U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended August 31, 1999
Commission file no. 0-26581
DERMATOLOGY SYSTEMS, INC.
------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
Florida 65-0844181
- ------------------------------------ -----------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
222 Lakeview Avenue Suite 113
West Palm Beach, FL 33401
- ------------------------------------------ -----------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (561) 832-5699
Securities to be registered under Section 12(b) of the Act:
Title of each class Names of each exchange
on which registered
None
- --------------------------------- ----------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value per share
--------------------------------------------------------
(Title of class)
Copies of Communications Sent to:
Donald F. Mintmire
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel.: (561) 832-5696 - Fax: (561) 659-5371
<PAGE>
Indicate by 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 periods that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of August 31, 1999, there are 2,000,000 shares of voting stock of
the registrant issued and outstanding.
<PAGE>
PART I
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Balance Sheets.......................................................F-2
Statements of Operations.............................................F-3
Statements of Changes in Stockholders' Equity........................F-4
Statements of Cash Flows.............................................F-5
Notes to Financial Statements........................................F-6
F-1
<PAGE>
<TABLE>
<CAPTION>
Dermatology Systems, Inc.
(A Development Stage Enterprise)
Balance Sheets
ASSETS August 31, 1999
(Unaudited) February 28, 1999
------------------ ------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 37,912 $ 43,832
------------------ ------------------
Total current assets 37,912 43,832
------------------ ------------------
Total Assets $ 37,912 $ 43,832
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $ 0 $ 4,500
Accrued expenses - related party 3,123 3,123
------------------ ------------------
Total current liabilities 3,123 7,623
------------------ ------------------
Total Liabilities 3,123 7,623
------------------ ------------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value, authorized 10,000,000
shares, none issued 0 0
Common stock, $0.0001 par value, authorized 50,000,000
shares: 2,000,000 issued and outstanding 200 200
Additional paid-in capital 49,900 49,900
Deficit accumulated during the development stage (15,311) (13,891)
------------------ ------------------
Total Stockholders' Equity 34,789 36,209
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 37,912 $ 43,832
================== ==================
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Dermatology Systems, Inc.
(A Development Stage Enterprise)
Statements of Operations
(Unaudited)
For the Six Months From May 21, 1998 From May 21, 1998
Ended (Inception) Through (Inception) Through
August 31, 1999 August 31, 1998 August 31, 1999
--------------------- --------------------- ----------------------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
--------------------- --------------------- ----------------------
Expenses
Bank charges 0 0 10
Consulting fees - related party 0 100 100
Organizational fees 0 0 207
Other operating expenses 0 0 134
Professional fees 1,400 0 10,400
Professional fees - related party 0 0 3,000
Transfer agent fees 20 0 1,460
--------------------- --------------------- ----------------------
Total expenses 1,420 100 15,311
--------------------- --------------------- ----------------------
Net loss $ (1,420)$ (100)$ (15,311)
===================== ===================== ======================
Net loss per weighted average share, basic $ $ $
(.001) (.000) (0.008)
===================== ===================== ======================
Weighted average number of shares 2,000,000 1,844,343 1,971,270
===================== ===================== ======================
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Dermatology Systems, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Equity
Deficit
Accumulated
Additional During the Total
Number of Common Paid-in Development Stockholders'
Shares Stock Capital Stage Equity
------------ --------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
May 21, 1998 (inception) 0 $ 0 $ 0 $ 0 $ 0
May 1998 - services ($0.0001/sh) 1,000,000 100 0 0 100
May 1998 - cash ($0.05/sh) 565,000 57 28,193 0 28,250
June 1998 - cash ($0.05/sh) 371,000 37 18,513 0 18,550
July 1998 - cash ($0.05/sh) 4,000 0 200 0 200
September 1998 - cash ($0.05/sh) 60,000 6 2,994 0 3,000
Net loss 0 0 0 (13,891) (13,891)
------------ --------- ------------ ---------------- ----------------
BALANCE, February 28, 1999 2,000,000 $ 200 $ 49,900 $ (13,891)$ 36,209
------------ --------- ------------ ---------------- ----------------
Net loss 0 0 0 (1,420) (1,420)
------------ --------- ------------ ---------------- ----------------
BALANCE, August, 1999 2,000,000 $ 200 $ 49,900 $ (15,311)$ 34,789
(Unaudited)
============ ========= ============ ================ ================
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Dermatology Systems, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
(Unaudited)
For the Six Months From May 21,1998 From May 21, 1998
Ended (Inception) Through (Inception) Through
August 31, 1999 August 31, 1998 August 31, 1999
-------------------- --------------------- ----------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,920)$ (1,027)$ (19,811)
Adjustments to reconcile net loss to net cash used by
development activities:
Stock issued in lieu of cash - related party 0 100 100
Changes in assets and liabilities
Increase in accrued expenses 0 0 4,500
Increase in accrued expenses - related party 0 0 3,123
-------------------- --------------------- ----------------------
Net cash used by operating activities (5,920) (927) (12,088)
-------------------- --------------------- ----------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 50,000 50,000
-------------------- --------------------- ----------------------
Net cash provided by financing activities 0 50,000 50,000
-------------------- --------------------- ----------------------
Net increase (decrease) in cash (5,920) 49,073 37,912
CASH, beginning of period 43,832 0 0
-------------------- --------------------- ----------------------
CASH, end of period $ 37,912 $ 49,073 $ 37,912
==================== ===================== ======================
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-5
<PAGE>
Dermatology Systems, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information with respect to the six months ended August 31, 1999 is unaudited)
(1) Summary of Significant Accounting Principles
TheCompany Dermatology Systems, Inc. is a Florida chartered development
stage corporation which conducts business from its headquarters in West
Palm Beach, Florida. The Company was incorporated on May 21, 1998, and
has elected February 28 as its fiscal year end.
The Company has not yet engaged in its expected operations. The
Company's future operations will be to provide certain treatments for
skin diseases. Current activities include raising additional equity and
negotiating with potential key personnel and facilities. There is no
assurance that any benefit will result from such activities. The
Company will not receive any operating revenues until the commencement
of operations, but will nevertheless continue to incur expenses until
then.
The financial statements have been prepared in conformity with
generally accepted accounting principles. The financial statements for
the six months ended August 31, 1999 and for the period from May 21,
1998 (Inception) through August 31, 1998 include all adjustments which
in the opinion of management are necessary for fair presentation. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the statements of financial condition
and revenues and expenses for the period then ended. Actual results may
differ significantly from those estimates.
The following summarize the more significant accounting and reporting
policies and practices of the Company:
a) Start-up costs Costs of start-up activities, including organization
costs, are expensed as incurred, in accordance with Statement of
Position (SOP) 98-5.
b) Net loss per share Basic net loss per weighted average share is
computed by dividing the net loss by the weighted average number of
common shares outstanding during the period.
c) Stock compensation for services rendered The Company issues
shares of common stock in exchange for services rendered . The costs of
the services are valued according to generally accepted accounting
principles and have been charged to operations.
(2) Stockholders' Equity The Company has authorized 50,000,000 shares of
$0.0001 par value common stock, and 10,000,000 shares of $0.0001 par
value preferred stock. On May 21, 1998, the Company issued a total of
1,000,000 restricted shares to its President and Treasurer for the
value of services rendered in connection with the organization of the
Company. In May 1998, the Company sold 565,000 shares of common stock
for $28,250 in cash. In June 1998, the Company sold 371,000 shares of
common stock for cash of $18,550. In July 1998, the Company sold 4,000
shares of common stock for cash of $200. In September 1998, the Company
sold 60,000 shares of common stock for cash of $3,000.
(3) Income Taxes Deferred income taxes (benefits) are provided for certain
income and expenses which are recognized in different periods for tax
and financial reporting purposes. The Company has net operating loss
carry-forwards for income tax purposes of $15,311, with $13,891expiring
in 2019, and $1,420, expiring in 2020.
The amount recorded as deferred tax assets as of August 31, 1999 is
$3,012, which represents the amount of tax benefit of the loss
carryforward. The Company has established a 100% valuation allowance
against this deferred tax asset, as the Company has no history of
profitable operations.
F-6
<PAGE>
Dermatology Systems, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(4) Going Concern The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company's financial position and operating results raise substantial
doubt about its ability to continue as a going concern, as reflected by
the net loss of $15,311 accumulated from May 21, 1998 (inception)
through August 31, 1999. The ability of the Company to continue as a
going concern is dependent upon commencement of operations, developing
sales, and obtaining additional capital and financing. The financial
statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern. The Company is
currently seeking additional capital to allow it to begin its planned
operations.
(5) Related parties Counsel to the Company indirectly owns 80,000 shares of
the Company's common stock through the sole ownership of the common
stock of another company which invested in the Company. Also, counsel's
adult son owns 80,000 shares in the Company. The Company's president
owns a 42.5% interest in the Company, consisting of 850,000 shares, and
the treasurer owns a 7.5% interest, consisting in 150,000 shares.
During the period since inception, the Company incurred certain legal
and consulting fees from related parties, in the amount of $3,100.
Professional services rendered by the Company's legal counsel and
shareholder amounted to $3,000 and is presented in Professional fees -
related party. Consulting services rendered by the Company's secretary
and treasurer amounted to $100 and is presented in Consulting fees -
related party. Legal counsel paid certain miscellaneous expenses on
behalf of the Company, amounting to $123. Unpaid amounts at August 31,
1999 are $3,123 and are presented in Accrued expenses - related party.
F-7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
General
Since its inception, the Company(and/or "DSI") has conducted minimal
business operations except for organizational and capital raising activities.
The Company has not realized significant revenues since its inception due to the
fact that it has generally been inactive, having conducted no business
operations except organizational and fund raising activities since its
inception. As a result, from inception (May 21, 1998) through August 31, 1999,
the Company had no income. Cumulative operating expenses as of August 31, 1999
were $15,311.00. The Company proposes to participate in the recent trend in the
medical/cosmetic removal of blemishes through the use of Photo Therapy
Resonance("PTR") technology and, specifically in the removal of unsightly
blemishes including birthmarks, discolorations, age spots, and other skin
discolorations as well as unwanted body and facial hair.
Dr. Haouzi decided to pursue the cosmetic application of PTR technology due
to his specialized medical background and knowledge as to the application of
this technology. Dr. Haouzi is assisted in his efforts by Alan Hileman as the
Company's Secretary/Treasurer. It is expected that the Company will benefit from
the synergy expected to result from the combination of the specialized medical
background and experience of Dr. Haouzi and Mr. Hileman's medical and cinematic
interests. The time required to be devoted to manage the day-to-day affairs of
the Company is presently estimated to be approximately five to ten hours per
week. This time commitment on the part of these individuals is expected to
increase at such time, if ever, as the Company obtains sufficient funding with
which to commence the medical/cosmetic blemish removal business.
The Company will be dependent upon Dr. Haouzi to develop the client base
with whom to arrange treatment. Dr. Haouzi has extensive experience and
knowledge regarding the application of Photo Therapy Resonance technology and
presently holds the title of Medical Director of Lasertec of France's research
and development of laser therapy for the specialized treatment of cancer. While
Dr. Haouzi is an experienced medical professional with extensive experience and
knowledge of Photo Therapy Resonance Technology, there can be no assurance that
he will be successful in building the client base necessary for the successful
operation of the Company.
Plan of Operation
If the Company is unable to generate sufficient revenue from operations to
implement its business plans, management intends to explore all available
alternatives for debt and/or equity financing, including but not limited to
private and public securities
Dr. Haouzi, at least initially, will be solely responsible for developing
the Company 's client base. However, at such time, if ever, as sufficient
operating capital becomes available, Dr. Haouzi will hire additional medical
staffing and marketing personnel. In addition, the Company expects to
continuously engage in market research in order to monitor new market trends,
seasonality factors and other critical information deemed relevant to DSI's
business.
3
<PAGE>
The Company's objective is to become a dominant provider of laser
technology to remove cosmetic blemishes, skin abnormalities and other
applications at first in a select geographic area, beginning in Palm Beach and
Broward County, Florida, and then to contiguous counties in South Florida and,
eventually throughout the State of Florida. The Company will thereafter expand
into selected areas nationwide and eventually worldwide provided it has the
financial resources to do so. To achieve this objective, and assuming that
sufficient operating capital becomes available, the Company intends to: (i)
obtain a license to PTR and then to aggressively sell and distribute it and,
(ii) focus at first on the Palm Beach and Broward County cosmetic surgery
markets which have high growth opportunities.
The Company anticipates that its initial marketing efforts will be via
direct sales of services. Initially, Dr. Haouzi will secure the Company's client
base. He will visit clients and prospective clients on a regular schedule to
allow for the necessary lead time to unfold to permit clients to build
confidence in the effectiveness of PTR.
Due to the limited capital available to the Company, the principal risks
during this phase are that the Company is dependent upon Dr. Haouzi's efforts,
that Dr. Haouzi lacks experience in running a company and that the Company will
not be able to establish a sufficiently profitable client base to establish the
business.
For the period from May 21, 1998 through August 31, 1999, the Company had
no income from operations and operating expenses aggregating $15,311.00.
Financial Condition, Capital Resources and Liquidity
At August 31, 1999, the Company had assets totaling $37,912.00 and
liabilities of $3,123 attributable to accrued expenses. On May 21, 1998, the
Company issued 850,000 shares of restricted Common Stock to Dr. Pierre Haouzi,
the President and Director of the Company and record and beneficial owner of
approximately 42.5% of the Company's outstanding Common Stock, in consideration
and exchange therefore for services in connection with the organization of DSI
performed for the Company by him.
On May 21, 1998, the Company issued and sold 150,000 shares of restricted
Common Stock to Mr. Barrett Alan Hileman, the Secretary and Treasurer of the
Company and record and beneficial owner of approximately 7.5% of the Company's
outstanding Common Stock, in consideration and exchange therefore for services
in connection with the organization of DSI performed for the Company by him.
The Company has no potential capital resources from any outside sources at
the current time. It is anticipated that the Company will require only nominal
capital to maintain the corporate viability of the Company. Any additional
capital needed will most likely be provided by the Company's existing
shareholders or its officers and directors.
4
<PAGE>
The ability of the Company to continue as a going concern is dependent upon
the availability of obtaining additional capital and financing from such
shareholders and directors.
Net Operating Losses
The Company has net operating loss carryforwards of $15,311.00 which expire
in the years 2019 through 2020. The company has a $3,012.00 deferred tax asset
resulting from the loss carryforwards, for which it has established a 100%
valuation allowance. Until the Company's current operations begin to produce
earnings, it is unclear whether the Company can utilize such carryforwards.
Year 2000 Compliance
The Company is currently in the process of evaluating its information
technology for Year 2000 compliance. The Company does not expect that the cost
to modify its information technology infrastructure to be Year 2000 compliant
will be material to its financial condition or results of operations. The
Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance.
Forward-Looking Statements
This Form 10-QSB includes "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. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-QSB which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), finding
suitable merger or acquisition candidates, expansion and growth of the Company's
business and operations, and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, whether actual results
or developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, general economic market and
business conditions; the business opportunities (or lack thereof) that may be
presented to and pursued by the Company; changes in laws or regulation; and
other factors, most of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Form 10-QSB are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequence to
or effects on the Company or its business or operations. The Company assumes no
obligations to update any such forward-looking statements.
PART II
Item 1. Legal Proceedings.
5
<PAGE>
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending August 31, 1999, covered
by this report to a vote of the Company's shareholders, through the solicitation
of proxies or otherwise.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation
S-B, as described in the following index of exhibits, are incorporated
herein by reference, as follows:
Exhibit No. Description
- ----------------------------------------------------------------------
3(i).1 Articles of Incorporation of DSI filed May 21, 1998(1)
3(ii).1 By-laws (1)
27 * Financial Data Schedule
- ----------------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form 10-SB.
* Filed herewith
(b) No Reports on Form 8-K were filed during the quarter ended August 31,
1999.
6
<PAGE>
SIGNATURES
----------
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, hereunto duly
authorized.
DERMATOLOGY SYSTEMS, INC..
Date: October 15, 1999 By: /s/ Dr. Pierre Haouzi
-------------------------
Dr. Pierre Haouzi, President
[signature page Dermatology Systems, Inc. 10Q 8.31.99]
7
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001065801
<NAME> DERMATOLOGY SYSTEMS, INC
<MULTIPLIER> 1
<CURRENCY> U.S. Currency
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Feb-28-1999
<PERIOD-START> Mar-01-1999
<PERIOD-END> Aug-31-1999
<EXCHANGE-RATE> 1
<CASH> 37,912
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,912
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,912
<CURRENT-LIABILITIES> 3,123
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 34,789
<TOTAL-LIABILITY-AND-EQUITY> 37,912
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,420)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,420)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
