A Few Rules




Copyright © 1997
Russ Klein

Russ Reports -November 1999

I suggest that you do some DD before leaping into any of these.

FAVORITE SMALL CAPS FROM INVESTORS

Here's a company that was suggested to me about a week ago (11-17-99) when the price was still below $2.00 per share. I'm sorry that I couldn't get it to you sooner, however, let's be thankful of that saying, "Better Late than Never".

NOVEMBER 22, 1999

Q-SEVEN SYSTEMS, INC.(QSSY.OB)OTCBB

Approx. Shares Outstanding - 12,500,000
Approx. Shares in Float - 4,600,000
52 Wk. Range $5.37 - $1.75
Current Price - $2.65
Q-Seven Systems was formed from a partnership of three Internet service companies:
* Q-5 Internet Marketing GmbH - A service company for webdevelopment, site promotion and E-Commerce.
* EuroDebit Systems GmbH - US/German billing company for all major credit cards and European payment systems.
* Cyberotic Media AG - Europe's #1 in Adult entertainment. Providing content, affiliate programs, live entertainment, adult verification systems and much more.

So let's bring this story up-to-date.
Having the above three mentioned services under the umbrella of Q-Seven wasn't enough and it was decided that the company needed to provide a sophisticated, scalable, and adaptable system for user management. With the combined experience in the online adult and gambling industry, the partnership companies created and developed the Q-Seven software, a revolutionaly, form of backend administration for a variety of Internet sites, and they began business at the end of 1998 and headquartered in Monheim, Germany.
In May 1999, Q-Systems was acquired by Downstream Inc., new officers and directors were appointed and Q-System was now a wholly-owned subsidiary of Downstream. On June 17, 1999, Downstream formally changed its name to Q-Seven Systems, Inc.
The Q-System software modules, which can be combined to run any kind of online entertainment system that handles user administration and online transactions, include the Q7 user management server, billing server, casino module, pay site module, storefront module, live video module, and X-Player module. These new services can be implemented and integrated with little effort and minimum resources, allowing new technologies to be added with ease - providing optimal system flexibility. The security feature makes sure all data is encrypted before being sent over the Internet via a secure http. In addition, this feature will log files and keep records of all transactions to control and prevent fraud, and will have firewall support. For ease of implementation, the backend administration has been designed for a non-technical professional using a standard Web browser, and the software has a wide range of export functions. like Excel and SQL, for marketing purposes.
GAMBLING: Online gambling revenues are expected to reach $7 billion in 2001. The Q-Seven software was designed to allow online casino operators to create and manage online casinos, using software that is powerful enough to allow for a variety of online games, a wide range of payment options, and the flexible and secure features mentioned above.
SHOPPING: We all know that E-Commerce is growing by leaps and bounds allowing consumers to purchase just about any item they can think of on the Internet. That growth is making many businesses both large and small to wonder just how this new E-Commerce is going to affect their current business. These business people don't want to be left behind so they are taking the Bull by those proverbial Horns and entering the Internet E-Commerce business with the help of products like Q-Seven's software.
ADULT ENTERTAINMENT: This is one of the fastest growing money makers on the Internet. According to a study, 28.2% of Americans visited adult sites in May 1998 up over 5% from the previous year. Americans spent $8 - $12 billion last year on a supermarket of sex from videos and phone sex to magazines. Forester Research conservatively pegged last year's sex industry revenue at $50 million, with a fivefold growth projection by the year 2000. Cyberporn is fast becoming the envy of the Internet. While many other Web outposts are falling, adult Web sites are taking in millions of dollars a month (Wall St. Journal, May 20,'97).
The Q-Seven User Management System has everything needed to operate a profitable adult Internet site.
Q-Seven also is planning to sell similar software for online auctions, online brokerages, and online games.

NEW CUSTOMERS: On Oct. 4,'99, Q-Seven announced the completion of its first customer's casino - the Wallstreet Online Casino which can be viewed at www.wallstreet-casino.com. "There were a lot of tasks we had to deal with in saving all the existing user data," Philipp Kriependorf explained. "But our programmers did a great job and now we can be sure that our software works and is as flexible as we planned and that our team is prepared to take on the challenge of the market. I am convinced that we are qualified to be one of the leaders in this market, and am pleased to have even existing casinos consider our software in order to be prepared for the developments in the online gaming market."
On Oct. 11,'99, Q-Seven announced a new licensee of its User Management Software: Principals of Q-Seven and Setec Astronomy signed an agreement for an online casino. Under the agreement, Setec will use Q-Seven's User Management Software to launch "Seaside Online Casino." "It was a long negotiation, but I am happy to present the first success of our marketing strategy of the last months," Kriependorf said, noting that "This is only the beginning. We are in negotiations with many others about our software." On Oct. 13,'99, Q-Seven announced entering into a licensee agreement with ABBA-1 Investment Inc., Antiqua, to build three online casinos. Q-Seven management said the Grand Tower Casino, Win-Major-Cash, and Royal Dice Casino already are being worked on, and the first will soon open its virtual gates.
Q-Seven presented its product at the World Gaming Congress and Expo in Las Vegas, the InterAcive 2000 in Miami, and the Exponet in Dusseldorf, Germany. Q-Seven's sales team is contacting everybody who visited the company booths at the three shows mentioned above. I assume that more news releases concerning customer agreements will be forthcoming in the not too distant future.
Q-SEVEN just released their third quarter earnings:
Nov. 22, 1999 - Q-Seven announced that revenues for the third quarter increased to $314,970 in 1999 from $124,934 a year ago, an increase of approximately 152%.
For the nine months of 1999, sales rose to $749,887 from $300,773 with a significant improvement in sales over a year ago. The increase was primarily due to a new web master program initiated in the second quarter of the year.
General and Administrative costs contributed to a profit decline of $2,743 in 1999 from $33,595 in 1998. Costs associated with legal and accounting fees and costs related to trade shows also were in the mix. Philipp Kriependorf, President, said, "We are very pleased with the growth of our revenues and expect that they will continue to increase in the future. While sales were up sharply, profits were down for the quarter due primarily to sums spent on legal and accounting as we were making the transition from being a private company to a public one. We also spent significant amounts on the three trade shows we attended where we exhibited our new software - two of which were in the U.S. However, we expect profits to increase nicely during the fourth quarter when we will be able to report the first revenues from sales of our gaming software. We also expect to announce further sales of our gaming software in the very near future."
The management of Q-Seven cautions readers not to place undue reliance on "forward-looking" statements, such as "plans to," "is expected to," etc, which speak only as of the date made, when used in this press release, in filings with the SEC, in other public or stockholder communications, or in oral statements made with the approval of an authorized executive officer of the Company. Such statements are based on certain assumptions and expectations which may or may not actually occur and which involve various risks and uncertainties.

Editor's personal opinion: A slow but steady upward trend with normal profit taking along the way. With new contract announcements; revenue growth and positive earnings, price should reach its previous high.
With the price of the stock a little above its 52 week low, this appears to be a good time to take a look at QSSY and do some further DD. Then decide if you feel this company fits in with your portfolio.
Editor of this Home page has a small position in QSSY at the present time and may accumulate additional shares on the open market. Editor has not been compensated by the firm or anyone else for the inclusion of the company in this report.

Q-Seven's Web Site

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rklein@bellsouth.net
Russ Reports Nov. '99