance with SFAS 128, all prior period earnings per share amounts have 
been restated to reflect this method of calculation.

Basic and diluted earnings per share are calculated as follows during the 
three and nine month periods ended March 31, 1999 and 1998 (unaudited):

<TABLE>
<CAPTION>

                                    THREE MONTHS ENDED MARCH 31,                    NINE MONTHS ENDED MARCH 31,
                             -------------------------------------------     -------------------------------------------
BASIC AND DILUTED:                  1999                    1998                    1999                    1998
                             --------------------    -------------------     -------------------    --------------------
<S>                             <C>                     <C>                <C>                        <C>
Weighted average shares                                                                                                 
outstanding for the period            21,994,373             17,474,312              20,193,250              17,264,914

Net loss available to
common shareholders                $   (640,430)           $  (504,159)         $   (1,491,779)          $  (1,814,478)

                             --------------------    -------------------     -------------------    --------------------
Net loss per share                 $      (0.03)           $     (0.03)         $        (0.07)          $       (0.11)
                             ====================    ===================     ===================    ====================

</TABLE>

At March 31, 1999 the Company had 3,790,077 options and 3,378,651 warrants 
outstanding to purchase shares of Common Stock compared to 2,986,077 options 
and 1,267,894 warrants outstanding at March 31, 1998 (unaudited). These were 
not included in the computation of diluted earnings per share because 
inclusion of the options and warrants was anti-dilutive.

3.  RECLASSIFICATION:

Certain prior period balances have been reclassified to conform to the 
current period's presentation.

4.  RECENT PRONOUNCEMENTS:

The Company adopted SFAS 130, "Reporting Comprehensive Income" in the first 
quarter of fiscal year 1999. SFAS 130 establishes new rules for the reporting 
and displaying of comprehensive income and its components. 


                                      6
<PAGE>

Comprehensive loss for the three months ended March 31, 1999 and 1998 were 
$620,485 and $409,473, respectively. For the nine months ended March 31, 1999 
and 1998, the comprehensive loss was $1,562,164 and $1,564,861, respectively. 
The principal difference between comprehensive loss and net loss is the 
treatment of cumulative translation adjustments.

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 
131, "Disclosures about Segments of an Enterprise and Related Information." 
SFAS 131 requires publicly held companies to report financial and other 
information about key revenue-producing segments of the entity for which such 
information is available and is utilized by the chief operation decision 
maker. Specific information to be reported for individual segments includes 
profit or loss, certain revenue and expense items and total assets. A 
reconciliation of segment information to amounts reported in the financial 
statements is required. SFAS 131 is effective in fiscal year 1999 and does 
not need to be applied to interim financial statements in the year of 
application.



ITEM 2            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  AND RESULTS OF OPERATIONS

The following discussion of financial condition and results of operations of 
the Company should be read in conjunctions with the Financial Statements and 
related Notes thereto included elsewhere in this Form 10-QSB. This discussion 
contains, in addition to historical information, forward-looking statements 
that involve risks and uncertainties. The Company's actual results could 
differ materially from the results discussed in the forward-looking 
statements. Factors that could cause or contribute to such differences 
include, but are not limited those discussed below, as well as those 
discussed in the Company's Annual Report on Form 10-KSB for the fiscal year 
ended June 30, 1998. The Company disclaims any obligation to update 
information contained in any forward-looking statements.

Certain statements contained in this report and other reports of the Company, 
including, without limitation, statements containing the words "believes," 
"anticipates," "expects" and other words of similar import, constitute 
"forward-looking statements" within the meaning of Section 27A of the 
Securities Act of 1933, as amended, and Section 21E of the Securities 
Exchange Act of 1934, as amended. Such forward-looking statements involve 
known and unknown risks, uncertainties and other factors which may cause the 
actual results, performance or achievements of the Company to be materially 
different from any future results, performance or achievements expressed or 
implied by such forward-looking statements. These factors include, but are 
not limited to, the factors discussed in the Risk Factors section of the 
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 
1998, and in the Risk Factor Section below. Given these uncertainties, 
readers are cautioned not to place undue reliance on such forward-looking 
statements. The Company disclaims any obligation to update any such factors 
or to announce publicly the results of any revisions of the forward-looking 
statements contained or incorporated by reference herein to reflect future 
events or developments.


OVERVIEW

QCS.net Corporation ("QCS" or the "Company") is a provider of a 
business-to-business electronic preorder sourcing solution used by the retail 
industry to manage their global merchandise suppliers. QCS.net provides an 
Internet, browser-based workflow tool which integrates electronic catalogs, 
requests for proposals, product offers, negotiations, ordering and order 
status/fulfillment tracking. In conjunction with IBM, the Company can offer 
full Internet EDI functionality. The Company's revenues are derived from 
consulting fees, deployment services and user training, solution, access, 
subscription and registration fees. The Company charges a fixed monthly fee 
or pay-as-you-go transaction fees for electronic forms. In April 1999, the 
Company suspended the transaction based (pay-as-you-go) payment plan for new 
subscribers. Based on a marketing agreement signed in December 1996, IBM has 
assumed responsibility for much of the sales and marketing efforts for the 
Company. Additionally, IBM provides end-user support via three international 
"solution centers" and houses the network servers in an IBM facilities 
management environment. The Company believes this alliance with IBM to be an 
essential component of its business plan, but the involvement with IBM is 
still 

                                      7
<PAGE>

in its early stages and the Company can give no assurance of when or if the 
alliance will ultimately be successful. To date, sales generated from this 
alliance were still very limited.

From inception in 1993 through March 31, 1999, the Company has generated an 
accumulated deficit of $14,420,409. Since inception, the Company has incurred 
substantial costs to develop and enhance its technology, to create, introduce 
and enhance its sourcing solution, to establish marketing and distribution 
relationships, to recruit and train a sales and marketing group and to build 
an administrative organization. The Company's prospects must be considered in 
the light of its operating history, the risks, expenses and difficulties 
frequently encountered by companies in their early stage of development, 
particularly companies in new, unproved and rapidly evolving markets. The 
limited operating history of the Company makes the prediction of future 
results of operations difficult or impossible; and, therefore, there can be 
no assurance that the Company will grow or achieve profitability. The 
Company's success depends to a significant degree upon the Company's ability 
to raise additional capital, continued contributions of key management, 
engineering, sales and marketing, and finance personnel, certain of whom 
would be difficult to replace. The loss of the services of any of the key 
personnel or the inability to attract or retain qualified management and 
personnel in the future or delays in hiring required personnel could have a 
material adverse effect on the Company's business, operating results or 
financial condition. Also, as indicated above, the Company's success is 
highly dependent on its and IBM's ability to execute in a timely manner the 
joint sales and marketing plan, of which no assurance can be made and thus 
far has produced insignificant revenues. If this fails to occur, the Company 
would be materially and adversely affected.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999

The total network and consulting revenues of $240,600 for the third quarter 
of fiscal year 1999 ("Q3 99") represent a 4% decrease from total revenues of 
$249,805 for the third quarter of fiscal year 1998 ("Q3 98"). The Company's 
network revenues increased by 21% to $175,851 for Q3 99 as compared to 
$144,805 for Q3 98. This increase is primarily attributed to the higher level 
of megabyte traffic on the Company's Lotus Notes-based product and a modest 
increase in Internet-based subscription sales. The Company's Internet 
revenues historically have been slow in developing due to the lengthy sales 
and implementation cycles required for our initial retail clients to strongly 
encourage their merchandise suppliers to connect to the QCS Solution and to 
provide the required level of training to buyers and suppliers.

The consulting revenue associated with the Company's service agreement with 
IBM Corporation in Q3 99 was $64,749 compared to $105,000 in Q3 98. The 
revenues and costs associated with these services have been declining as some 
of employees performing these functions have been transferred to IBM 
employment. Under a purchase order with IBM, the Company provides sales, 
marketing and end-user support services to assist in marketing of the QCS 
solution and services. It is anticipated that this order will be completed 
within the next six months, resulting in the further reduction of consulting 
revenues.

Cost of network revenues decreased by 2% to $72,466 for Q3 99 from $73,624 in 
Q3 98. Cost of network revenues in Q3 99 is primarily calculated as a 
percentage of network revenues in accordance with the IBM revenue sharing 
arrangement. The higher cost of network revenues in Q3 98 were due to the 
cost of third party services preformed in Asia. Cost of consulting revenue in 
Q3 99 was $64,749 versus $105,000 in Q3 98 is declining in line with the 
lower levels of consulting services performed. Cost of network revenues 
represents the value of services sold to IBM at cost.

Selling, general and administrative expenses ("SG&A") consist primarily of 
personnel-related costs in the Company's sales, marketing and general 
management organizations and other administrative support costs such as 
external legal and financial services. SG&A expenses increased 6% to $554,434 
in Q3 99 from $521,496 in Q3 98. The increase was due in part to costs 
associated with the expansion of the Company's management team in February 
1999 and increased consulting expenses. Research and development expenses 
increased by $64,217 to $182,564 in Q3 99 compared to $118,347 in Q3 98. The 
increased expenditures were for internal labor for the continued enhancements 
to the Company's products and the release of the latest version of the 
Company's Internet solution.


                                      8
<PAGE>

During Q3 98 the Company recorded an adjustment to the 1996 IBM contract of 
$156,702 to reverse cost accrued to cost of sales during the first six months 
of fiscal 1998 in conjunction with mutual agreement to amend the 1996 IBM 
contract.

As a result of the foregoing and primarily the adjustment referred to in the 
previous paragraph, the net loss increased 46% to $640,430 for Q3 99 from 
$439,622 in Q2 98.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1999

The total network and consulting revenues of $740,997 for the first nine 
months of fiscal year 1999 represent a 15% increase from total revenues of 
$644,971 for the first nine months of fiscal year 1998. This increase is due 
primarily to an increase in the IBM consulting service revenues, which were 
$260,915 for the nine months of fiscal year 1999 compared to $105,000 the 
comparable period in fiscal year 1998. The increase from last year was 
because the contract did not take effect until the third quarter of fiscal 
1998.

The Company's network revenues decreased by 11% to $480,082 for the first 
nine months of fiscal year 1999 as compared to $539,971 for the first nine 
months of fiscal year 1998. This decrease is primarily attributed to the 
Company's lower sales of its full Lotus Notes-based product and the related 
installation and monthly subscription fees. The loss of these revenues has 
not been offset by Internet-based registration and subscription revenues.

Cost of network revenues decreased by 44% to $201,032 for the first nine 
months of fiscal year 1999 from $356,357 in the first nine months of fiscal 
year 1998. In fiscal year 1999, cost of network revenues is calculated 
primarily as a percentage of network revenues in accordance to the IBM 
revenue sharing arrangement. In the first half of fiscal year 1998, cost of 
revenues included cost of purchasing network services, the cost of internal 
and external labor to install and support customer sites, and third party 
software and hardware for the existing Lotus Notes based product. Cost of 
consulting revenue in the first nine months fiscal year 1999 was $260,915 
compared to $105,000 in the first nine months of fiscal year 1998, which 
represents the value of services sold to IBM at cost.

SG&A expenses decreased by 16% to $1,371,269 in the first nine months of 
fiscal year 1999 from $1,636,805 in the same period in fiscal year 1998. The 
decrease was due in part to the aforementioned cost of sales, marketing and 
end-user support services, which are now invoiced to IBM, and the savings 
from the closure of the France and Hong Kong offices in December 1997. 
Research and development expenses increased by 70% from $281,910 to $479,416 
in the nine months of fiscal year 1999 compared to the same period in fiscal 
year 1998. The increased expenditures were for internal labor for continued 
enhancements to the Company's Internet product and release of the latest 
version of the Company's Internet solution.


As a result of the foregoing, the net loss decreased by 8% to $1,491,779 for 
the first nine months of fiscal year 1999 from $1,625,975 in the first nine 
months of fiscal year 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents at March 31, 1999 was $1,266,880, 
representing a $793,710 increase from June 30, 1998. Cash used in operating 
activities for the nine months ended March 31, 1999 was $1,678,113, compared 
to $1,377,952 for the nine months ended March 31, 1998. The cash usage is 
primarily attributed to the net losses that occurred in each of the periods 
and to pay down accounts payable and other current liabilities in 1999 which 
had accumulated prior to the receipt of the latest funding from the sale of 
Common Stock as described below.

During the first nine months of fiscal year 1999, the Company raised 
$2,507,342 in net proceeds in a private placement. This private placement 
consisted of 19 investors purchasing 2,237,680 equity "Units" at prices 
ranging from $0.75 to $1.15 per unit, each such unit consisting of one share 
of Common Stock and one warrant to purchase an additional share of Common 
Stock at an exercise price ranging from $1.00 to $1.75.


                                      9
<PAGE>

The Company believes the capital currently on hand will be sufficient to meet 
the working capital requirements through September 1999. The Company is 
actively seeking additional capital investment to fund operations into the 
future. If such capital raising efforts should prove unsuccessful, the 
Company will need to reduce operating spending significantly, which would 
materially and adversely affect the Company's business.

The Company currently does not have a bank credit line. The Company does not 
intend to pay cash dividends with respect to Common Stock in the foreseeable 
future.

YEAR 2000 COMPLIANCE

The "Year 2000" issue is the result of computer programs being written using 
two digits rather than four digits to define the applicable year. 
Accordingly, computer programs that have date sensitive software might 
recognize a date using "00" as the year 1900 rather than the year 2000. This 
circumstance could result in program failure or miscalculation causing 
disruptions of operations including, among other things, a temporary 
inability to process transactions, send invoices, operate equipment or engage 
in similar normal business activities. The Company has reviewed its internal 
computer systems, as well as its products and services, that could be 
affected by the Year 2000 issue and has identified certain systems, products 
and services that could be affected. The Company presently believes that, 
with modification to existing software and conversion to new software, the 
Year 2000 issues relating to such systems, products and services will not 
cause significant operational or customer problems. The Company is addressing 
these issues and intends to complete these efforts, including testing phases, 
throughout calendar year 1999. The Company does not anticipate that the cost 
of implementing these solutions will be material to its business, financial 
condition and results of operations. However, if such modifications and 
conversions are not made or not completed in a timely manner, then resulting 
Year 2000 issues could have a material adverse effect on the Company's 
business, financial condition and results of operations.

In addition, the Company has initiated communications with its significant 
suppliers and customers in order to (i) determine the extent to which the 
Company is vulnerable to such third parties' failure to remedy their own Year 
2000 issues and (ii) assess whether the Company has adequate resources for 
required supplies, components and complementary offerings. As part of its 
contingency planning efforts, the Company is preparing to identify alternate 
sources or strategies where necessary if significant Year 2000 exposure is 
identified. The Company is addressing these issues and intends to complete 
these efforts throughout calendar year 1999. In addition, the Year 2000 
issues present a number of other risks and uncertainties that could affect 
adversely the Company, including, without limitation, utilities failures, 
competition for personnel skilled in the resolution of Year 2000 issues and 
the nature of government responses to these issues. Although the Company 
believes that the Year 2000 matters discussed above will not have a material 
adverse effect on its business, financial condition or results of operations, 
the Company remains uncertain whether or to what extent that it may be 
affected. Accordingly, the Company's expenses to identify and address such 
risks and uncertainties, as well as the expenses and liabilities to which the 
Company may become subject as a result of such risks and uncertainties, could 
have a material adverse effect on the Company's business, financial condition 
and results of operations.


RISK FACTORS

WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.

We incurred net losses of $2.8 million in fiscal 1998 and $1.5 million in the 
first nine months of fiscal 1999. As of March 31, 1999, we had an accumulated 
deficit of approximately $14.2 million. We expect to derive substantially all 
of our revenues for the foreseeable future subscription fees for the QCS.net 
Network, which is based on an unproven business model. Although these 
revenues have grown slightly in the most recent quarter, we may not be able 
to sustain this growth in the future. In fact, we may not have any revenue 
growth, and our revenues could decline. Moreover, we expect to incur 
significant sales and marketing, research and development, and general and 
administrative expenses. As a result, we expect to incur significant losses 
for the foreseeable future.


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<PAGE>

WE EXPECT TO DEPEND ON OUR QCS.NET SOLUTION FOR SUBSTANTIALLY ALL OF OUR 
REVENUES FOR THE FORESEEABLE FUTURE.

Our solution and related services accounted for substantially all of our 
revenues in fiscal 1999. We anticipate that revenues from our solution and 
related services will continue to constitute substantially all of our 
revenues for the foreseeable future. Consequently, a decline in the price of, 
or demand for, our solution, or its failure to achieve broad market 
acceptance, would seriously harm our business.


IMPLEMENTATION OF OUR SOLUTIONS BY LARGE RETAILERS IS COMPLEX, TIME CONSUMING 
AND EXPENSIVE. WE FREQUENTLY EXPERIENCE LONG SALES AND IMPLEMENTATION CYCLES.

Our supply chain management solution is an enterprise-wide solution that must 
be deployed with many users within a large retailer's sourcing organization. 
Its adoption by large retailers is characterized by long sales cycles 
beginning with pilot studies and concluding with enterprise rollouts. In many 
cases, our customers must change established business practices and conduct 
business in new ways. In addition, they must generally consider a wide range 
of other issues before committing to purchase our product, including product 
benefits, integration, interoperability with existing computer systems, 
scalability, functionality and reliability. As a result, we must educate 
potential customers on the use and benefits of our products and services. It 
frequently takes several months to finalize a sale and the sale must often be 
approved by a number of management levels within the customer organization. 
The implementation and deployment of our products requires a significant 
commitment of resources by our customers and third-party and/or our 
professional services organizations.

WE ARE DEPENDENT ON IBM FOR MARKETING OF OUR SOLUTIONS AND FOR THE MANAGEMENT 
AND SECURITY OF OUR NETWORK INFRASTRUCTURE.

We have an alliance with IBM for co-marketing and customer support. IBM has 
historically exercised substantial discretion and control over such marketing 
and support including financial resources devoted to marketing and the 
compensation of its sales and support personnel. While our future plans call 
for us to take over a substantial portion of our sales and marketing 
activities, we may not be able to do so effectively. Therefore, IBM's 
decisions and performance with respect to these matters have a material 
impact on our ability to market our products and services. IBM is under no 
contractual obligation to continue to market our products and services. A 
decision by IBM to cease or reduce substantially its marketing efforts would 
have an immediate and material adverse effect on our financial condition and 
results of operations. There can be no assurance that, in such an event, we 
would succeed in alternative sales methods.

In addition, we depend on IBM Global Network for certain services relating to 
the QCS.net Network, including maintenance of communications lines and 
management of network data centers. IGN may terminate its performance of 
these services for us at any time. If IGN were to terminate these services, 
we would have to obtain them from another service provider or perform them 
ourselves. There can be no assurance that we would be able to obtain or 
perform these services on a timely or cost-effective basis. If we were able 
to obtain such services from a third party, we would be entirely dependent on 
them to manage and maintain our network infrastructure and to provide 
security for.

WE DEPEND ON OUR KEY PERSONNEL.

Our future performance depends on the continued service of our senior 
management, product development and sales personnel. The loss of the services 
of one or more of our key personnel could seriously harm our business. Our 
future success also depends on our continuing ability to attract, hire, train 
and retain a substantial number of highly skilled managerial, technical, 
sales, marketing and customer support personnel. We are particularly 
dependent on hiring additional personnel to increase our direct sales and 
research and development organizations. In addition, new hires frequently 
require extensive training before they achieve desired levels of 
productivity. Competition for qualified personnel is intense, and we may fail 
to retain our key employees or to attract or retain other highly qualified 
personnel.


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<PAGE>

WE DEPEND ON INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ECOMMERCE. 
IF THE USE OF THE INTERNET AND ECOMMERCE DO NOT GROW AS ANTICIPATED, OUR 
BUSINESS WILL BE SERIOUSLY HARMED.

Our QCS.net Network depends on the increased acceptance and use of the 
Internet as a medium of commerce on a global basis. Rapid growth in the use 
of the Internet is a recent phenomenon. As a result, acceptance and use may 
not continue to develop at historical rates and a sufficiently broad base of 
business customers may not adopt or continue to use the Internet as a medium 
of commerce. Demand and market acceptance for recently introduced services 
and products over the Internet are subject to a high level of uncertainty, 
and there exist few proven services and products.

Our business would be seriously harmed if:

         -   Use of the Internet, the web and other online services does not
    continue to increase or increases more slowly than expected;

         -   The infrastructure for the Internet, the web and other online 
    services does not effectively support expansion that may occur; or

         -   The Internet, the web and other online services do not create a 
    viable commercial marketplace, inhibiting the development of eCommerce and
    reducing the need for our products and services.


WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.

The Company is actively seeking additional capital investment to fund 
operations into the future. We expect the net proceeds from this offering 
will be sufficient to meet our working capital and capital expenditure needs 
for at least the next 12 months. After that, we may need to raise additional 
funds and we cannot be certain that we will be able to obtain additional 
financing on favorable terms, if at all. If we cannot raise funds on 
acceptable terms, if and when needed, we may not be able to develop or 
enhance our products and services, take advantage of future opportunities, 
grow our business or respond to competitive pressures or unanticipated 
requirements, which could seriously harm our business. See "Management's 
Discussion and Analysis of Financial Condition and Results of 
Operations--Liquidity and Capital Resources."

Additional risk factors are discussed in more detail in the risk factor 
section of the Company's Annual Report on Form 10-KSB for the fiscal year 
ended June 30, 1998.

PART II           OTHER INFORMATION

ITEM 2            CHANGES IN SECURITIES AND USE OF PROCEEDS

On March 4, 1999, the Company issued 776,700 shares of Common Stock in 
exchange for the same number of Series A preferred shares at the election of 
the series A shareholder converted under the term and conditions of the 
November 22, 1994 Series A Convertible Preferred Stock Purchase Agreement.

Effective March 31, 1999 the Company cancelled 66,700 shares of Common Stock 
which we held as collateral for a Common Stock Subscription Receivable for 
$200,100 which the Company has deemed to be uncollectable.


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<PAGE>

ITEM 5            OTHER INFORMATION

On February 3, 1999, the Company announced the appointment of Sean Maloy as 
its new President and Chief Executive Officer. Mr. Maloy has held several 
senior management positions, most recently at Maxwell Technologies, Inc., a 
technology-based company, where Mr. Maloy has served as Chief Operating 
Officer, Chief Financial Officer and, prior to joining QCS.net, as Vice 
President of Mergers and Acquisitions.

On May 12, 1999, the Company determined to change its fiscal year end from 
June 30, to March 31. The Company expects to file its transition report on 
Form 10-KSB in June 1999, covering the transition period from its previous 
fiscal year ended June 30, 1998 to its new fiscal year ended March 31, 1999.


ITEM 6            EXHIBITS AND REPORTS ON FORM 8-K

         A.       EXHIBITS

                  Exhibit 27 - Financial Data Schedule

         B.       REPORTS ON FORM 8-K

                  No reports on Form 8-K were filed with the Securities and
                  Exchange Commission during the quarter for which this report
                  is filed.

                                    SIGNATURE

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

Dated:  May 14, 1999                        QCS.net CORPORATION

                                            By:  /s/ Sean Maloy
                                               ----------------
                                            Sean Maloy,
                                            President, Chief Executive Officer,
                                            Acting Chief Financial Officer


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