UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB AMENDMENT 1
DERMATOLOGY SYSTEMS, INC.
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(Name of Small Business Issuer in its charter)
FLORIDA 65-0844181
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
222 Lakeview Avenue Suite 113
West Palm Beach, FL 33480
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(Address of principal place of business) (Zip Code)
Issuer's telephone number: (561) 832-5699
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on
to be so registered which each class to be registered
None
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Securites to be registered under Section 12(g) of the Act:
(Common Stock, $.0001 par value)
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(Title of class)
Copies of Communications Sent to:
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
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PART I
Item 1. Description of Business.
(a) Business Development.
DERMATOLOGY SYSTEMS, INC.. (hereinafter referred to as the "Company" or
"DSI") was organized under the laws of the State of Florida on May 21, 1998. The
Company is a developmental stage company organized by Dr.Pierre Haouzi, the
President and Director of the Company whose aim is to profitably participate in
the recent trend in the medical/cosmetic removal of blemishes through the use of
laser technology and, specifically through the application of Photo Therapy
Resonancy technology (otherwise referred to as "PTR".(See: Part I. "Description
of Business - PTR") The specific area of application for PTR by the Company will
be 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 will be 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 Company's offices are presently located at 222 Lakeview Avenue,
Suite 130, West Palm Beach, FL 33401 and its telephone number is (561) 832-5699.
The Company is filing this Form 10-SB on a voluntary basis so
that the public will have access to the required periodic reports on the
Company's current status and financial condition. The Company will file periodic
reports in the event its obligation to file such reports is suspended under the
Securities and Exchange Act of 1934 (the "Exchange Act".)
The Company generally has been inactive, having conducted no business
operations except organizational and fund raising activities since its
inception. DSI received gross proceeds in the amount of $50,000 from the sale of
a total of 1,000,000 shares of common stock, $.0001 per value per share (the
"Common Stock"), in one (1)offering conducted pursuant to Section 3(b) of the
Securities Act of 1933, as amended (the "Act"), and Rule 504 of Regulation D
promulgated thereunder ("Rule 504").(See: Part II. Item 4. "Recent Sales o
Unregistered Securities). These offerings were made in the State of New York and
Florida and to residents in France. The Company undertook the first offering of
shares of Common Stock pursuant to Rule 504 on May 29, 1998. A Confidential
Offering Circular was used in connection with this offering, the business plan
of the Company, which was disclosed to each prospective investor, was for the
company to provide medical technology which can provide a safer and less
expensive way to improve one's physical appearance through the PTR technology
and provide a less intrusive approach to the removal of skin cancer cells.
There are no preliminary agreements or understandings between the
Company and its officers and directors or affiliates or lending institutions
with respect to any loan agreements or arrangements.
The Company intends to offer additional securities under Rule 506 of
Regulation D under the Act ("Rule 506) to fund its short and medium term
expansion plans.
See (b) "Business of Issuer" immediately below for a description of the
Company's proposed business. As of the date hereof, the Company has no other
employees or clients for placement of such technology.
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(b) Business of Issuer.
General
Since its inception, the Company has conducted no business operations
except for organizational activities and an offering of Common Stock pursuant to
which it has received gross offering proceeds in the amount of $50,000. Further,
the Company has had no employees since its organization. It is anticipated that
the Company's two (2) executive officers and directors will receive reasonable
salaries for services as executive officers at such time as the Company
commences business operations. (See Part I, Item 6. "Executive Compensation.")
These individuals will devote such time and effort as may be necessary to
participate in the day-to-day management of the Company. (See Part I, Item 5.
"Directors, Executive Officers, Promoters and Control Persons - Executive
Officers and Directors.") The Company proposes to attempt to profitably
participate in the recent trend in the medical/cosmetic removal of blemishes
through the use of laser technology; and, in particular, the development of PTR
as it pertains to the correction of human skin abnormalities.
The expected commencement date of business is on or about June 1, 2000.
This will permit the Company to secure its initial funding, locate facilities
for operating, secure necessary personnel, and attract clients. Dr. Haouzi has
developed the initial procedures using existing technology to perform the
initial procedures. Initial procedures will involve the removal of birthmarks,
discolorations, age spots, and other related skin blemishes and discolorations.
Emphasis will be placed upon removal of unwanted body and facial hair. Initial
marketing of services will be to the public generally as well as to other
physicians in unrelated medical fields (for referral). The initial facility will
also give the Company an indication of the types of services the market demands.
Photo Therapy Resonance ("PTR")
All types of matter have optical "resonance". They resonate or
vibrate when lighted by a particular wavelength of light. An acoustical analogy
of this phenomenon is the opera singer reaching a particular note with her voice
and shattering a crystal glass. That crystal glass, like all matter, has its own
specific resonance. When the wavelength and frequency of the sound waves from
the singer's voice matches the resonance of the glass, the molecular structure
of the glass absorbs a maximum amount of energy from the soundwaves. This energy
causes the molecular structure of the glass to resonate (vibrate) and break
apart, shattering the glass. However, all other types of matter (even other
glasses) which have different resonance from the particular crystal glass will
be unaffected by those sound waves.
PTR can identify the optical resonance of malignant and abnormal cells
using a laser-based device. The Company believes that PTR can effectively
identify selected malignant and abnormal cells. PTR can identify the optical
resonance of these cells using the laser-based device. The Company believes that
it can effectively treat selected bad cells when the resonance of all malignant
and abnormal cells of an organ are the same and the peak of resonance of
malignant and normal cells of the same tissues are very different, the malignant
cells with a higher level of resonance will absorb and release significantly
more energy than the normal cells. As a result, the malignant cells will be
destroyed while the normal cells will not be affected.
The term "resonancy response" refers to the amount of energy selectively
absorbed, and then released, by the cells. The technology can identify the
resonance response of healthy cells and malignant or abnormal cells by radiating
the cells with laser having a wavelength matching the cells'
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resonance, and then measuring the spectrum of visible light emitted by the
cells. This procedure requires no surgery or general anesthesia. PTR is
different in this respect because the system of laser application employed by
Dr. Haouzi will isolate the resonance of a particular condition (i.e.,
birthmark) and application of that resonance by laser will reduce or eliminate
the condition.
Once the resonance of a particular type of malignant cell has been
determined by the PTR Detection System, the laser from the PTR Treatment System
can be set at an intensity level which will only affect the malignant cells and
will not affect the healthy cells. At a certain intensity level, the laser will
"excite" the electrons in the target malignant cells, absorb energy thereby
destroying the malignant cell, while leaving any surrounding healthy cells
unaffected.
In summary, PTR, without chemicals, major surgery, radiation or
harmful side effects, provides for:
o Identification of certain types of malignant or abnormal cells and molecules.
o Destruction of certain types of malignant or abnormal cells and molecules
while leaving surrounding non-malignant or abnormal cells and molecules
unharmed.
The following discussion of the financing market, as it relates to the
Company's objectives, is of course pertinent only if the Company is successful
in obtaining sufficient debt and/or equity financing to commence operations as a
medical technology provider and, in addition thereto, is able to generate
significant profits from operations (which are not expected in the foreseeable
future) and/or additional financing to continue in business and/or fund the
anticipated growth, assuming DSI's proposed business is successful. Initial
projections are that approximately $100,000 of additional funding will be
necessary to permit the company to locate, secure and open its initial facility.
Additional funding thereafter of approximately $150,000 -$200,000 will be
required for operations before cash flow from operations will sustain the
Company. There can be no assurance such financing can be obtained or that the
Company's proposed business will be successful.
Dr. Haouzi decided to market PTR because of the belief that his formal
education and experience as a physician, when combined with Mr. Hileman's
efforts and assistance with marketing and real estate will enable them to market
and sell PTR which will have the advantages of, among other things, greater
availability of capital and potential for growth through the vehicle of a public
company as compared to a privately-held company. The time required to be devoted
by Dr. Haouzi and Mr. Hileman 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 DSI obtains sufficient funding with which to commence the
search for a site where the Company can locate its offices and commence
additional business operations.
The Company will be dependent upon Dr. Haouzi, to market and sell the
application of PTR for the Company. Dr. Haouzi has extensive experience in this
field of medicine. For the past four (4) years Dr. Haouzi has served as Medical
Director of Lasertec of France, a Company experimenting with and developing the
use of laser for the treatment of certain isolated cancer cells. Training and
experience acquired in this work will be applied to patients served by the
Company. Extensive testing as well as application of the technology by
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Dr. Haouzi will enable him to bring this practical knowledge and experience to
bear in the operations of the Company and its delivery of services. He is
associated with researchers and practitioners in the medical industry,
specializing in dermatology. The Company believes his extensive networking
ability will expose it to many of the industry's current issues and procedures.
There can be no assurance that Dr. Haouzi and Mr. Hileman will be successful in
the marketing and selling PTR.
The Company intends to obtain a license for PTR and arrange to sell such
technology either under its private label and/or the manufacturer's brand-name.
The granting of licenses to the Company will be its critical first step toward
establishing the Company's viability. Dr. Haouzi is presently negotiating the
acquisition of such license. The Company is presently in negotiations with
Lasertec of France to license the initial technology and expects to have a
definitive written agreement covering the parameters of such technology and its
further use on or before January 1, 2000. Presently the technology is not
licensed by any third party and the Company is attempting to negotiate an
exclusive license, although presently the Company is unable to determine whether
an exclusive license will be granted. However there is no assurance that such
license arrangement will be achieved. Nevertheless the Company believes that Dr.
Haouzi will be successful in his efforts to obtain the PTR license from the
developers of the technology and has decided to market PTR initially in the
United States. DSI intends to market PTR, as it pertains to applications
involving the skin, globally at a later date. There is no assurance however that
DSI will be successful in bringing the PTR to market in a manner that will be
profitable.
In its initial phase, while establishing its first location for
operations and providing treatment services, the Company will operate out of
offices provided by Dr. Haouzi. At the time the Company was formed, 265 Sunrise
Avenue, Suite 204, Palm Beach, Florida, 33840 was used as an initial location
pending funding of the Company. At the request of the Company the address has
been changed to 222 Lakeview Avenue, Suite 113, West Palm Beach, Florida, 33401.
Mr. Hileman will begin researching the real estate market in order to determine
the most appropriate site to locate DSI's offices and facilities. In the event
the Company requires additional capital during this phase, Dr. Haouzi has an
unwritten and unsigned agreement to fund the operation in an amount not to
exceed $50,000 until such time as additional capital is available.
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 Mr. Hileman lacks specific medical licensing experience and that the
Company will not be able to establish a sufficiently profitable client base to
establish the business.
To implement the initial plan, the Company intends to initiate a
self-directed private placement under Rule 506 in order to raise an additional
$100,000. In the event such placement is successful, the Company believes that
it will have sufficient operating capital to meet the initial goals and
operating costs for a period of six (6) months. In the event the Company is not
successful in raising such funds, the Company believes that it will not be able
to continue operations beyond a period of six(6) to nine(9) months.
Even if the Company is successful at raising this additional money,
there can be no assurance that a license for the technology will be obtained,
that the Food and Drug Administration approval as required will be obtained, or
that the selling of PTR will raise substantial revenues. Furthermore, the
Company may face unforeseen costs associated with entry into the medical
technology market. The Company still will be largely dependent upon Dr. Haouzi
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and to a limited extent upon Mr. Heleman to find suitable clients on a
profitable and timely basis. Although the Company believes the $100,000 is
sufficient to cover operations for the projected period (i.e., to establish the
initial location for operations and providing treatment services), there can be
no assurance that such funding can cover the additional risks associated with
expansion.
If the Company is able to generate enough revenue during the initial
phase to support the business, in the medium term, the Company plans to attend
medical technology conferences each quarter to further expose PTR technology to
the medical community.
The principal risks of these expanded marketing operations would be
unforeseen costs associated with entry into the expanded market, increased costs
associated with a larger geographic area of coverage, additional employee
related costs associated with a larger support staff, inability to establish a
presence in the expanded market place, and, lastly, increased risks of
insufficient working capital associated with the lapse between the incurring of
receivables and the actual receipt of their payment. Should the Company incur
any large liabilities because of its operations, which risk increases as the
Company's geographic coverage expands, such liabilities could have a
substantially detrimental affect upon the Company's financial condition.
Further, should the Company be unable to secure the financing required for the
additional expansion, the anticipated revenues from a reduced operation, while
potentially able to meet the operating needs of the Company, would reduce or
prevent the long term financial success of the Company.
The Company plans to monitor closely its operations for approximately
one (1) year. If it has been successful in securing the necessary financing for
its initial location of approximately $300,000 and if the operation is capable
of sustaining itself, the Company intends to seek additional financing in the
form of conventional bank financing, small business administration financing,
venture capital or the private placement of corporate debt for a total of
approximately $1,000,000. This should enable the Company to open a minimum of
two (2) or three (3) additional locations and provide additional funding for the
initial location if needed. There can be no assurance that any of these
financing sources will be available to the Company. If the Company's plan to
seek additional financing is successful, the Company intends to open additional
offices which compliment the Southern Florida operations and add a regional
manager to oversee these additional operations. The Company believes that such
expansion will place the Company in a position to be a major force in the
cosmetic application of PTR laser technology initially in the State of Florida.
If the Company's subsequent expansion is implemented, Dr. Haouzi and Mr. Heleman
believe that they will be able to oversee the operation with the addition of the
manager.
The Company has not sought as of yet any debt financing since it
believes that any qualified venture capital firm will not loan any funds to the
Company until such time as it is fully reporting and has completed at least two
years of profitable operations. Once it has met those criteria, the Company
intends to seek out funds from licensed venture capital firms and to negotiate
terms which will fit the financial capabilities of the Company. Since the
Company does not expect to seek debt financing until such time as it has several
locations operating successfully, it believes that it can negotiate appropriate
placement and repayment terms for such borrowings. However, there can be no
assurance that such funds will be available to it or that suitable terms which
are most advantageous to the Company can be negotiated. In addition, the Company
does not, at this time, anticipate that it will require substantial leverage to
fund the expanded operations. However, in the event the Company did receive debt
financing and in the event the Company were not successful in sustaining
operations or meeting such
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debt and defaulted in its payments on the debt, then such debt financing could
foreclose upon the Company's interests to the detriment of its shareholders.
Although the Company is authorized to borrow funds, as discussed, it
does not intend to do so until such time as it has been operating for a given
period of time. At such time as the Company seeks borrowed funds, it does not
intend to use the proceeds to make payments to the Company's promoters,
management (except as reasonable salaries, benefits and out of pocket expenses)
or their respective affiliates or associates. The Company has no present
intention of acquiring any assets or other property owned by any promoter,
management or their respective affiliates or associates or acquiring or merging
with a business or company in which the Company's promoters, management or their
respective affiliates or associates directly or indirectly have an ownership
interest. Although there is no present potential for a related party
transaction, in the event that any payments are to be made to promoters and
management such will be disclosed to the security holders and no such payments
will be made in breach of the fiduciary duty such related persons have to the
Company.
There are no arrangements, agreements or understandings between
non-management shareholders and management under which non-management
shareholders may directly or indirectly participate in or influence the
management of the Company's affairs. There are no arrangements, agreements or
understandings under which non-management shareholders will exercise their
voting rights to continue to elect the current directors to the Company's Board
of Directors.
In the event the Company is successful in securing the additional
financing for its long term expansion, it plans to seek acquisitions of
qualified companies which the Company believes will compliment its overall
strategy inside and outside of the State of Florida. The Company will seek
acquisitions of related and/or un-related companies and expand its operations to
eventually encompass the entire United States. At such time as the Company
commences business and enters markets outside the State of Florida, the Company
will be required to comply with applicable state regulations regarding such
entities.
Such increased expansion may increase greatly the risks associated with
the Company's operations. The Company will continue to be dependent upon
obtaining a sufficient client base to purchase PTR technology after it is able
to establish a licensing relationship with a manufacturer. In addition,
increased operations and expansion into other geographic areas expose the
Company to the potential of intense competition and unfavorable governmental
regulations. In addition, the larger the geographic market, the greater the
chance of increased support staff costs. Furthermore, exposure to competition
from larger and more established medical equipment suppliers, many of whom have
greater resources than the Company may be detrimental to the continued success
of the Company. The Company anticipates that revenues from such expanded
operations may also result in greater revenue fluctuations due to differences in
regional market demand and the Company's increasing support staffing needs.
Also, the Company will be required to pay wages to a larger support staff while
still experiencing possible delays in direct payments received from product
sales receivables. In addition, with expansion and implementation of an employee
benefit plan which is necessary in order to be competitive for qualified
employees, in the event such plan were to be disallowed, loss of qualified
status could have an adverse effect upon the Company. Finally, as a larger
Company, it could face possible adverse affects from fluctuations in the general
economy and business of its clients.
Another avenue available to the Company to aid its ability to expand is
to seek a reverse merger with a larger, public company. While the Company has no
present long or short term intention to seek such a merger, in the event that an
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appropriate vehicle were to become known to the Company, the Board of DSI would
evaluate the relative risks and merits of such a merger to the overall plans for
the Company. The Company may also seek to expand by acquisitions of unrelated
companies which engage in related services such as medical laser application
distributors, plastic surgery and dermatology centers/offices and other
unrelated businesses which engage in similar and/or dissimilar services to the
Company's. The Company does not intend to seek out or identify any such
candidates and does not have and does not expect to use any particular
consultants or advisers in connection therewith. The Company also will not
acquire or merge with another company in which promoters, management,
stockholders or other affiliates directly or indirectly have an ownership
interest. Prior to any such acquisition or merger shareholders will be provided
with complete disclosure concerning a target company and its business including
audited financial statements prior to any merger or acquisition. As a reporting
company it will also be necessary to file a Form 8-K with the Securities and
Exchange Commission in compliance with its requirements.
As a reporting company, the Company is required to file quarterly on
Form 10-QSB and annually on Form 10-KSB and in each case, is required to provide
the financial and other information specified in such forms. In addition, the
Company would be required to file on Form 8-K in the event there was a change of
control, if the Company acquires or disposes of assets, if there is a bankruptcy
or receivership, if the Company changes its certified accountants, upon the
occurrence of other events which may be pertinent to the security holders, and
after certain resignations of directors. Being subject to such reporting
requirements reduces the pool of potential acquisitions or merger candidates for
the Company since such transactions require that certified financials must be
provided for the acquiring, acquired or merging candidate within a specified
period of time. That is why the Company intends to expand through internal
operations through the short and medium term. At such time as the Company will
seek acquisitions or mergers, it will limit itself to companies which either
already have certified financial statements or companies whose operations lend
themselves to review for a certified audit within the required time.
The plastic surgery and/or dermatology offices is one of the most
lucrative categories of medical services in the United States. As such
competition to supply medical products in this market is extremely vigorous,
characterized by a relatively large number of companies. Many of these companies
have established reputations for successfully developing and marketing medical
products, as well as a variety of well-established distribution networks. Many
such companies also have greater financial, managerial, and technical resources
than the Company.
Business Strategy
The Company's business strategy, which is dependent upon its obtaining
sufficient financing with which to implement its business plan (of which there
is no assurance), is to profitably participate in the recent trend in the
medical/cosmetic removal of blemishes through the use of laser technology and,
specifically through the application of PTR. Once the Company obtains the right
to market the PTR under its own label and/or under the manufacturer's brand-name
its revenues will be remain dependent upon the ability of the Company to sell
this medical technology to cosmetic medical providers and dermatologists on an
Outpatient basis.
The Company's primary direct costs will be (i) licensing fees paid to
the provider of PTR (ii) salaries to Doctor Haouzi and Mr. Barrett Alan Hileman
(payroll cost), (iii) marketing, sales and advertising costs, and (iv) health
professional employee costs (i.e payroll taxes) and associated employee
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benefits. (See Part I, Item 1, "Description of Business,") Employment related
taxes consist of the employer's portion of payroll taxes required under the
Federal Income Contribution Act ("FICA"), which includes Social Security and
Medicare, and federal and state unemployment taxes. The federal tax rates are
defined by the appropriate federal regulations. State of Florida unemployment
tax rates are affected by claims experience, of which the Company has none at
this time. Health benefits are comprised primarily of medical insurance costs,
but also include costs of other employee benefits such as prescription coverage,
vision care, disability insurance and employee assistance plans.
The Company's gross profit margin will be determined in part by its
ability to acquire PTR cost effectively; minimize and control operating costs;
maximize product sales income realized upon placement of the laser technology
and, to maintain a firm control on marketing, sales and advertising costs. The
Company will also attempt to maximize the effective distribution of its product
in order to capture a broad stream of revenue.
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.
Management expects, in the event DSI achieves commercial success
initially, to increase the Company's market penetration through internal
expansion and thereafter through selected acquisitions. Such acquisitions could
include cosmetic surgery and dermatology centers/clinics, other medical laser
distribution companies and/or various other related and unrelated companies in
the medical equipment distribution and sales area. Management believes that in
the current market, expansion into markets beyond the State of Florida could be
especially attractive because it is believed that the internal structuring of a
successful operation in Florida can be replicated in other selected geographic
areas with similar high growth opportunities. However, such expansion presents
certain challenges and risks. There is no assurance that DSI, even if it is
successful in establishing a presence in its targeted markets, will be able to
so profitably.
Sales and Marketing
The Company plans to market PTR through a combination of marketing
channels including direct sales, franchising and strategic alliances. Third
party sources, independent and unaffiliated with the Company representatives and
affiliates directly or indirectly, will be engaged by contract to franchise
operations and construct strategic alliances. Company personnel will handle
direct sales. The Company believes that this multi-channel approach will allow
the Company to quickly penetrate the marketplace and gain brand-name
recognition. This approach will develop regional awareness and ultimately allow
it to become a market leader. Of the three marketing channels which the Company
intends to deploy, direct sales of services is widely recognized as the most
common in the industry due to the relationship building that is necessary to be
established between the Company and its clients; in addition, strategic
alliances have often been used successfully in the past. The Company also
believes that proprietary "in house" financing alternatives can lead to an
additional number of sales of sevices which might not otherwise result. Such
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alternatives are company financing of services otherwise uninsured, under
circumstances undefined by the Company at the present time. These "self
financed" sales will not only produce added incremental revenues to the
Company's bottom line but will also contribute to additional interest income.
Franchising is an often used means whereby a medical service and product
distributor can further expand its revenue stream not only in obtaining
additional sales but by also increasing revenues through the receipt of
franchise fees. In addition, another benefit to franchising has been the further
recognition of a company's brand-name in the marketplace by consumers. There can
be no assurance that any of these techniques will be successful. The Company
intends to compete, assuming that it is successful in obtaining sufficient
financing, with other companies in its target markets who are currently
providing medical laser technology based products.
The Company anticipates that its initial marketing efforts will be via
direct sales of services. Good quality presentations and professional follow-up
with clients will be essential to the Company's success. 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. To insure client
satisfaction, Dr. Haouzi will pursue a pro-active approach with prospective and
existing clients. This pro-active approach will include the providing of
customized marketing information illustrating the various applications of PTR as
well as providing attractive financing alternatives which the Company believes
will, in many cases, close a sale with a customer. Mr. Hileman will also join
Dr. Haouzi on client visits as a means to not only establish a sound business
relationship between the clients and the Company's principals but also as a
learning tool whereby Mr. Hileman may become as knowledgeable about the various
features and benefits of PTR as does Dr. Haouzi. However, the Company
anticipates that it will employ, as its sales increase, qualified sales
personnel to establish new customer accounts. The Company believes that by
employing its own sales personnel it will be able to penetrate additional
markets at a minimal cost since sales associates receive compensation in the
form of commissions based upon a client's use of the Company's programs. This
commission based compensation program will reduce the overhead costs to the
Company.
The Company's ability to develop markets through the efforts of Dr.
Haouzi and, eventually a sales force is, of course dependent upon management's
ability to obtain necessary financing, of which there can be no assurance.
Assuming the availability of adequate funding, DSI intends to stay abreast of
changes in the marketplace by ensuring that it remain in the field where clients
and competitors can be observed firsthand. DSI does not anticipate obtaining
long-term writen contracts with clients since such contracts are not common in
the medical technology area; however, management believes that the loyalty of
such clients can be maintained through a continuous presence, relationship
building and, more importantly, through effective and professional servicing of
client accounts.
The Company will attempt to maintain diversity within its client base in
order to decrease its exposure to downturns or volatility in any particular
industry. As part of this client selection strategy, the Company intends to
offer its services to those clients which have a reputation for reputable
dealings and a sufficiently broad patient base. The Company will attempt to
avoid doing business with cosmetic surgery and dermatology clinics/offices which
have a record of high patient malpractice claims to avoid placing PTR in a
negative market position. Where feasible, the Company intends to evaluate each
client's practice for patient claims history and reputation in the professional
community.
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Competition
The markets in which the Company intends to engage are subject to keen
competition and rapid technological change. For example, nine(9) other
companies, ThermoLase Corporation; Candela, Inc.; Medical Laser Technologies
Ltd. (Aesculap-Medtec); Light Age, Inc.; Dornier Surgical Products, Inc.;
Continuum Biomedical, Inc.; Polytec PI, Inc. (Lambda Photometics); Leisegang
Medical, Inc. and Cynosure, Inc. have received market clearance from the FDA for
laser hair removal and another company, ESC Medical Systems Limited, has
received FDA clearance to market a laser-like system using filtered intense
light to remove hair. The Company expects that other hair removal devices will
be developed and/or introduced in 1999, making laser hair removal a competitive
application within the cosmetic laser marketplace. The Company also expects that
there may be further consolidation of companies within the laser hair removal
industry via acquisitions, partnering arrangements or joint ventures. The
Company's products will also compete with other hair removal products and
methods. The Company competes primarily on the basis of technology, product
performance, price, quality, reliability, distribution and customer service and
support. To remain competitive, the Company will be required to continue to seek
out the licensing rights to new laser products, periodically enhance its
existing products when possible and compete effectively in the areas described
above.
In the cosmetic laser services industry, the Company may encounter
Esthetica, a subsidiary of Palomar Medical Technology, Inc. which not only will
compete with other laser companies but which also either revenue-shares with
physicians and/or operates its own medical centers, but also partners with
healthcare providers. Esthetica and Palomar are examples of the companies who
have the market and with which the Company will have to compete. Although not
dominant in the industry at the current time this information regarding
Esthetica is important to illustrate the types of companies currently in the
market or likely to enter the market. Esthetica's services also competes for
business with other aesthetic service providers such as electrologists, beauty
salons, spas, and aestheticians, among others. The Company believes that if it
presents PTR product efficacy, provides location support, client focused
marketing, a diverse offering of laser procedures, cost effective pricing and
superior customer service it will be able to effectively compete in the
marketplace.
Government Regulation
Overview
As an employer, the Company is subject to all federal, state and local
statutes and regulations governing its relationship with its employees and
affecting businesses generally.
Impact of Medical Device Regulations
The Company's sales of PTR products and services will be impacted by
the regulation and control by the Center for Devices and Radiological Health, a
branch of the Food and Drug Administration (FDA) within the Department of Health
and Human Services. The FDA medical device regulations require either an
Investigational Device Exemption, Pre-Market Approval or 510(K) clearance before
new products can be marketed to, or utilized by, the physician. The products and
services to be utilized by the Company have not been approved by the FDA. Such
approval is not expected on or before April 1, 2000. The Company's products and
services are subject to similar regulations in its major international markets.
<PAGE>
The developer of PTR will first have to comply with these regulations in order
for the Company's strategy of expanding the market application of PTR and its
services into these countries. These approvals may necessitate clinical testing,
limitations on the number of sales and controls of end user purchase price,
among other things. In certain instances, these constraints can delay planned
shipment schedules as design and engineering modifications are made in response
to regulatory concerns and requests. The Company's competitors are subject to
the same regulations.
Healthcare Reimbursement and Reform Exposure
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of healthcare industry participants. During the past several years, state and
federal government regulation of reimbursement rates and capital expenditures in
the United States healthcare industry has increased. Lawmakers continue to
propose programs to reform the United States healthcare system, which may
contain programs to increase governmental involvement in healthcare, lower
Medicare and Medicaid reimbursement rates or otherwise change the operating
environment for the Company's customers. Healthcare industry participants may
react to these proposals by curtailing or deferring investments, including
investments in the Company's services.
Dependence on Third Party Researchers.
The Company is substantially dependent upon third party researchers and
others, over which the Company will not have absolute control, to satisfactorily
conduct and complete research on PTR on behalf of the Company and to grant to
the Company favorable terms to provide services based upon the products which
may be developed. The Company is dependent upon the validity and effectiveness
of third party research developments with recognized research hospitals and
clinical laboratories. The Company may provide research funding in return for
the right to market and sell the laser technology and optics know-how and
specific PTR applications. Management believes that this method of doing
business and development provides a higher level of technical and clinical
expertise than it could provide on its own and in a more cost efficient manner.
The Company's success will be highly dependent upon the results of the third
party research, and there can be no assurance that such research arrangements
will provide the Company with marketable services in the future or that any of
the products developed by these third party researchers under these arrangements
will be profitable for the Company.
Seasonality
The Company does not believe that its results of operations will be
impacted by factors relating to seasonality. To the extent that economic
conditions may at times vary within geographic areas the company may then become
susceptible to fluctuations in sales. The Company believes, however, that the
purchaser of cosmetic services is less sensitive to economic cycles. The Company
believes that the demographic trend of aging baby boomers is a long and
pervasive cycle that will provide a strong and profitable force driving sales
well into the foreseeable future. The increase in life expectancy plus increased
exposure to sun rays and related elements is requiring more treatment and
services in areas provided by the Company.
Employees
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The Company has had no employees since its organization. In addition,
Dr.Haouzi, (the Company's sole executive officer and director)and Mr. Heleman,
have served in those positions without compensation through the date hereof. Dr.
Haouzi was compensated, in the form of company common stock, for specialized
services, including the preparation of a business plan and the performance of
consulting services.
Dr. Haouzi decided to profitably participate in the recent trend in the
medical/cosmetic removal of blemishes through the use of laser technology and,
specifically through the application of Photo Therapy Resonancy technology
(otherwise referred to as "PTR") because of the belief that his prior medical &
business training, when combined with Mr. Heleman's organizational skills and
support, will enable them to develop a successful medical laser product
distribution company which will have the advantages of among other things,
greater availability of capital and potential for growth through the vehicle of
a public company as compared to a privately-held company.
The Company will be dependent upon Dr. Haouzi to develop the client base
with whom to place medical laser products. Dr. Haouzi has many years of
experience and is well known in many medical circles. Dr. Hoaouzi has extensive
experience managing private medical clinics (over 500 beds) and a retirement
home (600 beds). He is associated with many practitioners in the medical
industry, specializing in dermatology. His extensive networking ability the
Company believes will expose it to many of the industry's current issues and
procedures. The Company plans to use to its advantage Dr. Haouzi's reputation in
the medical industry. Nevertheless, while Dr. Haouzi has been successful in the
past, there can be no assurance that he will be successful in the marketing and
selling of PTR technology. Facilities
In its initial phase, the Company will operate out of offices provided by
Dr. Haouzi. At the time the Company was formed, 265 Sunrise Avenue, Suite 204,
Palm Beach, Florida, 33840 was used as an initial location pending funding of
the Company. At the request of the Company the address has been changed to 222
Lakeview Avenue, Suite 113, West Palm Beach, Florida, 33401. Mr. Hileman will
begin researching the real estate market in order to determine the most
appropriate site wherein to locate DSI's offices and facilities. In the event
the Company requires additional capital during this phase, Dr. Haouzi has
committed to fund the operation until such time as additional capital is
available.
Risk Factors
Before making an investment decision, prospective investors in the
Company's Common Stock should carefully consider, along with other matters
referred to herein, the following risk factors inherent in and affecting the
business of the Company.
1. Development Stage Company. DSI was only recently organized on May 21,
1998, and accordingly, is in the early form of its development stage and must be
considered promotional. Management's efforts, since inception, have been
allocated primarily to organizational and fund raising activities and the
ability of the Company to establish itself as a going concern is dependent upon
the receipt of additional funds from operations or other sources to continue
those activities. Potential investors should be aware of the difficulties
normally encountered by a new enterprise in its development stage, including
under-capitalization, cash shortages, limitations with respect to personnel,
technological, financial and other resources and lack of a client base and
market recognition, most of which are beyond the Company's control. The
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likelihood that the Company will succeed must be considered in light of the
problems, expenses and delays frequently encountered in connection with the
competitive environment in which the Company will operate. The Company's success
depends to a large extent on establishing a licensing relationship with the
provider of PTR technology and then successfully building a large and profitable
client base. There is no guarantee that the Company's proposed activities will
attain the level of recognition and acceptance necessary for the Company to
become viable. There is intense competition in the medical products market in
Southern Florida, the remaining State of Florida and nationwide, several of
which are large public companies, which are already positioned in the business
and which are better financed than the Company. There can be no assurance that
the Company, with its very limited capitalization, will be able to compete with
these companies and achieve profitability. (See Part I, Item 1. "Description of
Business.")
2. No Operating History, Revenues or Earnings. As of the date hereof,
the Company has not yet commenced operations and, accordingly, has received no
operating revenues or earnings. Since its inception, most of the time and
resources of DSI's management have been spent in organizing the Company,
obtaining interim financing and developing a business plan. The Company's
success is dependent upon its obtaining additional financing from intended
operations, from placement of its equity or debt or from third party funding
sources. The Company's success in the business of supplying medical laser
technology to cosmetic and dermatology clinics/centers is dependent initially
upon its ability to establish a licensing relationship with a PTR provider and
then the generation of a sufficient amount of sales to enable the Company to
continue in operation. There is no assurance that DSI will be able to obtain
additional debt or equity financing from any source. The Company, during the
development stage of its operations, can be expected to sustain substantial
operating expenses without generating any operating revenues or the operating
revenues generated can be expected to be insufficient to cover expenses. Thus,
for the foreseeable future, unless the Company attains profitable operations,
which is not anticipated, the Company's financial statements will show an
increasing net operating loss. (See Part I, Item 1. "Description of Business.")
3. Minimal Assets, Working Capital and Net Worth. As of February 28,
1999, the Company's total assets in the amount of $43,832, consisted,
principally, of paid-in capital of $50,000 less accrued expenses. As a result of
its minimal assets, as of February 28, 1999, the Company has very minimal net
worth presently. Further, DSI's working capital is presently minimal and there
can be no assurance that the Company's financial condition will improve. The
Company is expected to continue to have minimal working capital or a working
capital deficit as a result of current liabilities. The Company, at inception,
issued 850,000 shares of the Company's Common Stock to Dr. Haouzi, executive
officer and director of DSI, for the fair value of $.0001 per share or $85.00.
At the same time, Mr. Barrett Alan Hileman, the Company's Secretary and
Treasurer, received 150,000 shares of the Company's Common Stock for the fair
value of $.0001 per share or $15.00. 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 $18,550 in cash. The Company, in July, 1998,
sold a total of 4,000 shares of common stock for $200 in cash. Then in September
1998, the Company sold 60,000 shares of common stock for $3,000 in cash. Even
though management believes, without assurance, that it will obtain sufficient
capital with which to implement its business plan on a limited scale, the
Company is not expected to continue in operation without an infusion of capital.
In order to obtain additional equity financing, management may be required to
dilute the interest of existing shareholders or forego a substantial portion of
its revenues, if any. (See Part I, Item 1. "Description of Business")
<PAGE>
4. Need for Additional Capital: Going Concern Qualification Expressed by
Auditor. Without an infusion of capital or profits from operations, the Company
is not expected to continue in operation after the expiration of the period of
six (6)to nine (9)months from the date hereof. Accordingly, the Company is not
expected to become a viable business entity unless additional equity and/or debt
financing is obtained. DSI's independent certified public accountant has
expressed this as a "going concern" qualification to the opinion of Durland and
Company, CPAs P.A. on the Company's financial statements. The Company does not
anticipate the receipt of operating revenues until management successfully
implements its business plan, which is not assured. Further, DSI may incur
significant unanticipated expenditures which deplete its capital at a more rapid
rate because of among other things, the development stage of its business, its
limited personnel and other resources and its lack of clients and market
recognition. Because of these and other factors, management is presently unable
to predict what additional costs might be incurred by the Company beyond those
currently contemplated to obtain additional financing and achieve market
penetration on a commercial scale in its proposed line of business, i.e. the
sale of laser technology in the medical/cosmetic removal of skin blemishes and
other applications to cosmetic surgery and dermatology medical clinics/offices,
DSI has no identified sources of funds, and there can be no assurance that
resources will be available to the Company when needed.
5. Dependence on Management: The possible success of the Company is
expected to be largely dependent on the continued services of Dr. Hoauzi,
because Mr. Hileman, the Company's secretary and treasurer, does not have any
medical experience or expertise in selling medical technology to medical service
providers. In addition, Mr. Hileman has no experience in marketing or real
estate. Virtually all decisions concerning (i)the clients to contact, (ii)the
type of medical laser features and benefits to sell, (iii)associated financing
programs to design, (iv)direct marketing material to disseminate, and (v)the
establishment of a client profile database by the Company will be made or
significantly influenced by Mr. Haouzi. He is currently serving as the medical
director in research and development of laser therapy for the treatment of
cancer and continues to serve as such. Dr. Haouzi and Mr. Hileman are expected
to devote only such time and effort to the business and affairs of the Company
as may be necessary to perform their responsibilities as executive officers DSI.
Dr. Haouzi and Mr. Hileman may not in fact be able to devote adequate time and
efforts to the business, given other employment and other responsibilities. The
loss of the services of Dr. Haouzi would adversely affect the conduct of the
Company's business and its prospects for the future. The Company presently holds
no key-man life insurance on the lives of, and has no employment contract or
other agreement with Dr. Haouzi or Mr. Hileman.
6. No License and Existing Client Base. The Company was only recently
organized. While DSI intends to engage in the sale of laser technology in the
medical/cosmetic removal of skin blemishes and other applications to cosmetic
surgery and dermatology medical clinics/offices, the Company currently has no
license to market and sell PTR and no existing clients. Further, the very
limited funding currently available to the Company will not permit it to
commence business operations except on a very limited scale. There can be no
assurance that the debt and/or equity financing, which is expected to be
required by the Company in order for DSI to continue in business after the
expiration of the next five(5) to seven(7) months, will be available. The
Company has no clients presently and there can be no assurance that it will be
successful in obtaining clients in its initial prospective marketing area
encompassing Palm Beach and Broward Counties. DSI does not expect to have
long-term contracts with any clients; thus, management believes that the Company
must, in order to survive, ultimately obtain the loyalty of a large volume of
clients. The Company could be expected to experience substantial difficulty in
attracting the high volume of clients in the prospective target market which
<PAGE>
would enable DSI to achieve commercial viability. The Company will be dependent
upon Dr. Haouzi, who has been associated with many key leaders in the medical
industry specializing in Dermatology. (See Part I, Item 1. "Description of
Business," (b) "Business of Issuer - Business Strategy; and - Sales and
Marketing.")
7. High Risks and Unforeseen Costs Associated with DSI's Entry into the
Sale of Medical Laser Technology Industry. There can be no assurance that the
costs associated with obtaining a license to market and sell PTR and for the
establishment of a client base, or for the obtaining of a substantial volume of
sales by DSI will not be significantly greater than those estimated by Company
management. Therefore, the Company may expend significant unanticipated funds or
significant funds may be expended by DSI without development of a commercially
viable Medical Laser Technology sales business. There can be no assurance that
cost overruns will not occur or that such cost overruns will not adversely
affect the Company. Further, unfavorable general economic conditions and/or a
downturn in client confidence has in the past had, and could be expected in the
future to have, an adverse affect on client ability to purchase medical laser
technology which could, in turn, adversely affect the Company's business.
Additionally, competitive pressures and changes in client mix, among other
things, which management expects the Company to experience in the uncertain
event that it achieves commercial viability, could reduce the Company's gross
profit margin from time to time. Accordingly, there can be no assurance that DSI
will be capable of establishing itself in a commercially viable position in the
local, state and nationwide Medical Laser Technology Industry sales business.
(See Part I, Item 1. "Description of Business," (b) "Business of Issuer.")
8. The Company's Services are Dependent Upon Numerous FDA Regulations.
FDA Compliance is expensive and time-consuming. The products upon which the
Company's service will rely may not be able to obtain the necessary FDA
clearance before they can be marketed and sold. All of our services shall be
dependent upon laser medical devices. Laser medical devices are subject to FDA
regulations regulating clinical testing, manufacture, labeling, sale,
distribution and promotion of medical devices. Before a new device can be
introduced into the market, we must obtain clearance from the FDA. Compliance
with the FDA clearance process is expensive and time-consuming, and we may not
be able to obtain such clearances in a timely manner or at all.
9. Conflict of Interest. There are existing and potential conflicts of
interest, including time, effort and corporate opportunity, involved in the
participation by the Company's executive officers and director in other business
entities and transactions. Dr. Haouzi, by virtue of his relation to the Company
is an affiliate of the Company, will divide his time and effort between the
Company, his existing employment and his other business obligations.
Accordingly, Dr. Haouzi and Mr. Hileman may become subject to direct conflicts
of interest and the corporate opportunities doctrine with respect to business
opportunities in the business which come to their attention. Dr. Haouzi and Mr.
Hileman, who is not presently a director of DSI, have agreed, in the event that
each is elected to serve as a director of the Company in the future, that he
would abstain from voting on any related party contract or transaction involving
his existing business. All contracts and transactions in which either Dr. Haouzi
or Mr. Hileman are parties may not be presented to the Board. In such
circumstances no safeguards are in place for avoiding conflicts of interest.
Nevertheless, assuming Mr. Hileman's future election to DSI's Board of Directors
and his abstention from voting on any related party contract or transaction in
accordance with his agreement, it would still be possible for the Board of
Directors of the Company, by a vote of a sufficient number of disinterested
directors, to authorize, approve or ratify such a contract or transaction with
<PAGE>
Dr. Haouzi's existing business or any other affiliate even if the terms were
unfair to the Company and unreasonable.
Because of the existing and/or potential future associations of the
Company's executive officers and directors in various capacities with other
firms involved in a range of business activities and because of the limited or
minimal amount of time and effort which is expected to be devoted to the Company
by such persons, there are existing and potential conflicts of interest in their
acting as executive officers and directors of the Company. None of the executive
officers or the directors of the Company will be able to devote a significant
amount of time or effort to the business and affairs of the Company because of
their simultaneous participation in, employment by and/or commitments to other
firms involved in a range of business activities. In addition, all of such
persons are or may become, in their individual capacities, officers, directors,
controlling shareholders and/or partners of other entities (in addition to Dr.
Haouzi's existing business) involved in a variety of businesses which are
engaged, or may in the future engage, in various transactions, or compete
directly, with the Company. Conflicts of interest and transactions which are not
at arm's-length may arise in the future because the Company's executive officers
and/or directors are involved in the management of any company which transacts
business, or competes directly with, the Company. (See Part I, Item 1.
"Description of Business," (b) Business of Issuer - General.")
10. Governmental Regulation and Litigation. The Company's business is
subject to extensive federal, state and local regulation and supervision. Such
regulation, among other things, requires the Company to market and sell only FDA
approved medical devices. Such regulations exist primarily for the benefit of
consumers, rather than for the protection of medical product distributors and
manufacturers and could limit the Company's discretion in operating its
business. Noncompliance with any applicable FDA statutes or regulations could
result in the suspension or revocation of any license at issue, as well as
extensive litigation time and expenses as a result of the imposition of civil
fines, criminal penalties.
11. Statutory Usury Law Exposure. The Company's ancillary financing
activities in the State of Florida are subject to existing Florida Statutes
which limit the interest rate which a lender may charge on consumer finance
contracts. Such financing includes financing for services which are uninsured
and which the Company agrees to finance. Before expanding the companies
operations to other geographic areas, the Company must consider the impact of
local usury laws. The interest rates and fees charged by the Company are
regulated by various statutory usury laws which limit the application of maximum
allowable interest rates and charges which in the future may be lower than those
currently charged by the Company, The Company's financial condition, results of
operations or cash flows may be adversely affected by such limitations.
12. Ability to Grow. The Company expects to grow through acquisitions,
internal growth and by granting franchises. The Company plans to expand its
business from its current location and by entry into other markets. There can be
no assurance that the Company will be able to create a market presence, or if
such market is created, to expand its market presence or successfully enter
other markets. The ability of the Company to grow will depend on a number of
factors, including the availability of working capital to support such growth,
existing and emerging competition and the Company's ability to maintain
sufficient profit margins in the face of increasingly competitive industry. The
Company must also manage costs in a changing regulatory environment, adapt its
infrastructure and systems to accommodate growth and recruit and train qualified
personnel.
<PAGE>
The Company also plans to expand its business, in part, through
acquisitions of other related medical service providers and/or medical product
distributors. Although the Company will continuously review potential
acquisition candidates, it has not entered into any agreement, understanding or
commitment with respect to any acquisitions at this time. There can be no
assurance that the Company will be able to successfully identify suitable
acquisition candidates, complete acquisitions on favorable terms, or at all, or
integrate acquired businesses into its operations. Moreover, there can be no
assurance that acquisitions will not have a material adverse effect on the
Company's operating results, particularly in the fiscal quarters immediately
following the consummation of such transactions, while the operations of the
acquired business are being integrated into the Company's operations. Once
integrated, acquisitions may not achieve comparable levels of revenues,
profitability or productivity as at then existing Company-owned locations or
otherwise perform as expected. The Company is unable to predict whether or when
any prospective acquisition candidate will become available or the likelihood
that any acquisitions will be completed. The Company will be competing for
acquisition and expansion opportunities with entities that have substantially
greater resources than the Company. In addition, acquisitions involve a number
of special risks, such as diversion of management's attention, difficulties in
the integration of acquired operations and retention of personnel, unanticipated
problems or legal liabilities, and tax and accounting issues, some of all of
which could have a material adverse effect on the Company's results of
operations and financial condition.
Franchise growth poses the additional risk of the inability of the
Company to control the quality of services provided by its franchise associates.
Moreover, the failure of any franchise associate to pay royalties due to the
Company could have a material adverse effect on the Company's financial
condition and results of operations (See Part I, Item 1. "Description of
Business (b) "Business Strategy.")
13. "Potential for Unfavorable Interpretation of Government Regulations"
and Part I, Item 1. "Description of Business" (b) "Business of Issuer-Industry
Regulation.")
At such time as the Company enters into franchise agreements, the
Company may be subject to claims asserting that it is vicariously liable for the
damages allegedly caused by the franchisees. Generally, franchisor liability for
the acts or inactions of its franchisees are based on agency concepts. The
Company intends for its franchise agreements to state that the parties are not
agents and that the franchisees control the day-to-day operations of their
businesses. Furthermore, it is intended that the franchise agreements will
require the franchisees to undertake certain efforts to inform the public that
they are not agents of the Company and that they are independently owned and
operated. Moreover, the Company will take certain additional steps to insulate
its potential liability based on claims from the franchisee's conduct including
requiring the franchisees to indemnify the franchiser for such claims and
mandating that the franchisees carry certain insurance coverage naming the
Company as an additional insured. Despite these efforts to minimize the risk of
vicarious liability, there can be no assurance that a claim will not be made
against the Company, nor that the indemnification requirements and insurance
coverage will be sufficient to cover any judgments, settlements or costs
relating to such a claim.
14. Competition. The markets in which the Company is engaged is subject
to keen competition and rapid technological change. The Company's competitors
include local, regional and national medical product manufacturers and
distributors, many of which are larger and have greater financial and marketing
resources than the Company. To the extent that such competitors aggressively
<PAGE>
protect their existing market share through the reduction of product pricing and
the providing of other purchasing incentives to the Company's targeted clients,
the Company's financial condition, results of operations or cash flows could be
materially and adversely affected.
Many of the Company's competitors have significantly greater name
recognition and have greater marketing, financial and other resources than the
Company. The Company expects that there will be significant consolidation in the
industry, resulting in increased competition from larger national and regional
companies. There can be no assurance that the Company will be able to complete
effectively against such competitors in the future. (See Part I. Item 1.
"Description of Business," (b) "Business of Issuer-Competition.")
15. Seasonal Variations in Results. The Company expects minimal to no
seasonal variations in results. The Company believes that the clients who avail
themselves of cosmetic surgery and dermatology medical services are not impacted
by economic downturns or climactic patterns. Such clients have adequate
financing for the services. Only if financing is provided by the Comany will
such seasonal variations be felt. (See Part I, Item 1. "Description of
Business", (b) "Business of Issuer - Seasonality.")
16. Lack of Working Capital Funding Source. The Company expects to
receive payments on the internally financed sales ("receivables") on a timely
basis. However, the Company will plan for a reserve to be held for
non-performing receivables. In the event that such reserve for non-performing
receivables increases substantially the Company's working capital will be
negatively impacted directly impairing operations. In addition, as new offices
are established or acquired, or as the existing office is expanded, there will
be increasing requirements for cash to fund the Company's plans for expansion.
The Company has no current source of working capital funds, and should the
Company be unable to secure additional financing on acceptable terms, its
business, financial condition, results of operations and liquidity would be
materially adversely affected.
17. Absence of Public Market for Shares. The Company's shares of Common
Stock are not registered with the U.S. Securities and Exchange Commission under
the Act. There is no public market for the shares of Common Stock and no
assurance that one will develop. Of such shares, the Company has issued
1,000,000 shares of common stock to persons affiliated withe DSI pursuant to an
exemption from registration provided by Rule 4(2) and 506 of Regulation D
promulgated under Section 3(b) of the Act. These shares are "restricted
securities". Rule 144 of the Act provides, in essence, that holders of
restricted securities, for a period of one year after the acquisition thereof
from the Company or an affiliate of the Company, may, every three months, sell
to a market maker or in ordinary brokerage transactions an amount equal to one
percent of the Company's then outstanding securities. Non-affiliates of the
Company who hold restricted securities for a period of two years may sell their
securities without regard to volume limitations or other restrictions. Resales
of the free- trading shares of Common Stock by "affiliates, control persons
and/or underwriters" of DSI, as those terms are defined in the Act, will be
subject to the volume limitations, described in paragraph (e) of Rule 144. Any
transfer or resale of the shares of DSI's Common Stock will be subject, in
addition to the Federal securities laws, to the "blue sky" laws of each state in
which such transfer or resale occurs. A total of 1,000,000 shares of the
Company's Common Stock will be available for resale under Rule 144 commencing on
May 21, 1999. Sales of shares of Common Stock under Rule 144 may have a
depressive effect on the market price of the Company's Common Stock, should a
public market develop for such stock. Such sales also might impede future
financing by the Company. (See Part III, Item 11. "Security Ownership of Certain
Beneficial Owners and Management.")
<PAGE>
18. No Dividends. While payments of dividends on the Common Stock rests
with the discretion of the Board of Directors, there can be no assurance that
dividends can or will ever be paid. Payment of dividends is contingent upon,
among other things, future earnings, if any, and the financial condition of the
Company, capital requirements, general business conditions and other factors
which cannot now be predicted. It is highly unlikely that cash dividends on the
Common Stock will be paid by the Company in the foreseeable future.
19. No Cumulative Voting. The election of directors and other questions
will be decided by a majority vote. Since cumulative voting is not permitted and
less than one-half of the Company's outstanding Common Stock constitute a
quorum, investors who purchase shares of the Company's Common Stock may not have
the power to elect even a single director and, as a practical matter, the
current management will continue to effectively control the Company.
20. Control by Present Shareholders. The present shareholders of the
Company's Common Stock will, by virtue of their percentage share ownership and
the lack of cumulative voting, be able to elect the entire Board of Directors,
establish the Company's policies and generally direct its affairs. Accordingly,
persons investing in the Company's Common Stock will have no significant voice
in Company management, and cannot be assured of ever having representation on
the Board of Directors. (See Part III, Item 11. "Security Ownership of Certain
Beneficial Owners and Management.")
21. Potential Anti-Takeover and Other Effects of Issuance of Preferred
Stock May Be Detrimental to Common Shareholders. Potential Anti-Takeover and
Other Effects of Issuance of Preferred Stock May Be Detrimental to Common
Shareholders. The Company is authorized to issue up to 10,000,000 shares of
preferred stock. $.0001 par value per share (hereinafter referred to as the
"Preferred Stock"); none of which shares has been issued. The issuance of
Preferred Stock does not require approval by the shareholders of the Company's
Common Stock. The Board of Directors, in its sole discretion, has the power to
issue shares of Preferred Stock in one or more series and to establish the
dividend rates and preferences, liquidation preferences, voting rights,
redemption and conversion terms and conditions and any other relative rights and
preferences with respect to any series of Preferred Stock. Holders of Preferred
Stock may have the right to receive dividends, certain preferences in
liquidation and conversion and other rights; any of which rights and preferences
may operate to the detriment of the shareholders of the Company's Common Stock.
Further, the issuance of any shares of Preferred Stock having rights superior to
those of the Company's Common Stock may result in a decrease in the value of
market price of the Common Stock provided a market exists, and additionally,
could be used by the Board of Directors as an anti-takeover measure or device to
prevent a change in control of the Company.
22. No Secondary Trading Exemption. In the event a market develops in
the Company's shares, of which there can be no assurance, secondary trading in
the Common Stock will not be possible in each state until the shares of Common
Stock are qualified for sale under the applicable securities laws of the state
or the Company verifies that an exemption, such as listing in certain recognized
securities manuals, is available for secondary trading in the state. There can
be no assurance that the Company will be successful in registering or qualifying
the Common Stock for secondary trading, or availing itself of an exemption for
secondary trading in the Common Stock, in any state. If the Company fails to
register or qualify, or obtain or verify an exemption for the secondary trading
of, the Common Stock in any particular state, the shares of Common Stock could
not be offered or sold to, or purchased by, a resident of that state. In the
event that a significant number of states refuse to permit secondary trading in
<PAGE>
the Company's Common Stock, a public market for the Common Stock will fail to
develop and the shares could be deprived of any value.
23. Possible Adverse Effect of Penny Stock Regulations on Liquidity of
Common Stock in any Secondary Market. In the event a market develops in the
Company's shares, of which there can be no assurance, then if a secondary
trading market develops in the shares of Common Stock of the Company, of which
there can be no assurance, the Common Stock is expected to come within the
meaning of the term "penny stock" under 17 CAR 240.3a51-1 because such shares
are issued by a small company; are low-priced (under five dollars); and are not
traded on NASDAQ or on a national stock exchange. The Securities and Exchange
Commission has established risk disclosure requirements for broker-dealers
participating in penny stock transactions as part of a system of disclosure and
regulatory oversight for the operation of the penny stock market. Rule 15g-9
under the Securities Exchange Act of 1934, as amended, obligates a broker-dealer
to satisfy special sales practice requirements, including a requirement that it
make an individualized written suitability determination of the purchaser and
receive the purchaser's written consent prior to the transaction. Further, the
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 require a
broker-dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure instrument that provides information about penny
stocks and the risks in the penny stock market. Additionally, the customer must
be provided by the broker-dealer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and the salesperson in the
transaction and monthly account statements showing the market value of each
penny stock held in the customer's account. For so long as the Company's Common
Stock is considered penny stock, the penny stock regulations can be expected to
have an adverse effect on the liquidity of the Common Stock in the secondary
market, if any, which develops.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operations
Since its inception, the Company has conducted no business operations
except for organizational and capital raising activities. For the period from
inception (May 21, 1998) through February 28, 1999, the Company had no income
from operations and operating expenses aggregating of $13,891, and a loss from
operations. The Company proposes to profitably participate in the recent trend
in the medical/cosmetic removal of blemishes through the use of laser technology
and, specifically through the application of Photo Therapy Resonancy technology
(otherwise referred to as "PTR").
Dr. Pierre Haouzi, 61 years old, is a graduate of the Paris School of
Medicine, specializing in Biology and is Licensed to practice general medicine.
He has a specialty in Sports Medicine and Traumatology and in 1979 was certified
by the Country of France. Dr. Haouzi has testified numerous times in court as a
medical expert. He also holds a certification in Homeopathy and Accupuncture. In
June 1995 Dr. Haouzi resigned his position managing retirement homes and private
clinics. In 1996 he assumed the position of Medical Director of Lasertec of
France's research and development of laser therapy for the specialized treatment
of cancer. Dr. Pierre Haouzi is associated with all of the key leaders in the
medical industry specializing in Dermatology. His networking power will connect
the Company with all the current industry issues and procedures. Dr. Haouzi is
developing the sales of this medical laser technology for the Company for the
following, among other, reasons: (i) because of his belief that a public company
could exploit his talents, services and business reputation to commercial
<PAGE>
advantage and (ii) to observe directly whether the perceived advantages of a
public company, including, among others, greater ease in raising capital,
liquidity of securities holdings and availability of current public information,
would translate into greater profitability for a public, as compared to a
locally-owned company.
Dr. Haouzi has applied the totality of his training to his recent
research and development of laser technology therapy. While the research and
development has been focused on specialized treatment of cancer and many
benefits from laser application have been discovered, refined and applied to the
areas in which the Company will market its services. Dr. Haouzi has been
authorized and permitted to develop this additional technology while engaged in
his research and development for the specialized treatment of cancer. In some
respects the areas overlap and the cancer research has developed new methods of
treatment and laser application for the areas in which the Company will engage.
Dr. Haouzi has been a key researcher for Lasertec of France and has a verbal
commitment from the Company that he is permitted to utilize various technologies
in his own business. The specific terms of the license is under discussion and
the Company expects a written agreement with respect to the technology in the
very near future.
If the Company is unable to generate sufficient revenue from operations
to implement its expansion plans, management intends to explore all available
alternatives for debt and/or equity financing, including but not limited to
private and public securities offerings. Depending upon the amount of revenue,
if any, generated by the Company, management anticipates that it will be able to
satisfy its cash requirements for the next approximately five(5) to seven(7)
months without raising funds via debt and/or equity financing or from third
party funding sources. Accordingly, management expects that it will be necessary
for DSI to raise additional funds in the next five (5) months, commencing
approximately four(4) months from the date hereof, in the event that the Company
is unable to generate any revenue from operations and if only a minimal level of
revenue is generated in accordance with management's expectations.
Dr. Haouzi, at least initially, will be solely responsible for
developing DSI's medical laser sales business. However, at such time, if ever,
as sufficient operating capital becomes available, management expects to employ
additional staffing and marketing personnel. In addition, the Company expects to
continuously engage in market research in order to monitor new market trends and
other critical information deemed relevant to DSI's business.
In addition, at least initially, the Company intends to operate out of
an office provided by Dr. Haouzi. Thus, it is not anticipated that DSI will
lease or purchase office space or computer equipment in the foreseeable future.
DSI may in the future establish its own facilities and/or acquire computer
equipment if the necessary capital becomes available; however, the Company's
financial condition does not permit management to consider the acquisition of
office space or equipment at this time.
Financial Condition, Capital Resources and Liquidity
At February 28, 1999, the Company had assets totaling $43,832 and
liabilities of $7,623 attributable to accrued legal expenses, organization
expenses and professional fees. Since the Company's inception, it has received
$50,000 in cash contributed as consideration for the issuance of shares of
Common Stock.
<PAGE>
DSI's working capital is presently minimal and there can be no assurance
that the Company's financial condition will improve. The Company is expected to
continue to have minimal working capital or a working capital deficit as a
result of current liabilities. The Company, at inception, issued 850,000 shares
of the Company's Common Stock to Dr. Haouzi, executive officer and director of
DSI, for the fair value of services rendered valued at $85.00. At the same time,
Mr. Hileman, the Company's Secretary and Treasurer, received 150,000 shares of
the Company's Common Stock for services valued by him at $15.00. 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 $18,550 in cash. The
Company, in July, 1998, sold a total of 4,000 shares of common stock for $200 in
cash. Then in September 1998 the Company sold 60,000 shares of common stock for
$3,000 in cash. Even though management believes, without assurance, that it will
obtain sufficient capital with which to implement its business plan on a limited
scale, the Company is not expected to continue in operation without an infusion
of capital. In order to obtain additional equity financing, management may be
required to dilute the interest of existing shareholders or forego a substantial
interest of its revenues, if any. (See Part I, Item 1. "Description of
Business"; See Part III, Item 11. "Security Ownership of Certain Beneficial
Owners and Management" and Part III, Item 12. "Certain Relationships and Related
Transactions.")
The Company has no potential capital resources from any outside sources
at the current time. In its initial phase, the Company will operate out of the
facility provided by Dr. Haouzi. Dr. Haouzi will begin by finding clients for
the Company and instructing Mr. Hileman in the operation of medical laser sales
business. To attract clients, Dr. Haouzi and Mr. Hileman will visit potential
clients in order to determine their needs. The Company will place advertising in
local area newspapers in Palm Beach County to directly solicit prospective
clients and to brand-name awareness. In the event the Company requires
additional capital during this phase, Dr. Haouzi has committed to fund the
operation until such time as additional capital is available. The Company
believes that it will require two (2) to three (3) months in order to determine
the market demand potential.
The ability of the Company to continue as a going concern is dependent
upon its ability to obtain a licensing arrangement with the manufacturer of PTR
medical lasers and then finding clients who will purchase it. The Company
believes that in order to be able to expand its initial operations, it must rent
offices in Palm Beach County, hire clerical staff and acquire through purchase
or lease computer and office equipment to maintain accurate financial accounting
and client data. The Company believes that there is adequate and affordable
rental space available in Palm Beach County and sufficiently trained personnel
to provide such clerical services at affordable rates. Further, the Company
believes that the type of equipment necessary for the operation is readily
accessible at competitive rates.
To implement such plan, also during this initial phase, the Company
intends to initiate a selfdirected private placement under Rule 506 in order to
raise an additional $100,000. In the event such placement is successful, the
Company believes that it will have sufficient operating capital to meet the
initial expansion goals and operating costs for a period of six (6) months. In
the event the Company is not successful in raising such funds, the Company
believes that it will not be able to continue operations past a period of
five(5) to seven(7) months.
<PAGE>
Net Operating Losses
The Company has net operating loss carry-forwards of $13,891 expiring at
February 28, 2019. The company has a $2,733 deferred tax asset resulting from
the loss carry-forwards, for which it has established a 100% valuation
allowance. Until the Company's current operations begin to produce earnings, it
unclear as to the ability of the Company to utilize such carry-forwards.
Year 2000 Compliance
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording mechanism including date sensitive software which uses only
two digits to represent the year, may recognize the date using 00 as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
The Company determined that the Year 2000 impact is not material to
Dermatology Systems, Inc. and that it will not impact its business, operations
or financial condition since all of the internal software to be developed and
utilized by the Company will have capability of being upgraded to support Year
2000 versions.
There can be no assurance, however, that the systems of other companies
on which the Company's systems may have to rely also will be timely converted or
that any such failure to convert by another company would not have an adverse
affect on the Company's systems. Currently the Company does not have to rely on
others that might have an adverse affect on any Company systems and does not
anticipate any such reliance in the near future.
Forward-Looking Statements
This Form 10-KSB 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-KSB 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),
business strategy, 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-KSB 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. The Safe Harbor
<PAGE>
provisions referred to herein do not apply to the Company until the Company is
subject to the reporting requirements of Section 13(a) or Section 15(d) of the
Exchange Act.
Item 3. Description of Property:
The Company's executive offices are located at 22 Lakeview Avenue, Suite
113 West Palm Beach, FL 33401. Its telephone number is (561) 832-5699. The
Company pays no rent for this space.
The Company owns no real or personal property.
Item 4. Security Ownership of Certain Beneficial Owners and Managers
The following table sets forth information as of June 14, 1999, regarding
the ownership of the Company's Common Stock by each shareholder known by the
Company to be the beneficial owner of more than five per cent of its outstanding
shares of Common Stock, each director and all executive officers and directors
as a group. Except as otherwise indicated, each of the shareholders has sole
voting and investment power with respect to the shares of Common Stock
beneficially owned.
Amount
Name and Address of Beneficially Percent of
Beneficial Owner Owned Class (1)
- --------------- ----- --------
Dr. Pierre Haouzi (1)(2)(3) 850,000 42.50%
222 Lakeview Avenue, Suite 113
West Palm Beach, Florida 3340
Barrett Alan Hileman (2) 150,000 7.5%
222 Lakeview Avenue, Suite 113
West Palm Beach, Florida 33401
All Executive Officers and Directors 1,000,000 50.00%
as a Group (two persons)
- -------------------
(1) Based upon 2,000,000 shares of the Company's Common Stock issued and
outstanding as of June 14, 1999.
(2) Executive officer of the Company.
(3) Member of the Board of Directors of the Company.
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons
Pierre Haouzi, President
Dr. Haouzi is a graduate of the Paris School of Medicine, specializing in
Biology and is Licensed to practice general medicine. He has a specialty in
Sports Medicine and Traumatology and in 1979 was certified by the Country of
France. Dr. Haouzi has testified numerous times in court as a medical expert. He
also holds a certification in Homeopathy and Accupuncture. In June 1995 Dr.
Haouzi resigned his position managing retirement homes and private clinics to
become the Medical Director of Lasertec of France's research and development of
laser therapy for the specialized treatment of cancer and continues to serve as
such. Dr. Pierre Haouzi is associated with all of the key leaders in the medical
industry, specializing in Dermatology. His networking power will connect the
Company with all the current industry and procedures. Under Dr. Haouzi's
direction, the Company plans to offer clients an established product line. It is
anticipated, and subject to the availability of additional funding, that the
Company will employ additional physician with experience in cosmetic and
dermatology servicing in order to effectively penetrate the market.
Barrett Alan Hileman, Secretary and Treasurer
Barrett Alan Hileman, is currently attending the Academy Art School. He has
a specialty in the cinema business and has been interested in the medical field
since childhood. Most of his family is involved in this industry. Mr. Hileman
has no experience in real estate, marketing or the medical industry.
Management is unable at this time to forecast with any degree of certainty
the acceptance of the Company's PTR, its funding programs or the expenses of
doing business; however, DSI intends to market its programs competitively in the
Company's target markets.
Executive Officers and Directors
Set forth below are the names, ages, positions with the Company and
business experiences of the executive officers and directors of the Company.
Name Age Position(s) with Company
- ---- -- ------------------
Dr. Pierre Haouzi (4) 62 President, Chief Executive
Officer & Director
Mr. Barrett Alan Hileman(4) 21 Secretary & Treasurer
(4) The above-named persons may be deemed to be "promoters" and "parents" of
the Company, as those terms are defined under the Rules and Regulations
promulgated under the Act.
All directors hold office until the next annual meeting of the Company's
shareholders and until their successors have been elected and qualify. Officers
serve at the pleasure of the Board of Director.
<PAGE>
Dr. Haouzi and Mr. Hileman will devote such time and effort to the business
and affairs of the Company as may be necessary to perform their responsibilities
as executive officers and/or directors of the Company.
Aside from the above officers and directors, there are no other persons
whose activities will be material to the operations of the Company at this time.
Dr. Haouzi and Mr. Hileman are the sole "promoters" of the Company as such term
is defined under the Act.
Family Relationships
There are no family relationships between or among the executive officers
and director of the Company.
Business Experience
Dr. Pierre Haouzi, has served as the President since its inception on May
21, 1998. As such he acts as the CEO, CFO and Principal Accounting Officer. Dr.
Pierre Haouzi, is a graduate of the Paris School of Medicine, specializing in
Biology and is Licensed to practice general medicine. He has a specialty in
Sports Medicine and Traumatology and in 1979 was certified by the Country of
France. Dr. Haouzi has testified numerous times in court as a medical expert. He
also holds a certification in Homeopathy and Accupuncture. In June 1995 Dr.
Haouzi resigned his position managing retirement homes and private clinics. In
1996 he assumed the position of Medical Director of Lasertec of France's
research and development of laser therapy for the specialized treatment of
cancer and continues to serve as such. Dr. Pierre Haouzi is associated with all
of the key leaders in the medical industry, specializing in Dermatology. His
networking power will connect the Company with all the current industry issues
and procedures.
Mr. Barrett Alan Hileman has served as the Secretary and Treasurer since
its inception on May 21, 1998. Mr. Hileman is currently attending the Academy
Art School, his a specialty in the cinema business and has been interested in
the medical field since his childhood, being raised in this environment. .
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (hereinafter referred to as the
"Commission")initial statements of beneficial ownership, reports of changes in
ownership and annual reports concerning their ownership, of Common Stock and
other equity securities of the Company on Forms 3, 4 and 5, respectively.
Executive officers, directors and greater than 10% shareholders are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
reports they file. To the Company's knowledge, Dr. Haouzi and Mr. Hileman
comprise all of the Company's executive officers, directors and greater than 10%
beneficial owners of its common Stock, and has complied with Section 16(a)
filing requirements applicable to him during from inception (May 21, 1998) to
the end of February 28, 1999.
<PAGE>
Item 6. Executive Compensation:
The Company, in consideration for various services performed for
the Company, issued to Dr. Haouzi, the Company's sole executive officer and/or
director, 850,000 shares of restricted common stock and issued to Mr. Barrett
Alan Hileman, the Company's Secretary and Treasurer, 150,000 shares of
restricted common stock for consulting services on behalf of DSI. Except for the
above-described compensation, it is not anticipated that any executive officer
of the Company will receive any cash or non-cash compensation for his or her
services in all capacities to the Company until such time as the Company
commences business operations. At such time as DSI commences operations, it is
expected that the Board of Directors will approve the payment of salaries in a
reasonable amount to each of its officers for their services in the positions.
At such time, the Board of Directors may, in its discretion, approve the payment
of additional cash or non-cash compensation to the foregoing for their services
to the Company.
The Company does not provide officers with pension, stock appreciation
rights, long-term incentive or other plans but has the intention of implementing
such plans in the future.
Compensation of Directors
The Company has no standard arrangements for compensating the directors
of the Company for their attendance at meetings of the Board of Directors.
Item 7. Certain Relationships and Related Transactions:
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.
At the current time, the Company has no provision to issue any additional
securities to management, promoters or their respective affiliates or
associates.(See Part I, Item 1. "Description of Business - (b) Business of
Issuer.")
Dr. Haouzi and Mr. Hileman are the sole "promoters" of the Company. (See
Directors, Executive Officers, Promoters and Control Persons).
Item 8. Description of Securities.
The Company is authorized to issue 50,000,000 shares of Common Stock,
$0.0001 par value. The issued and outstanding shares of Common Stock being
registered hereby are validly issued, fully paid and non-assessable. The holders
of outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the Board
of Directors may from time to time determine.
<PAGE>
All shares of Common Stock have equal voting rights and, when validly
issued and outstanding, have one vote per share in all matters to be voted upon
by the stockholders. A majority vote is required on all corporate action.
Cumulative voting in the election of directors is not allowed, which means that
the holders of more than 50% of the outstanding shares can elect all the
directors as they chose to do so and, in such event, the holders of the
remaining shares will not be able to elect any directors. The shares of Common
Stock have no preemptive, subscription, conversion or redemption rights and can
only be issued as fully paid and nonassessable shares. Upon liquidation,
dissolution or winding-up of the Company, the holders of Common Stock are
entitled to receive a pro rata of the assets of the Company which are legally
available for distribution to stockholders.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of Preferred Stock,
$0.0001 par value. Currently there are no issued and outstanding preferred
shares of the Company. The Board of Directors is authorized to establish the
terms, conditions and preferences of such stock.
Transfer Agent
The transfer agent and address for the Company:
Interwest Transfer Co., Inc.
1981 E. Murray Holiday Road
Suite 100
Salt Lake City, Utah 84117
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
No matter was submitted during the fourth quarter of the fiscal year ended
June 30, 1999, covered by this report to a vote of the Company's shareholders,
through the solicitation of proxies or otherwise.
(a) Market Information.
There has been no established public trading market for the Common Stock
since the Company's inception on October 20,1997.
(b) Holders.
As of June 14, 1999, the Company had 42 shareholders of record of its
2,000,000 outstanding shares of Common Stock.
(c) Dividends.
The Company has never paid or declared any dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future.
<PAGE>
(d) Options and Warrants
There are no outstanding options or warrants to purchase, or securities
convertible into common equity of the Company.
(e) Public Quotations of Stock
The Company has not as of this date, but intends to request in the
immediate future a licensed broker-dealer, to act as a market maker for the
Company's securities. Thus far the Company has not requested any market maker
and does not have a specific market maker in mind to submit the Company's Form
10-SB to the National Association of Securities Dealers and to serve as a market
maker for the Company's Common Stock. The Company anticipates that other market
makers may be requested to participate at a later date. The Company will not use
consultants to obtain market makers. There have been no preliminary discussions
between the Company, or anyone acting on its behalf, and any market maker
regarding the future trading market for the Company. It is anticipated that the
market maker will be contacted after the comment phase for the Form 10-SB and
only by management of the Company.
Item 2. Legal Proceedings.
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 3. Changes in and Disagreements with Accountants
Because the Company has been generally inactive since its inception, it has
had no independent accountant until the retention in June 1998 of Durland and
Company, CPA's, P.A., 340 Royal Palm Way, Suite 204, Palm Beach, Florida 33480.
There has been no change in the Company's independent accountant during the
period commencing with the Company's retention of Durland and Company, CPA's,
P.A. through the date hereof.
Item 4. Recent Sales of Unregistered Securities
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.
<PAGE>
The Company relied upon Section 4(2) of the Act for the issuance of such
shares. The facts relied upon include the fact that both investors were
accredited, the books and records of the Company were made available to them,
and all relevant facts were personally known to both investors.
Beginning in May 1998 through September 1998, the Company issued and
sold an aggregate of 1,000,000 shares of Common Stock to Georgia, Florida and
French residents for cash consideration totaling $50,000 (140,000 shares to
sixteen(16) Georgia residents and at $.05 per share; 391,000 shares to eight(8)
Florida resident at $.05 per share; and 469,000 shares to sixteen(16) French
Nationals at $.05 per share). No underwriter was employed in connection with the
offering and sale of the shares. The Company claimed the exemption from
registration in connection with each of the offerings provided under Section
3(b) of the Act and Rule 504 of Regulation D promulgated thereunder, Section
10-5-9(13) of the Georgia Code and Section 517.061(11) of the Florida Code.
The facts relied upon the by the Company to make the federal exemption
available include the following: (i) the aggregate offering price for the
offering of the shares of Common Stock did not exceed $1,000,000, less the
aggregate offering price for all securities sold within the twelve months before
the start of and during the offering of the shares in reliance on any exemption
under Section 3(b) of, or in violation of Section 5(a) of, the Act; (ii) no
general solicitation or advertising was conducted by the Company in connection
with the offering of any of the shares; (iii) the fact that the Company has not
been since its inception (a) subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended; (b) an "investment
Company" within the meaning of the Investment Company Act of 1940, as amended;
or (c) a development stage Company that either has no specific business plan or
purpose or has indicated that its business plan is to engage in a merger or
acquisition with an unidentified company or companies, or other entity or
person; and (iv) the required number of manually executed originals and true
copies of Form D were duly and timely filed with the U.S. Securities and
Exchange Commission.
The facts relied upon to make the Georgia exemption available include
the following: (i) the aggregate number of persons purchasing the Company's
stock during the 12 month period ending on the date of issuance did not exceed
fifteen (15) persons; (ii) neither the offer nor the sale of any of the shares
was accomplished by a public solicitation or advertisement; (iii) each
certificate contains a legend stating "These securities have been issued or sold
in reliance of paragraph (13) of Code Section 10-5-9 of the Georgia Securities
Act of 1973 and may not be sold or transferred except in a transaction which is
exempt under such act or pursuant to an effective registration under such act";
and (iv) each purchaser executed a statement to the effect that the securities
purchased have been purchased for investment purposes. Offerings made pursuant
to this section of the Georgia Securities Act have no requirement for an
offering memorandum or disclosure document.
The facts relied upon to make the Florida exemption available include
the following: (i) sales of the shares of Common Stock were not made to more
than 35 persons; (ii) neither the offer nor the sale of any of the shares was
accomplished by the publication of any advertisement; (iii) all purchasers
either had a preexisting personal or business relationship with one or more of
the executive officers of SDP or, by reason of their business or financial
experience, could be reasonably assumed to have the capacity to protect their
own interests in connection with the transaction; (iv) each purchaser
represented that he was purchasing for his own account and not with a view to or
for sale in connection with any distribution of the shares; and (v) prior to
sale, each purchaser had reasonable access to or was furnished all material
books and records of the Company, all material contracts and documents relating
to the proposed transaction, and had an opportunity to question the executive
<PAGE>
officers of the Company. Pursuant to Rule 3E-500.005, in offerings made under
Section 517.061(11) of the Florida Statutes, an offering memorandum is not
required; however each purchaser (or his representative) must be provided with
or given reasonable access to full and fair disclosure of material information.
An issuer is deemed to be satisfied if such purchaser or his representative has
been given access to all material books and records of the issuer; all material
contracts and documents relating to the proposed transaction; and an opportunity
to question the appropriate executive officer. In the regard, Dr. Haouzi
supplied such information and was available for such questioning.
As of the date hereof, the Company has issued and outstanding 2,000,000
shares of common stock. Of this total, 1,000,000 shares were originally issued
in transactions on May 21, 1998, pursuant to Rule 144. Such shares may not be
sold or otherwise transferred without restriction pursuant to the terms of Rule
144 ("Rule 144")of the Securities Act of 1933, as amended (the "Act") except as
provided therein. The remaining 1,000,000 shares were issued subject to
Regulation D, Section 504 and may be sold or transferred unless restricted by
applicable state law. Residents of the State of Georgia who were issued shares
are subject to a restrictive legend for a period of one (1) year absent an
applicable exception from registration
Item 5. Indemnification of Directors and Officers.
Article X of the Company's Articles of Incorporation contains provisions
providing for the indemnification of directors and officers of the Company as
follows:
(a) The corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, of any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is otherwise serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, has no reasonable cause to believe his conduct is unlawful. The
termination of any action, suit or proceeding, by judgment, order, settlement,
conviction upon a plea of nolo contendere or its equivalent, shall not of itself
create a presumption that the person did not act in good faith in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe the action was unlawful.
(b) The corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed action
or suit by or in the right of the corporation, to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in, or not, opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
<PAGE>
corporation, unless, and only to the extent that, the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability, but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
which such court deems proper.
(c) To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections (a) and (b) of this Article,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith.
(d) Any indemnification under Section (a) or (b) of this Article (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the officer, director
and employee or agent is proper in the circumstances, because he has met the
applicable standard of conduct set forth in Section (a) or (b) of this Article.
Such determination shall be made (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (ii) if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote and represented at a meeting
called for purpose.
(e) Expenses (including attorneys' fees) incurred in defending a civil
or criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition or such action, suit or proceeding, as authorized in
Section (d) of this Article, upon receipt of an understanding by or on behalf of
the director, officer, employee or agent to repay such amount, unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article.
(f) The Board of Directors may exercise the corporation's power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under this Article.
(g) The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under these Articles of Incorporation, the Bylaws, agreements, vote of
the shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office and shall continue as to person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs and personal
representative of such a person.
The Company has no agreements with any of its directors or executive
offices providing for indemnification of any such persons with respect to
liability arising out of their capacity or status as officers and directors.
At present, there is no pending litigation or proceeding involving a
director or executive officer of the Company as to which indemnification is
being sought.
<PAGE>
PART F/S
The Financial Statements of DSI, and Notes to Financial Statements together
with the Independent Auditor's Report of Durland and Company, CPA's, P.A.,
required by this Item 13 commence on page F-1 hereof and are incorporated herein
by this reference.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.........................................F-2
Balance Sheets.......................................................F-3
Statements of Loss...................................................F-4
Statements of Changes in Stockholders' Equity........................F-5
Statements of Cash Flows.............................................F-6
Notes to Financial Statements........................................F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO: The Board of Directors
Dermatology Systems, Inc.
West Palm Beach, Florida
We have audited the accompanying balance sheet of Dermatology Systems, Inc., a
development stage enterprise, as of February 28, 1999 and the related statements
of loss, changes in stockholders' equity and cash flows for the period from May
21, 1998 (Inception) through February 28, 1999. 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 audit.
We conducted our audit 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
misstatements. 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 audit provides 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 Dermatology Systems, Inc. as of
February 28, 1999, and the results of its operations and its cash flows for the
period from May 21, 1998 (Inception) through February 28, 1999 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company has experienced a loss since inception. The
Company's financial position and operating results raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 4. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Durland & Company
Durland & Company, CPAs, P.A.
Palm Beach, Florida
May 6, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
Dermatology Systems, Inc.
(A Development Stage Enterprise)
Balance Sheets
ASSETS May 31, 1999 February 28, 1999
(unaudited)
----------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 43,669 $ 43,832
----------------- -----------------
Total current assets 43,669 43,832
----------------- -----------------
Total Assets $ 43,669 $ 43,832
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $ 4,500 $ 4,500
Accrued expenses - related party 3,123 3,123
----------------- -----------------
Total current liabilities 7,623 7,623
----------------- -----------------
Total Liabilities 7,623 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 (14,054) (13,891)
----------------- -----------------
Total Stockholders' Equity 36,046 36,209
----------------- -----------------
Total Liabilities and Stockholders' Equity $ 43,669 $ 43,832
================= =================
</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 Loss
From inception
(May 21, 1998
through May 31,
May 31, 1999 May 31, 1998 February 28, 1999
(unaudited) (unaudited) 1999 (unaudited)
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0
-------------- -------------- ------------- --------------
Expenses
Bank charges 0 0 10 10
Consulting fees - related party 0 100 100 100
Organizational fees 0 0 207 207
Other operating expenses 143 0 134 277
Professional fees 0 0 9,000 9,000
Professional fees - related party 0 0 3,000 3,000
Transfer agent fees 20 0 1,440 1,460
-------------- -------------- ------------- --------------
Total expenses 163 100 13,891 14,054
-------------- -------------- ------------- --------------
Net loss $ (163) $ (100) $ (13,891) $ (14,054)
============== ============== ============== =============
Net loss per weighted average share,
basic $ (.0001) $ (.0001) $ ( .007) $ (.007)
============== =============== ============== =============
Weighted average number of shares 2,000,000 1,565,000 1,952,590 1,964,221
============== =============== ============== =============
</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 Changes in Stockholders' Equity
Deficit
Common Accumulated
Stock Additional During the Total
Number of Preferred Common Paid-in Development Stockholders
Shares stock Stock Capital Stage '
Equity
---------- --------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
May 21, 1998 (inception) 0 0 $ 0 $ 0 $ 0 $ 0
May 1998 - services ($0.0001/sh) 1,000,000 0 100 0 0 100
May 1998 - cash ($0.05/sh) 565,000 0 57 28,193 0 28,250
June 1998 - cash ($0.05/sh) 371,000 0 37 18,513 0 18,550
July 1998 - cash ($0.05/sh) 4,000 0 0 200 0 200
September 1998 - cash ($0.05/sh) 60,000 0 6 2,994 0 3,000
Net loss 0 0 0 0 (13,891) (13,891)
---------- --------- -------- ---------- ----------- ------------
BALANCE, February 28, 1999 2,000,000 0 $ 200 $ 49,900 $ (13,891) $ 36,209
---------- --------- -------- ---------- ----------- ------------
Net loss 0 0 0 0 (163) (163)
---------- --------- -------- ---------- ----------- ------------
BALANCE, May 31, 1999 (unaudited) 2,000,000 0 200 49,900 (14,054) 36,046
========== ========= ======== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Dermatology Systems, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
From inception
(May 21, 1998)
May 31, May 31, through
1999 1998 February 28, May 31, 1999
(unaudited) (unaudited) 1999 (unaudited)
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss $ (163) $ (100) $ (13,891) $ (14,054)
Adjustments to reconcile net loss to net cash used by
development activities:
Stock issued in lieu of cash - related party 0 0 100 100
Changes in assets and liabilities
Increase in accrued expenses 0 0 4,500 4,500
Increase in accrued expenses - related party 0 0 3,123 3,123
----------- ---------- ------------ ------------
Net cash used by development activities (163) (100) (6,168) (6,331)
----------- ---------- ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 28,350 50,000 50,000
----------- ---------- ------------ ------------
Net cash provided by financing activities 0 28,350 50,000 50,000
----------- ---------- ------------ ------------
Net increase (decrease) in cash (163) 28,250 43,832 43,669
CASH, beginning of period 43,832 0 0 0
----------- ---------- ------------ ------------
CASH, end of period $ 43,669 $ 28,250 $ 43,832 $ 43,669
=========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial
statements.
F-6
<PAGE>
Dermatology Systems, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information with respect to the periods
ended May 31, 1999 and 1998 is unaudited)
(1) Summary of Significant Accounting Principles
The Company 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 three
months ended May 31, 1999 and 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 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. The Company had 2,000,000 shares of
common stock issued and outstanding at May 31, 1999. The Company, on May
21, 1998, authorized and 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. The
Company, in June 1998, 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. Then, in September 1998, the Company sold 60,000 shares of
common stock for cash of $3,000. In addition the Company has authorized
10,000,000 shares of $0.0001 par value preferred stock. There were no
shares of preferred stock issued and outstanding at May 31, 1999
(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
carryforwards for income tax purposes of approximately $13,891, expiring
at February 28, 2019.
The amount recorded as deferred tax assets as of February 28, 1999 is
$2,733, which represents the amount of tax benefit of the loss
carryforward. The Company has established a valuation allowance against
this deferred tax asset, as the Company has no history of profitable
operations.
F-7
<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 $14,054 accumulated from May 21, 1998 (inception)
through May 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 ended May 31, 1999, 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 are presented in Consulting fees
related party. Legal counsel paid certain miscellaneous expenses on
behalf of the Company, amounting to $123. Unpaid amounts at May 31, 1999
are $3,123 and are presented in Accrued expenses - related party.
F-8
<PAGE>
Part III
Item 1. Index to Exhibits
3(i).1 Articles of Incorporation of DSI filed May 22, 1998
(Electronically filed with originial 10SB on July 2, 1999)
3(ii).1 Bylaws of DSI (Electronically filed with originial 10SB on July 2, 1999)
27.1 Financial Data Schedule
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, thereunto duly
authorized.
DERMATOLOGY SYSTEMS, INC..
(Registrant)
Date: October 5, 1999 By: /s/ Dr. Pierre Haouzi
-------------------------
Dr. Pierre Haouzi, President
In accordance with the Exchange Act, this report has been signed below by
the following person(s) on behalf of the registrant and in the capacities and on
the dates indicated.
Date Signature Title
---- --------- -----
October 5, 1999 By:/s/ Dr. Pierre Haouzi President and
----------------------- Director
Dr. Pierre Haouzi
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001065801
<NAME> DERMATOLOGY SYSTEMS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Feb-28-1999
<PERIOD-START> Mar-1-1999
<PERIOD-END> May-31-1999
<EXCHANGE-RATE> 1
<CASH> 43,669
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,669
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,669
<CURRENT-LIABILITIES> 7,623
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 36,046
<TOTAL-LIABILITY-AND-EQUITY> 43,669
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 163
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (163)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (163)
<EPS-BASIC> (.001)
<EPS-DILUTED> 0
</TABLE>
