SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
NOVEMBER 12, 1999
(Date of Amended No. 1 to Registrant's Report
on Form 8-K Filed on June 9, 1999)
Q-SEVEN SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
333-6440
(Commission file number)
UTAH 87-0567618
(State or Other jurisdiction (IRS Employer
of Incorporation or Identification No.)
Organization)
MITTELSTRASSE 11-13
40789 MONHEIM, GERMANY
(Address of Principal Executive Offices)
011-49-2173-39220
(Registrant's Telephone Number, Including Area Code)
FROHNKAMP 18
40789 MONHEIM, GERMANY
(Former Address of Registrant)
DOWNSTREAM INCORPORATED - DSI
(Former Name of Registrant)
<PAGE>
The purpose of this filing is to amend and restate the financial statements
that were provided in response to Item 7(a) and Item 7(b), respectively, of
Q-Seven Systems, Inc.'s report on Form 8-K filed on June 9, 1999. Attached
hereto as, and incorporated herein by reference to, Exhibit 99.1 and Exhibit
99.2, respectively, are (i) the X-Real GbR Audited Financial Statements for the
period ended December 31, 1998, as amended, and (ii) the Downstream Incorporated
- - DSI and Subsidiaries Consolidated Pro Forma Financial Statements for the
period ended December 31, 1998, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Q-SEVEN SYSTEMS, INC.
Date: November 12, 1999 By: /s/ Philipp Kriependorf
-------------------------------
Name: Philipp Kriependorf
Title: President
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
99.1 X-Real GbR Audited Financial Statements for
the period ended December 31, 1998
99.2 Downstream Incorporated - DSI and Subsidiaries
Consolidated Financial Pro Forma Financial
Statements for the period ended December 31,
1998
2
X-REAL GbR
FINANCIAL STATEMENTS
December 31, 1998
<PAGE>
C O N T E N T S
Independent Auditors' Report.................................................. 3
Balance Sheet................................................................. 4
Statement of Income and Partners' Capital..................................... 5
Statement of Cash Flows....................................................... 6
Notes to the Financial Statements............................................. 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners
X-Real GbR
Monheim, Germany
We have audited the accompanying balance sheet of X-Real GbR as of December 31,
1998 and the related statements of income and partners' capital and cash flows
for the year then ended and from inception on November 4, 1997 through December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of X-Real GbR as of December 31,
1998 and the results of its operations and its cash flows for the year then
ended and from inception on November 4, 1997 through December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
April 29, 1999
<PAGE>
X-REAL GbR
Balance Sheet
ASSETS
December 31,
1998
------------
CURRENT ASSETS
Cash in bank $ 4
Accounts receivable (Note 2) 102,286
------------
Total Current Assets 102,290
------------
TOTAL ASSETS $ 102,290
============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accrued expenses $ 24,522
------------
Total Current Liabilities 24,522
------------
PARTNERS' CAPITAL
Partners' capital 133,435
Note receivable - related party (Note 3) (55,667)
------------
Total Partners' Capital 77,768
------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 102,290
============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
X-REAL GbR
Statements of Income and Partners' Capital
From
Inception on
For the November 4,
Year Ended 1997 Through
December 31, December 31,
1998 1997
------------ ------------
NET SALES $ 340,293 $ -
COST OF SALES 77,008 -
------------ ------------
GROSS PROFIT 263,285 -
------------ ------------
EXPENSES
General and administrative 192,633 -
------------ ------------
Total Expenses 192,633 -
------------ ------------
INCOME FROM OPERATIONS 70,652 -
------------ ------------
OTHER INCOME
Interest income 1,358 -
------------ ------------
Total Other Income 1,358 -
------------ ------------
NET INCOME 72,010 -
BEGINNING BALANCE PARTNERS' CAPITAL 5,000 -
CAPITAL CONTRIBUTIONS 56,425 5,000
------------ ------------
ENDING BALANCE PARTNERS' CAPITAL $ 133,435 $ 5,000
============ ============
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
X-REAL GbR
Statements of Cash Flows
From
Inception on
For the November 4,
Year Ended 1997 Through
December 31, December 31,
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 72,010 $ -
Changes in assets and liabilities:
Increase in accounts receivable (102,286) -
Increase (decrease) in accrued expenses 24,522 -
------------ ------------
Net Cash Used in Operating Activities (5,754) -
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES - -
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Related party loans made (55,667) -
Capital contributed 56,425 5,000
------------ ------------
Net Cash Provided by Financing Activities 758 5,000
------------ ------------
NET INCREASE (DECREASE) IN CASH (4,996) -
CASH AT BEGINNING OF PERIOD 5,000 5,000
------------ ------------
CASH AT END OF PERIOD $ 4 $ 5,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
CASH PAID FOR:
Interest $ - $ -
Income taxes $ - $ -
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
X-REAL GbR
Notes to the Financial Statements
December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
X-Real GbR, a general partnership was organized November 4, 1997 under
the provisions of a general partnership agreement between Olaf Cordt
and Philip Kamp for the purpose of creating and operating internet pay
sites. Profits and losses of the Partnership are shared equally
between the two partners.
b. Accounting Method
The Partnership's financial statements are prepared using the accrual
method of accounting. The Partnership has elected a December 31, year
end.
c. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers
all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
d. Allowance for Losses
The Partnership uses the specific write-off method to provide for
doubtful accounts since experience and management's estimation
indicates an adequate allowance for such accounts is immaterial.
e. Income Taxes
Income of the Partnership is not taxable as such, but is includible in
the income of the partners. Therefore, no provision for income taxes
is reflected in the accompanying financial statements.
f. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - ACCOUNTS RECEIVABLE
The Partnership conducts all of its business on the internet, and all
revenues are collected by electronic means. All revenue collections
and refunds are managed by a corporation with which the partnership
has a service agreement (Note 4). Collected funds are held by the
service company for 60 days before they are released to the Company.
Funds collected in 1998 and released to the partnership in 1999 are
classified as accounts receivable. The costs of sales related to the
receivables are deducted from the amount released to the Partnership.
These costs are classified as accrued liabilities.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
X-REAL GbR
Notes to the Financial Statements
December 31, 1998
NOTE 3 - NOTE RECEIVABLE - RELATED PARTY
During 1998, the partnership loaned $54,309 to a partnership related
through common control. An additional $1,358 of interest was accrued
on the note as of December 31, 1998. Due to the nature of the
relationship, this note is classified as a reduction in partners'
capital.
NOTE 4 - SERVICE AGREEMENT
The Partnership owns several internet pay sites which are managed by a
corporation (the provider). The provider assumes responsibility for
the costs of operating the sites. In exchange, the provider receives
35% of the gross revenues of the sites as a service fee. The agreement
can be terminated any time with a notice of 180 days.
NOTE 5 - SUBSEQUENT EVENTS
On April 13, 1999, the Partnership entered into a letter of intent to
be acquired by Q-Seven Systems, Inc., a Nevada corporation, which will
be simultaneously acquired by Downstream Incorporated - DSI which is a
publicly traded U.S. company.
The accompanying notes are an integral part of these financial statements.
8
DOWNSTREAM INCORPORATED - DSI AND SUBSIDIARIES
CONSOLIDATED PROFORMA FINANCIAL STATEMENTS
December 31, 1998
<PAGE>
C O N T E N T S
Consolidated Proforma Balance Sheet........................................... 3
Consolidated Proforma Statement of Operations................................. 5
Statement of Assumptions and Disclosures...................................... 6
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM INCORPORATED - DSI AND SUBSIDIARIES
Consolidated Proforma Balance Sheet
December 31, 1998
(Unaudited)
ASSETS
Proforma
Downstream X-Real Adjustments
Incorporated Q-Seven Intertainment Increase Proforma
- DSI Systems, Inc. Inc. Ltd. (Decrease) Consolidated
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 8,896 $ 4 $ - $ - $ 8,900
Accounts receivable, net - 102,286 - - 102,286
------------ ------------ ------------ ------------ ------------
Total Current Assets 8,896 102,290 - - 111,186
------------ ------------ ------------ ------------ ------------
FIXED ASSETS
Furniture and equipment 1,359 - - - 1,359
Accumulated depreciation (511) - - - (511)
------------ ------------ ------------ ------------ ------------
Total Fixed Assets 848 - - - 848
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS $ 9,744 $ 102,290 $ - $ - $ 112,034
============ ============ ============ ============ ============
See Summary of Assumptions and Disclosures.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM INCORPORATED - DSI AND SUBSIDIARIES
Consolidated Proforma Balance Sheet (Continued)
December 31, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Proforma
Downstream X-Real Adjustments
Incorporated Q-Seven Intertainment Increase Proforma
- DSI Systems, Inc. Inc. Ltd. (Decrease) Consolidated
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 117 $ - $ - $ 25,000 $ 25,117
Accrued expenses - 24,522 - 24,522
------------ ------------ ------------ ------------ ------------
Total Current Liabilities 117 - 24,522 25,000 49,639
------------ ------------ ------------ ------------ ------------
COMMITMENTS AND
CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: 100,000,000
shares authorized of $0.001
par value, 12,400,000 shares
issued and outstanding 4,500 - - 7,900 12,400
Additional paid-in capital 133,004 - - (83,009) 49,995
Partners' capital - - 133,435 (133,435) -
Note receivable - related party - - (55,667) 55,667 -
Deficit accumulated during
the development stage (127,877) - - 127,877 -
------------ ------------ ------------ ------------ ------------
Total Stockholders' Equity 9,627 - 77,768 (25,000) 62,395
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,744 $ - $ 102,290 $ - $ 112,034
============ ============ ============ ============ ============
See Summary of Assumptions and Disclosures.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DOWNSTREAM INCORPORATED - DSI AND SUBSIDIARIES
Consolidated Proforma Statement of Operations
December 31, 1998
(Unaudited)
Proforma
Downstream X-Real Adjustments
Incorporated Q-Seven Intertainment Increase Proforma
- DSI Systems, Inc. Inc. Ltd. (Decrease) Consolidated
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 104,017 $ - $ 340,293 $ - $ 444,310
COST OF SALES 45,473 - 77,008 - 122,481
------------ ------------ ------------ ------------ -------------
GROSS PROFIT 58,544 - 263,285 - 321,829
------------ ------------ ------------ ------------ -------------
OPERATING EXPENSES
Depreciation and amortization 513 - - - 513
General and administrative 150,375 - 192,633 - 343,008
------------ ------------ ------------ ------------ -------------
Total Operating Expenses 150,888 - 192,633 - 343,521
------------ ------------ ------------ ------------ -------------
OPERATING (LOSS) INCOME (92,344) - 70,652 - (21,692)
------------ ------------ ------------ ------------ -------------
OTHER INCOME
Interest income - - 1,358 - 1,358
Other income 904 - - - 904
------------ ------------ ------------ ------------ -------------
Total Other Income 904 - 1,358 - 2,262
------------ ------------ ------------ ------------ -------------
LOSS BEFORE INCOME TAXES (91,440) - 72,010 - (19,430)
INCOME TAXES - - - - -
------------ ------------ ------------ ------------ -------------
NET (LOSS) INCOME $ (91,440) $ - $ 72,010 $ - $ (19,430)
============ ============ ============ ============ =============
See Summary of Assumptions and Disclosures.
</TABLE>
5
<PAGE>
DOWNSTREAM INCORPORATED - DSI AND SUBSIDIARIES
Summary of Assumptions and Disclosures
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Business Organization
Downstream Incorporated - DSI (the "Company") was incorporated under
the laws of the State of Utah on November 26, 1996 to engage in the
business of financial consulting.
Q-Seven Systems, Inc. ("Q-7 Nevada") was incorporated under the laws
of the State of Nevada on May 18, 1999 for the purpose of acquiring
marketing rights to a certain internet user management software
program, and to acquire X-Real Intertainment, Inc. Ltd., a corporation
organized under the laws of the Bahamas on April 23, 1999 ("X-Real").
X-Real acquired on May 18, 1999 from X-Real GbR, a German partnership,
all of X-Real GbR's assets, which consisted of six Internet pay sites.
On May 24, 1999, the Company, Q-Seven Nevada and the stockholders of
Q-Seven Nevada entered into an Agreement und Plan of Share Exchange
whereby the Company acquired 100% of the issued and outstanding shares
of Q-Seven Nevada for 7,900,000 shares of its common stock (the
"Q-Seven Nevada Acquisition"). The Q-Seven Nevada Acquisition has been
accounted for as a reverse merger. On May 26, 1999, Q-Seven Nevada
acquired all issued and outstanding shares of common stock of X-Real
(the "X-Real Acquisition"). The X-Real Acquisition was accounted for
as a recapitalization because the partners of X-Real became the
shareholders of Q-Seven Nevada. Accordingly, there is not adjustment
to the carrying values of assets or liabilities of X-Real.
1. Record purchase of Q-Seven Systems, Inc. and X-Real Intertainment
Inc. Ltd. through the issuance of 7,900,000 shares of common
stock:
Additional paid-in capital $ (7,900)
Common stock 7,900
-----------
Total $ -
===========
2. Record estimated costs of the merger:
Accounts payable $ 25,000
Additional paid-in capital (25,000)
-----------
Total $ -
===========
3. Eliminate the equity of Q-Seven Systems, Inc. and X-Real
Intertainment Inc. Ltd.:
Additional paid-in capital $ 77,768
Partners' capital (133,435)
Note receivable - related party 55,667
-----------
Total $ -
===========
6
<PAGE>
DOWNSTREAM INCORPORATED - DSI AND SUBSIDIARIES
Summary of Assumptions and Disclosures
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
4. Eliminate the accumulated deficit of Downstream Incorporated -
DSI :
Deficit accumulated during the development stage $ 127,877
Additional paid-in capital (127,877)
-----------
Total $ -
===========
7
