UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
DERMALAY INDUSTRIES, INC.
(Name of Small Business Issuer in its charter)
Nevada 65-0790369
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
4100 Easton Drive, Suite 11, Bakersfield, California 93309
(Address of principal executive offices) (zip code)
Issuer's telephone number: (661) 321-9898
Securities to be registered under Section 12(g) of the Act:
Title of each class Name of each exchange on which each
class is to be registered
---------------------- -------------------------------------------
Common OTC Bulletin Board
Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock, $.001 par value
INTRODUCTORY STATEMENT
Dermalay Industries, Inc. (the "Company" or "Dermalay") has elected to file
this Form 10-SB registration statement on a voluntary basis in order to become a
reporting company under the Securities Act of 1934. The primary purpose for this
is that the Company intends to be listed for trading on the OTC Electronic
Bulletin Board. Under the current NASD rules, in order to become listed on the
OTC Electronic Bulletin Board, a company now must be a reporting company under
the Securities Act of 1934.
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This registration statement, including the information that may be
incorporated herein by reference, contains forward-looking statements including
statements regarding, among other items, the Company's business and growth
strategies, and anticipated trends in the Company's business and demographics.
These forward-looking statements are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of
factors described in Item 2, Section E, Page 9 "Risk Factors," including among
others, regulatory or economic influences.
ITEM 1. DESCRIPTION OF BUSINESS
A. General Overview and History
Dermalay Industries, Inc. is engaged in the business of offering high
quality health and skin care, and physical therapy products. The Company
currently has three existing products made with Emu oil which it intends to sell
and distribute throughout the United States and internationally. Although the
Company has reported limited sales of its products, it does reflect a history of
significant losses as outlined in Item 2. Management's Discussion and Analysis
of Financial Condition and Plan of Operation.
B. Organization
Dermalay Industries, Inc., was incorporated under the laws of the state of
Nevada on August 22, 1995. The Company's common stock is quoted on the National
Daily Quotation Bureau's Pink Sheets under the symbol DMLY.
The Company is located at 4100 Easton Drive, Suite 11, Bakersfield,
California 93309; telephone number is (661) 321-9898; web site is
www.dermalay.com.
C. Industry Background
For many years consumers have had to settle for health and beauty products
which really did not achieve the intended purposes. They are using pain relief
ointments, skin creams, shampoos, and conditioners, which merely sit on their
skin and hair, never really penetrating to achieve the advertised purpose.
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The Company intends to introduce a line of high quality health, hair and
skin care products made with pure Emu oil. Emu oil comes from the rendered fat
of the Emu, which is filtered and treated to remove all proteins, bacterial, and
particulate matter. After this treatment, the oil is odorless and either a
clear liquid or a cloudy cream depending on the ambient temperature.
The Emu is a large flightless bird native to Australia. For over 200 years
Emu oil has been used by the indigenous people of Australia, and subsequently
the white settlers, for a variety of skin conditions such as treatment for
chronic dry skin, relieve muscle and joint soreness, retard the wrinkling
process, and aid in the healing of eczema and psoriasis.
It has been frequently tested by government and private laboratories and
found to contain a number of fatty acids that give it its unique qualities. It
contains no steroids or hormones and, when suitably treated, no bacteria.
Dr. George Hobday conducted the first recorded Emu oil trials in Australia.
His clinical experiences observed that its two major actions were
anti-inflammatory and its ability to penetrate the skin. He also concluded that
it appeared to provided protection. He identified the following applications
where Emu oil was effective: Eczema; keloid; burns; joint pain, growing pains;
bruising; muscle pain, and wounds. Ongoing studies at Harner Burn Center in
Lubbock, Texas find the healing process is accelerated.
The beneficial attributes of Emu oil are also being welcomed in sports
medicine. It can be found in the training rooms of professional sports teams and
fitness centers across America. An estimated 80% of NBA teams have used Emu oil
for reducing pain and swelling from injuries, as well as to decrease time lost
to injury. Otho David, Head Trainer for the Philadelphia Eagles and five-time
"Professional Trainer of the Year," started using Emu oil in the training room
and refers to it as "magic oil."
Emu oil is recognized by the Australian Therapeutic Goods Administration
(their equivalent to U.S. Food & Drug Administration), and currently holds a
U.S. Patent #5431924 on the anti-inflammatory composition derived from the oil.
Formal recognition of Emu oil in the U.S. by the FDA is forthcoming, but since
the oil is a natural substance, recognition is not a prerequisite to the
production and sale of Emu oil products in the U.S.
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Since the introduction of Emu oil in the U.S., additional research
conducted by scientists at Auburn University found that Emu oil is nearly 20
times more effective at penetrating the stratum corneum, or skin barrier, than
mineral oil. A study at Boston University Medical Center found that Emu oil
promotes and accelerates skin cell regeneration and stimulates hair growth.
Other research facilities have uncovered additional beneficial properties of Emu
oil including its ability to prevent razor bumps and act as a transdermal
carrier for anesthetic in hospital surgeries.
D. Products
The Company currently offers three products:
Dermalay Pure Emu Oil with Fresh Scent was the first product developed by
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the Company and was introduced in 1995. It penetrates the skin barrier (stratum
corneum) nearly 2.5 times faster than mineral oil based products to deliver
younger looking skin and healthier hair growth. It can be used as a daily
moisturizer on the face and body for wrinkles, blemishes, rashes, stretch marks,
hair bumps, and minor wounds. It can also be used as a hair moisturizer for
healthier hair growth or thinning and balding.
Dermalay Moisturizing Lotion is used to treat chronic dry skin and provide
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soothing relief for specific skin problems like Eczema, Psoriasis, and minor
burns by combining Dermalay Pure Emu Oil, a highly effective transdermal
carrier, with traditional aloe vera and other natural ingredients. This
non-greasy formula helps achieve a younger, healthier appearance by accelerating
the production of new skin cells and delivering the healing effects of Emu oil
and aloe vera past the skin barrier where it is needed most.
PowerHeat Analgesic Joint/Muscle Relief is a highly effective transdermal
-----------------------------------------
carrier and anti-inflammatory agent, delivering concentrated capsicum (cayenne)
and eucalyptus oil past the skin barrier deep into sore muscles and joints to
relieve pain and stiffness. This highly penetrating analgesic formula is
non-greasy and has a pleasant smell which becomes barely noticeable in minutes.
It is recommended as a warm-up before work-outs or for pain and stiffness in
muscles and joints associated with arthritis, sports injuries, over-exertion,
accidents and stress.
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Management's intention is to add more products to the existing product line
which will then comprise the signature health and beauty package that the
Company will offer initially. The Company intends to market its first three
products nationally, and quickly add the remaining to its infomercial and mass
marketing campaign.
The additional products the Company intends to develop are:
$ Tanning Oil
$ Training Lotion / Accelerator
$ Cleansing Cream
$ Pre-base Moisturizer
$ Exfoliating Soap Bar
$ Deep Cleaning Shampoo
$ Power Conditioner
$ Lip Balm
$ Wrinkle Cream
E. Business Strategy
One of the key factors in its production delivery includes the infusion of
funds necessary to purchase raw materials prior to the receipt of purchase
orders. The Company's products are currently manufactured under a five year
private label manufacturing agreement with American Outback Inc., in Oklahoma.
The Company will consider building its own facility after this time if it is
feasible and profitable to do so. However, because of current space
limitations, the Company's future production facility will need to move to a
location with more open acreage. A big advantage is that both land and bird
prices are relatively low in the Company's geographic region.
Currently, the Company's sole distributor is U.S. Health, which distributes
to over 10,000 independent pharmacies and 5,000 health and fitness retail
outlets.
While the Company's main thrust will be to gain access to the retail
markets, it will also take advantage of direct sales opportunities. The Company
intends to complete the production of a television infomercial primarily to
educate the public to the benefits of the Company's Emu oil products and also as
an additional sales component.
F. Market Segments
The Emu market is growing rapidly. The sales of Emu oil skin care products
for Emuvera, a prominent company, amounted to $1,200,000 in 1999 B representing
a 300% growth over $400,000 in 1998.
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According to the industry report, as presented by the American Emu
Association, the overall market for the Emu industry nationwide is projected to
be 30 million by the end of 2003.
The biggest growth in the Emu market is in the area of "Emu oil".
Currently, the market distribution is shared by two or three minor manufacturing
companies, New World Technologies, The Emu Man, and Emuvera, with Emuvera
considered the market leader.
In the next one to two years the Company estimates that it will have retail
sales of over five million dollars with its proposed marketing strategy and
product line. The market potential for the Company's entire line over the next
five years - with a current retail price between $10 and $15 per unit - is
approximately $15 million. This translates to the Company's market share of 50%
of the overall market by 2001.
The Company's target market includes the health conscious consumer of high
quality health and beauty products. A typical customer is someone who is
concerned with health, beauty or into athletics, and who currently uses Ben Gay
or other over-the-counter lotions to relive pain, soothe skin, and improve
health. These customers currently have very few alternatives which are
substantially better and healthier for them. Moreover, the Company's customer
is one who realizes or can understand the value of natural products for their
body care and therapy. The Company intends to educate these consumers on the
attributes of Emu oil, and introduce them to the many prospects for increased
health and comfort that Emu products can provide.
G. Marketing Plan
Responses from customers indicate that the Company's products are enjoying
an excellent reputation. Inquiries from prospective customers suggest that
there is considerable demand for them. Relationships with leading manufacturers
and distributors substantiate the fitness of Dermalay Industries for
considerable growth and accomplishment in the industry.
The Company's marketing strategy is to aggressively enhance, promote and
support the fact that its products relieve, soothe, and aid in the healing of
joints, muscles, skin, and hair better than any product on the market today
without Emu oil. The Company intends to accomplish this through several
national advertising and public relations campaigns, including national health
magazines, and a television infomercial.
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Distribution Channels
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The Company's marketing strategy incorporates plans to sell its products
through several channels in the short term including:
- Online catalog ordering via Internet
- Direct catalog marketing
- Extensive television mail order campaign
- Product placement in nationwide retail outlets.
- Product placement in several national mail order catalogs
The Company's distribution strategy boasts an eight prong blitz of over
15,000 retail health food stores in the United States. This approach includes
placement of display advertising in two trade magazines, two health magazines, a
direct mail of the Company's catalog sheet, a corporate sales call, utilization
of manufacturer's agents, in addition to requests from customers impressed with
advertisements.
Presently, many Emu farmers market their products to other farmers and
people connected with the industry. The Company's mix of distribution channels
will give it the advantages of marketing to non-Emu farmers who are ready to
enjoy the benefits of Emu oil.
Advertising and Promotion
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The Company's advertising and promotion strategy is to position it as the
leading manufacturer and distributor in the market. To accomplish this, the
Company will utilize the following media and methods to drive home its message
to customers:
- A nationwide television infomercial and commercial campaign utilizing
several major cable channels.
- An Internet Homepage with online ordering capabilities.
- National magazine advertising
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- Intensive Public Relations activities
Company's management believes that advertising and promotion will require
$300,000. On an ongoing basis, the Company will budget its advertising
investment as 30% of total sales.
Public Relations
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During 2000, the Company will focus on the following publicity strategies:
- Securing product endorsements from several prominent celebrities in the
sports, entertainment, and health care industries.
- Seeking sponsorships with professional and college athletic teams.
The Company will track, wherever possible, the incremental revenue
generated from its advertising, promotion and publicity efforts. Management
anticipates that $2,000,000 in sales will be generated directly from its
promotions, and possibly an additional $1,000,000 of indirect increase in sales
through repeat customers and Internet and catalog orders.
H. Seasonality and Cyclical Factors
The Company's revenues are not affected by the traditional US vacation
seasons, such as July, August, and December. Company revenues may be more
adversely affected by cyclical factors, such as economic downturns or recessions
in the US or global economies, etc. Such conditions would present risk in the
need for additional capital to be raised by the Company, to offset related
significant reductions in revenues.
I. Employees
The Company currently employs two full time corporate office staff,
including officers and management.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND PLAN OF OPERATION
The following discussion and analysis of the Company's consolidated
financial condition and results of operation for the fiscal years ended December
31, 1999, 1998 and 1997, should be read in conjunction with the Company's
consolidated financial statements included elsewhere herein.
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When used in conjunction in the following discussions, the words
"believes," "anticipates," "intends," "expects," and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks and uncertainties, which could cause results to differ materially
from those projected, including, but not limited to, those set forth in Item 2,
Section E, Page 9, "Risk Factors."
A. General Discussion of the Company
The Company is a manufacturer of high-end skin care and physical therapy
products made with pure Emu oil. The Company currently handles large-scale
production through several cosmetic and pharmaceutical laboratories. Packaging
is outsourced through a local bottling company. Dermalay also operates an Emu
ranch in Bakersfield, California, but does not use these birds as the sole
source of raw material for manufacturing.
B. Results of Operations For:
Fiscal Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
The Company reported sales and gross profit of $10,264 and $6,839 in 1999
compared to $6,890 and $4,518 in 1998. The increase in sales was due to the
management's decision to initiate an Internet marketing and sales program as
well as a direct marketing program amongst local doctors, chiropractors and
physical therapists. Additionally, the Company hired an outside sales
representative to make presentations to beauticians and hair stylists. The
increase in gross profit was due primarily to the increase in sales, but a small
percentage of the increase was due to management's ability to cut the cost of
goods by making larger production runs and changing the packaging design for
several of its products.
Fiscal Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
The Company reported sales and gross profit of $6,890 and $4,518 in 1998
compared to no sales and gross profit for 1997. The increase in sales represents
the first year that the Company had a product for sale. Previously, the Company
was solely an Emu ranch with products in development. The sales that were
achieved were due to the Company contracting with a national distributor within
our target market, which at that time was independent health food and drug
stores.
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C. Liquidity and Capital Resources
The Company anticipates that it will have sufficient liquidity to sustain
its operations over the next 12 months. The Company has inventory on hand and
several distribution and sales avenues in place which generate ample revenue to
meet our current monthly obligations. In addition, our recently signed
distribution agreement with Meridian Holdings should generate additional sales
revenue to fund further activities of the Company.
To further enhance its liquidity, the Company plans to liquidate assets
from the Emu breeding operation which are no longer a part of the Company's
ongoing business activities. These include several incubators, hatchers, and
brooders, as well as other Emu breeding equipment.
D. Significant Business Relationships
The Company has two years remaining in a five year manufacturing agreement
with American Outback, Inc., to formulate and mass-produce our Emu oil based
products. During the term of this agreement, American Outback will also assist
the Company in acquiring additional raw materials for it's production runs.
The Company also has entered into a distribution agreement with Meridian
Holdings. Meridian currently markets health care products over the Internet and
via mail order. During the term of this agreement, Meridian will market our
product line through its current distribution channels in exchange for a
percentage of sales.
E. Risk Factors
Capitalization and Financial History:
There are, of course, many factors that may affect the financial well being
of the Company. There is always the possibility that inadequate capitalization
could curtail the growth and even affect the day-by-day operations of the firm.
If the current revenue sources or the current growth model was hampered in any
way, it could result in lack of capitalization to not only grow the Company, but
to run its day-by-day operation. See Item 2, Section C, "Liquidity and Capital
Resources."
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During the past two years, the Company has incurred net losses of ($76,487)
and $(13,634) respectively. Based on its own internal projections, the Company
believes that its operations and current capital resources will be sufficient to
fund the Company's working capital needs through the 2000 fiscal year provided
that there are no significant increases in operating expenses. While it is
endeavoring to keep costs contained as much as possible, the failure of the
Company to prevent such increases in the immediate future would have a material
adverse effect on the Company's operations and on its ability to operate in the
manner its business is currently being conducted. In addition, there can be no
assurances that the increased revenues necessary to provide a profit will
continue.
Competition:
There is significant competition in the Emu oil industry. Many of
Dermalay's competitors are better capitalized and have more experience in the
business. This obviously presents business risks to the Company.
This competition includes Emuvera, New World Technologies, The Emu Man, and
Rhemu. All of these companies charge competitive prices. Pure oil ranges
between $10 and $12 per ounce, while lotion tends to sell for about $17 for six
ounces. However, the quality of these products varies as these companies
sometimes include inferior oil or less than the optimum amount of oil in their
products. The Company uses only the best oil in quantities which delivers the
optimum results for the consumer.
The major competitors' objectives and strategies are to develop a market
for their own products on a national scale. While none has yet done so, it could
happen soon. Competitive threats today come from other companies with more
capital to invest in national advertising campaigns, not from any with a product
better than the Company's.
Limited depth of management:
The Company has a quality management team. However, that team is limited
in number. If one or more of the immediate management team was incapacitated,
this could have a negative effect on the Company.
F. Employees
As of the current date, the Company has two full time employees. As the
Company increases its operations, additional employees will be required. The
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Company's future success depends on its ability to attract and retain other
qualified personnel, for which competition is intense. The loss of Mr. William
Edwards or the Company's inability to attract and retain other qualified
employees could have a material adverse affect on the Company.
G. Risks Associated with Year 2000
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
H. Additional Information Additional Information
The Company intends to provide an annual report to its security holders,
and to make quarterly reports available for inspection by its security holders.
The annual report will include audited financial statements.
The Company will, as a result of this filing, become subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Act")
and, in accordance with the Commission, such reports, proxy statements and other
information may be inspected at public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World
Trade Center, New York, New York, 10048; and 5670 Wilshire Boulevard, Los
Angeles, California 90036. Copies of such material can be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street
N.W., Washington, D.C. 20549, at prescribed rates. For further information, the
SEC maintains a website that contains reports, proxy and information statements,
and other information regarding reporting companies at http://www.sec.gov or
call (800) SEC-0330.
ITEM 3. DESCRIPTION OF PROPERTY3. DESCRIPTION OF PROPERTY
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The Company maintains its principal business operations at 4100 Easton
Drive, Suite 11, Bakersfield, California 93309. The Company's telephone number
is (661) 321-9898 and the web site address is www.dermalay.com.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of June 12, 2000,
with respect to the beneficial ownership of common stock by (i) each person who,
to the knowledge of the Company, beneficially owned or had the right to acquire
more than 5% of the outstanding common stock, (ii) each Director of the Company,
and (iii) all executive Officers and Directors of the Company as a group:
Name of Beneficial Owner(1) Number of Shares Percentage(2)
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William E. Edwards, Jr. 12,503,497 45.6%
William Moton 4,000,000 14.6%
Eric Tate 30,000 .0%
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(1) Unless otherwise indicated, the address of each person is c/o Dermalay
Industries, Inc., 4100 Easton Drive, Suite 11, Bakersfield, CA 93309
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
Investment power with respect to securities. Except as indicated by
footnote and subject to community property laws where applicable, the
persons named in the table have sole Voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by
them.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS
The following table sets forth the names and positions with the Company and
ages of the executive officers and directors of the Company. Directors will be
elected at the Company's annual meeting of shareholders and serve for one year
or until their successors are elected and qualify. Officers are elected by the
Board and their terms of office are at the discretion of the Board, except to
the extent governed by employment contract.
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Name Age Title
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William E. Edwards, Jr. 30 Chairman, CEO, President
and Director
Eric Tate 31 Director, Secretary,
Treasurer
William Moton 30 Chief Financial Officer
All key employees are employed full-time by Dermalay. All Directors are not
employed full-time by Dermalay. There are no material consequences of this
situation to Dermalay.
Duties, Responsibilities and Experience
William E. Edwards, Jr., founder, Chairman of the Board,and Chief Executive
Officer of the Company, has a BA in Economics from CSU Bakersfield, and a JD in
Law from UC Berkeley. While in school, he worked with two prominent law firms
and served as an Intern with a United States Congressman. William is an
accomplished author and producer, having developed several commercials and
infomercials in addition to having had freelance articles and research published
in numerous journals and newspapers throughout the world. After Law School, Mr.
Edwards launched an Internet marketing and web design company in Silicon Valley,
and began a small real estate investment firm. Most recently, he began devoting
his full attention to Dermalay Industries. At its outset, this Company was
solely a small Emu farm and breeding facility. Under his tenure, it has grown
into a prominent corporation with an expanded product line, distribution in all
50 states, and an ever expanding consumer base.
Eric Tate, Director and Secretary/Treasurer, brings to the Company more
than 10 years of experience in sales, operations and logistics management from
the high technology arena for IBM. There he was responsible for the development
and implementation of several programs designed to optimize financial and
material flow throughout vendor and internal network value added partners. Mr.
Tate also held a position in the Global Finance and Operations organization for
IBM. In this role, Mr. Tate was responsible for developing innovative supply
chain solutions in partnership with various clients and partners of the IBM
financial, software, and service products. Prior to his experience at IBM, Mr.
Tate held several transportation and distribution related positions during his
five year tenure with Laidlaw. Mr. Tate has his BA from the University of
California, Santa Barbara and graduated from Wilmington College with a MBA
degree in 1997.
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William Moton, Chief Financial Officer, began his career as a lobbyist for
the California State Student Association. As a lobbyist, he authored several
Assembly Bills and was an advocate for the 23 campuses of the California State
University System. Several years later, Mr. Moton became the Executive Director
of a local non-profit community center where he was responsible for operations
and programming as well as the implementation of the center's million dollar
annual budget. Most recently, he worked as a financial relationship manager for
Bank of America. With the bank, he managed a financial portfolio consisting of
the bank's top clients and valued at over 40 million dollars. He also assembled
and packaged commercial and personal loans in addition to retirement and estate
planning. He earned his BA in Business Administration from CSU Bakersfield,
and has his series 6, 63, and 7 broker's licenses.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for its
fiscal years ended December 31, 1999, December 31, 1998, and December 31, 1997
to its Chief Executive Officer and all other executive officers (collectively,
the "Named Executive Officers"):
Name and Fiscal Year Ended
Principal Position December 31 Salary
---------------------- ----------------- ---------
William E. Edwards, Jr. CEO 1999 $-0-
1998 $-0-
1997 $-0-
Eric Tate, Director, Director 1999 $-0-
1998 $-0-
1997 $-0-
William Moton, CFO 1999 $-0-
1998 $-0-
1997 $-0-
There was no compensation paid to any executive officer of the Company. As
of June 16, 2000, no compensation has been paid or accrued to any of the
officers or directors of the Company.
The Company does not currently have an Executive Compensation Committee.
Employment Agreements:
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The Company has not currently entered into any employment agreements.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain family members of William E. Edwards, Jr., the Company's Chairman
and CEO, and Eric Tate, the Company's Director and Secretary/Treasurer, own
shares of the Company's common stock as set forth below:
# of Date
Name Shares Relationship Acquired
---------------- ------ ------------- --------
Kathy Edwards 300 Mother of William Edwards, Jr. 10/98
Philip Edwards 1,000 Cousin of William Edwards, Jr. 2/99
David Tate and 125 Brother of Eric Tate 4/99
Eric Tate JT TEN
ITEM 8. DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation authorizes the issuance of
50,000,000 shares of common stock, $.001 par value per share, of which
27,400,000 shares are outstanding, held of record by approximately 46
stockholders as of the date of this filing. The Company is not authorized to
issue shares of preferred stock. The holders of common stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
stockholders. Subject to preferences applicable to the currently outstanding
shares, holders of common stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefore. In the event of a liquidation, dissolution or winding up of the
Company, the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and liquidation preference of any then
outstanding preferred stock. All outstanding shares of common stock are fully
paid and nonassessable.
The transfer agent for the common stock is Florida Atlantic Stock Transfer,
Inc., 7130 Nob Hill Road, Tamarac, Florida 33321.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON
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EQUITY AND OTHER SHAREHOLDER MATTERS
The common stock was quoted on the OTC Bulletin Board operated by The
NASDAQ Stock Market, Inc. (the "OTC Bulletin Board") under the symbol "DMLY."
The stock is currently quoted on the National Daily Quotation Bureau "pink
sheets." The following table sets forth the high and low last sale prices for
the common stock for each fiscal quarter, or interim period, in which the common
stock has been publicly traded, as reported by the OTC Bulletin Board. These
prices do not reflect retail mark-ups, markdowns or commissions and may not
represent actual transactions.
Quarter Ended Low High
------------------- ------- ------
December 31, 1998 $2.00 $3.50
March 31, 1999 $ .50 $3.50
June 30, 1999 $ .4375 $1.05
September 30, 1999 $ .1875 $ .96875
December 31, 1999 $ .03 $ .46875
March 31, 2000 $ .07 $ .14
_______________
(1) Trading on the OTC-BB exchange began on October 27, 1998
The closing sales price on June 12, 2000, reported on the National Daily
Quotation Bureau pink sheets was $.13 per share of common stock.
ITEM 2. LEGAL PROCEEDINGS
The Company is not presently a party to any litigation nor to the knowledge
of management is any litigation threatened against the Company which would
materially affect the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There are no disagreements or differences of opinion with Brown Armstrong
Randall Reyes Paulden & McCown on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope of procedure.
During the two most recent fiscal years, there have been no reportable events as
defined in Regulation S-K Item 304(a)-(1) (v).
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Private Placements
17
<PAGE>
The Company has capitalized its operations from a limited offering pursuant
to Rule 504 of Regulation D. The Rule 504 exemption as utilized in the offering
was available to the Company based upon the following facts and circumstances:
$ The Company was not a blank check company and was not a reporting
company.
$ The Company raised less than $1 million during the offering period.
$ The Company offered its securities to both accredited and
non-accredited investors only in states where respective blue sky exemptions
were complied with.
Between January 1999 and December 1999, the Company issued 1,350,000 shares
of its common stock for a total amount of $35,000 and $100,000 in future
services. The 1,350,000 shares were sold to one investor in a transaction exempt
from registration pursuant to Rule 504 of Regulation D promulgated under the
1933 Act. No underwriters were used in connection with this transaction.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-laws provides indemnification provisions for its officers,
directors, employees or agents.
The provisions of Section 78.751, Nevada Statutes, dealing with
indemnification of corporate officers, directors or agents, provide as follows:
"(1) A corporation may indemnify any person who was or is a party, or is
threatened to be made party, to 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 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), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding, including any appeal thereof, 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,
18
<PAGE>
with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The termination of any action, suit,
or proceeding by judgment, order, settlement, or conviction or upon a plea
of nolo contenders or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in, or not opposed to, the best interests of
the corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation shall have power to 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, including any appeal thereof, 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 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, in view of
all circumstances of the case, such person is fairly and reasonably
entitled to indemnification for such expenses which such court shall deem
proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in subsection (1) or subsection
(2), or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
19
<PAGE>
(4) Any indemnification under subsection (1) or subsection (2), unless
pursuant to a determination by a court, shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employees, or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsection (1) or subsection (2). Such determination shall be
made:
(a) 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;
(b) If such a quorum is not obtainable, or even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel
in a written opinion; or
(c) By the shareholders by a majority vote of a quorum consisting of
shareholders who were not parties to such action, suit or proceeding.
(5) 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 of such action, suit or proceeding upon a
preliminary determination following one of the procedures set forth in
subsection (4) that the director, officer, employee, or agent met the
applicable standard of conduct set forth in subsection (1) or subsection
(2) or as authorized by the Board of Directors in the specific case and, in
either event, upon receipt of an undertaking 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 section.
(6) A corporation shall have the power to make any other or further
indemnification of any of its directors, officers, employees, or agents
under any by-law, agreement, vote of 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, except an
indemnification against gross negligence or willful misconduct.
20
<PAGE>
(7) Indemnification as provided in this section shall continue as to a
person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of
such a person.
(8) A corporation shall have 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 as 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 the provisions
of this section.
(9) If any expenses or other amounts are paid by way of indemnification
otherwise than by court order or action by the shareholders or by an
insurance carrier pursuant to insurance maintained by the corporation, the
corporation shall, not later than the time of delivery to shareholders of
written notice of the next annual meeting of shareholders, unless such
meeting is held within 3 months from the date of such payment, and, in any
event, within 15 months from the date of such payment, deliver either
personally or by mail to each shareholder of record at the time entitled to
vote for the election of directors a statement specifying the persons paid,
the amounts paid, and the nature and status at the time of such payment of
the litigation or threatened litigation."
INDEMNIFICATION UNDERTAKING
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
21
<PAGE>
as expressed in the Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
is therefore unenforceable and will be governed by the final adjudication of
such issue.
PART F/S
FINANCIAL STATEMENTS
The audited financial statements of the Company, audited by Brown Armstrong
Randall Reyes Paulden & McCown, Certified Public Accountants, 4200 Truxtun
Avenue, Suite 300, Bakersfield, CA 93309, required by Regulation S-X commence on
page F/S 1 hereof in response to this Item of this Registration Statement on
Form 10-SB and are incorporated herein by this reference.
22
<PAGE>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
(COMPILED)
SEE ACCOUNTANT'S REPORT
FOR THE THREE MONTH INTERIM
PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
TABLE OF CONTENTS
Page
----
<S> <C>
Accountant's Report . . . . . . . . . . . . . 1
Financial Statements
----------------------
Balance Sheets. . . . . . . . . . . . . . . . 2
Statements of Operations. . . . . . . . . . . 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows. . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . 6
</TABLE>
i
<PAGE>
ARNE R. OFTEDAL
CERTIFIED PUBLIC ACCOUNTANT
---------------------------
1412 17th Street, Suite 459
Bakersfield, CA 93301
Office: (661) 327-9284
Fax: (661) 327-9753
Email: [email protected]
ACCOUNTANT'S REPORT
To the Board of Directors
Dermalay Industries, Inc.
Bakersfield, California
I have compiled the accompanying balance sheets of Dermalay Industries, Inc. (A
development stage enterprise), as of March 31, 2000, and the related statements
of operations, changes in shareholders' equity, and cash flows for the three
month interim period then ended, in accordance with statements on standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management (the owners). I have not
audited or reviewed the accompanying financial statements and accordingly do not
express an opinion or any other form of assurance on them.
Arne R. Oftedal, CPA
Bakersfield, California
May 24, 2000
1
<PAGE>
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
MARCH 31, 2000
ASSETS
3/31/2000
-----------
<S> <C>
Current Assets
Cash $ 200
Inventory 34,953
-----------
Total Current Assets 35,153
Equipment, net 16,956
Other Assets
Organization costs, net of $466 amortization 261
-----------
Total Assets $ 52,370
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,051
-----------
Total Current Liabilities 1,051
-----------
Shareholders' Equity
Common stock, $.001 par value; authorized 50,000,000
shares; issued and outstanding, 19,400,000 shares 19,400
Additional paid-in capital 277,278
Stock subscriptions receivable (135,000)
Retained deficit (360)
Deficit accumulated in the development stage (109,999)
-----------
Total Shareholders' Equity 51,319
-----------
Total Liabilities and Shareholders' Equity $ 52,370
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH INTERIM PERIOD
ENDED MARCH 31, 2000
THREE MONTHS
ENDED 3/31/2000
-----------------
<S> <C>
Revenues
Sales $ 1,071
Cost of goods sold 315
-----------------
Gross Profits 756
-----------------
Expenses
General and administrative 19,485
Depreciation and amortization 1,149
-----------------
Total Expenses 20,634
-----------------
Net Loss ($19,878)
=================
Basic Earnings (Loss) Per Share (0.005)
=================
Weighted Average Shares Outstanding 4,306,438
=================
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTH INTERIM PERIOD ENDED MARCH 31, 2000
Common Stock
-------------
Deficit
Accumulated
Additional Stock during the
Number of Paid in Subscriptions Retained Development
Shares Amount Capital Receivable Deficit Stage Total
---------- ------- ---------- ------------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 19,400,000 $19,400 $ 258,858 ($135,000) ($360) ($90,121)$ 52,777
1999
Contribution of 0 0 18,420 0 0 0 18,420
capital
Issuance of stock 0 0 0 0 0 0 0
Common stock 0 0 0 0 0 0 0
subscribed
Net loss 0 0 0 0 0 (19,878) (19,878)
---------- ------- ---------- ------------- --------- ----------- ----------
March 31, 2000 19,400,000 $19,400 $ 277,278 ($135,000) ($360) ($109,999)$ 51,319
========== ======= ========== ============= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH INTERIM PERIOD
ENDED MARCH 31, 2000
THREE
MONTHS
ENDED
3/31/2000
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($19,878)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 1,149
Increase (decrease) in liabilities:
Accounts payable 50
(Increase) decrease in assets:
Inventory 315
-----------
Net Cash Used by Operating Activities ($18,364)
-----------
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of equipment 0
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Contributed capital 18,420
Issuance of common stock 0
-----------
Net Cash Provided by Financing Activities 18,420
-----------
Net Increase (Decrease) in Cash 56
Cash at Beginning of Period 144
-----------
Cash at End of Period $ 200
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION
----------------------------------------
The Company was incorporated on August 22, 1995 as a Nevada corporation under
the name H. Herbig Land and Livestock Incorporated. From the date of
incorporation to December 2, 1997 the Company had no significant operating
activities. On December 2, 1997, the Company entered a purchase agreement with
Mr. William E. Edwards to purchase the name Dermalay Industries, Inc., and
inventory owned by Mr. Edwards in exchange for 2,550,000 shares of common stock.
The Company is deemed to have entered the development stage effective December
2, 1997.
Since December 2, 1997, the Company has developed a business plan, which
includes raising capital to produce and build market awareness for the Company's
products that consist of skin care products and sports creams produced from "Emu
Oil". The Company has not had any significant operations to date, and is
therefore considered to be in the development stage.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
Use of Estimates
------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Earnings (Loss) per Common Stock (SFAS 128)
-------------------------------------------------
Income (loss) per share of common stock in computed based on the weighted
average number of shares outstanding. In accordance with SFAS 128 the Company's
financial statements present basic earnings (loss) per common share. At March
31, 2000, the Company did not have a complex capital structure.
Income Taxes
-------------
The Company accounts for income taxes using the liability method, which requires
of deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Deferred tax assets and liabilities are determined based on the difference
between the financial statements and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
As of March 31, 2000, the Company had not experienced any significant operating
activities. Accordingly, the Company had no liability for income taxes.
6
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
----------------------------------------------
Recent Accounting Pronouncements
----------------------------------
In April 1998, the Accounting Standard Executive Committee of the American
Institute of Certified Public Accountants ("AcSec") issued Statement of Position
("SOP) 98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5
establishes standards for the reporting and disclosure of start-up costs,
including organization costs. The Company adopted SOP 98-5 on January 1, 1999.
Inventory
---------
Inventory is valued at the lower of cost or market. Cost is determined using
the FIFO (first-in, first-out) method of inventory valuation.
Organization Costs
-------------------
Organization costs are being amortized over a five-year period.
NOTE 3 - RELATED PARTY TRANSACTIONS
----------------------------
Mr. William E. Edwards, the Company's majority shareholder, contributed all
property and equipment of the Company. The Company recorded the assets at fair
market value on the date received.
NOTE 4 - PROPERTY AND EQUIPMENT
------------------------
As discussed in Note 3, the Company's property and equipment was contributed by
the majority shareholder. The contribution occurred in June 16, 1998.
Depreciation expense will be recorded under the straight-line method over the
remaining useful lives of the assets. The estimated useful life of the
Company's property and equipment is three years. Property and equipment as of
March 31, 2000 are as follows:
3/31/2000
---------
Office furniture and equipment $ 22,631
Ranch equipment 4,500
27,131
---------
Less accumulated depreciation 10,175
$ 16,956
=========
NOTE 5 - COMMON STOCK
-------------
During 1999, two officers and directors of the Company were granted 14,000,000
shares of common stock. This was a non-cash transaction.
Additionally, 1,350,000 shares of common stock were subscribed for $35,000
receivable and $100,000 in future services.
NOTE 6 - PRODUCT AGREEMENTS
-------------------
As discussed in Note 1, the Company's products consist of skin lotions and
sports creams made from "Emu Oil". The Company does not own the patents or the
exclusive rights on these products. The products are distributed and sold by
the Company under the label Dermalay Industries, Inc.
7
<PAGE>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITOR'S REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997,
AND FOR THE PERIOD FROM
DECEMBER 2, 1997 (DATE OF INCEPTION OF
DEVELOPMENT STAGE ENTERPRISE ACTIVITIES)
THROUGH DECEMBER 31, 1998
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STATE ENTERPRISE)
TABLE OF CONTENTS
Page
----
Independent Auditor's Report . . . . . . . . . . 1
Financial Statements
--------------------
Balance Sheets. . . . . . . . . . . . . . . . 2
Statements of Operations. . . . . . . . . . . 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows. . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . 6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
------------------------------
To the Board of Directors
Dermalay Industries, Inc.
Bakersfield, California
We have audited the accompanying balance sheets of Dermalay Industries, Inc. (a
development stage enterprise), as of December 31, 1998 and 1997, and the related
statements of operations, changes in shareholders' equity, and cash flows for
the years then ended and for the period from December 2, 1997 (date of inception
of development stage enterprise activities) through December 31, 1998. 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the 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 Dermalay Industries, Inc., as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended and for the period from December 2, 1997 (date of
inception of development stage activities) through December 31, 1998, in
conformity with generally accepted accounting principles.
BROWN ARMSTRONG RANDALL
REYES PAULDEN & McCOWN
ACCOUNTANCY CORPORATION
Bakersfield, California
September 21, 1999
1
<PAGE>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
--------- -------
<S> <C> <C>
Current Assets
Cash $ - $ -
Inventory 22,750 1,870
Prepaid expenses - 5,530
--------- -------
Total Current Assets 22,750 7,400
Equipment, net 22,609 -
Other Assets
Organizational costs, net of amortization of $448 and $360, respectively 352 440
--------- -------
Total Assets $ 45,711 $7,840
========= =======
LIABILIITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft $ 1,468 $ -
--------- -------
Total Current Liabilities 1,468 -
--------- -------
Shareholders' Equity
Common stock, $0.001 par value; authorized
50,000,000 shares; issued and outstanding,
3,550,000 shares 3,550 3,550
Additional paid-in capital 54,687 4,650
Retained deficit (360) (360)
Deficit accumulated in the development stage (13,634) -
--------- -------
Total Shareholders' Equity 44,243 7,840
--------- -------
Total Liabilities and Shareholders' Equity $ 45,711 $7,840
========= =======
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM DECEMBER 2, 1997
(DATE OF INCEPTION OF DEVELOPMENT STAGE ENTERPRISE ACTIVITIES)
THROUGH DECEMBER 31, 1998
For the
Period from
December 2,
1997
(Date of
Inception of
Development
Stage)
For the For the to
Year Ended Year Ended December 31,
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Sales $ 6,890 $ - $ 6,890
Cost of goods sold 2,372 - 2,372
------------ ------------ ------------
Gross profit 4,518 - 4,518
------------ ------------ ------------
Expenses
General and administrative 6,521 - 6,521
Advertising 4,951 - 4,951
Depreciation and amortization 4,610 133 4,610
Feed 1,455 - 1,455
Professional services 615 - 615
------------ ------------ ------------
Total Expenses 18,152 133 18,152
------------ ------------ ------------
Net Loss $ (13,634) $ (133) $ (13,634)
============ ============ ============
Basic Earnings (Loss) Per Share $ - $ - $ -
============ ============ ============
Weighted Average Shares Outstanding 3,550,000 1,212,500 1,153,750
============ ============ ============
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock
----------------------
Deficit
Accumulated
Additional during the
Number of Paid in Retained Development
Shares Amount Capital Deficit Stage Total
------- -------- ----------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,000,000 $ 1,000 $ - $ (227) $ - $ 773
Issuance of stock for purchase
agreement 2,550,000 2,550 4,650 - - 7,200
Net loss - - - (133) - (133)
--------- ------- ----------- ---------- ------------- ---------
Balance, December 31, 1997 3,550,000 3,550 4,650 (360) - 7,840
Contribution of capital - - 50,037 - - 50,037
Net loss - - - - (13,634) (13,634)
--------- ------- ----------- ---------- ------------- ---------
Balance, December 31, 1998 3,550,000 $ 3,550 $ 54,687 $ (360) $ (13,634) $ 44,243
========= ======= =========== ========== ============= =========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM DECEMBER 2, 1997
(DATE OF INCEPTION OF DEVELOPMENT STAGE ENTERPRISE ACTIVITIES)
THROUGH DECEMBER 31, 1998
For the
Period from
December 2,
1997
(Date of
Inception of
Development
Stage)
For the For the to
Year Ended Year Ended December 31,
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (13,634) $ (133) $ (13,634)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 4,610 133 4,610
Increase (decrease) in liabilities:
Bank overdraft 1,468 - 1,468
(Increase) decrease is assets:
Inventory (20,880) - (20,880)
Prepaids 5,530 - 5,530
------------ ------------ ------------
Net Cash Provided (Used) by Operating Activities (22,906) - (22,906)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (27,131) - (27,131)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contributed capital 50,037 - 50,037
------------ ------------ ------------
Net Increase (Decrease) in Cash - - -
Cash at Beginning of Period - - -
------------ ------------ ------------
Cash at End of Period $ - $ - $ -
============ ============ ============
</TABLE>
5
<PAGE>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM
DECEMBER 2, 1997 (DATE OF INCEPTION OF
DEVELOPMENT STAGE ENTERPRISE ACTIVITIES)
THROUGH DECEMBER 31, 1998
NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION
----------------------------------------
The Company was incorporated on August 22, 1995 as a Nevada corporation under
the name H. Herbig Land & Livestock Incorporated. From the date of
incorporation to December 2, 1997 the Company had no significant operating
activities. On December 2, 1997, the Company entered a purchase agreement with
Mr. William E. Edwards to purchase the name Dermalay Industries, Inc., and
inventory owned by Mr. Edwards in exchange for 2,550,000 shares of common stock.
The Company is deemed to have entered the development stage effective December
2, 1997.
Since December 2, 1997, the Company has developed a business plan which includes
raising capital to produce and build market awareness for the Company's products
which consist of skin care products and sports creams produced from "Emu Oil".
The Company has not had any significant operations to date, and is therefore
considered to be in the development stage.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
Use of Estimates
------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates
6
<PAGE>
Earnings (Loss) per Common Stock (SFAS 128)
-------------------------------------------------
Income (loss) per share of common stock is computed based on the weighted
average number of shares outstanding. In accordance with SFAS 128 the Company's
financial statements present basic earnings (loss) per common share. At
December 31, 1998, the Company did not have a complex capital structure.
Income Taxes
-------------
The Company accounts for income taxes using the liability method, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Deferred tax assets and liabilities are determined based on the
difference between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
As of December 31, 1998, the Company had not experienced any significant
operating activities. Accordingly, the Company had no liability for income
taxes.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
New Accounting Pronouncements
-------------------------------
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5
establishes standards for the reporting and disclosure of start-up costs,
including organization costs. The Company adopted SOP 98-5 on January 1, 1999.
The Company believes that the adoption of this statement will not have a
material effect on the Company's financial position or results of operations.
Inventory
---------
Inventory is valued at the lower of cost or market. Included in inventory are
live Emus ranging in age from one to fourteen months, and three pairs of
breeders.
Organization Costs
-------------------
Organization costs are being amortized over a five-year period.
NOTE 3 - RELATED PARTY TRANSACTIONS
----------------------------
All property and equipment, and inventory, of the Company were contributed by
Mr. William E. Edwards, the Company's majority shareholder. The Company
recorded the assets at fair market value on the date received.
7
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
------------------------
As discussed in Note 2, the Company's property and equipment was contributed by
the majority shareholder. The contribution occurred on June 16, 1998.
Depreciation expense will be recorded under the straight-line method over the
remaining useful lives of the assets. The estimated useful life of the
Company's property and equipment is three years. Property and equipment as of
December 31, 1998 are as follows:
Office furniture and equipment $ 22,631
Ranch equipment 4,500
------------
27,131
Less accumulated depreciation 4,522
------------
$ 22,609
============
NOTE 5 - PRODUCT AGREEMENTS
-------------------
As discussed in Note 1, the Company's products consist of skin lotions and
sports creams made from "Emu Oil". The Company does not own the patents or the
exclusive rights on these products. The products are distributed and sold by
the Company under the label Dermalay Industries, Inc.
NOTE 6 - SUBSEQUENT EVENT
-----------------
The Company has entered into a stock purchase plan, whereby Dermalay will
exchange shares of its common stock for no less than 50% of the outstanding
common stock of an unrelated corporation.
8
<PAGE>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITOR'S REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998,
AND FOR THE PERIOD FROM
DECEMBER 2, 1997 (DATE OF INCEPTION OF
DEVELOPMENT STAGE ENTERPRISE ACTIVITIES)
THROUGH DECEMBER 31, 1999
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STATE ENTERPRISE)
TABLE OF CONTENTS
Page
----
Independent Auditor's Report . . . . . . . . . . 1
Financial Statements
--------------------
Balance Sheets. . . . . . . . . . . . . . . . 2
Statements of Operations. . . . . . . . . . . 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows. . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . 6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Dermalay Industries, Inc.
Bakersfield, California
We have audited the accompanying balance sheets of Dermalay Industries, Inc. (a
development stage enterprise), as of December 31, 1999 and 1998, and the related
statements of operations, changes in shareholders' equity, and cash flows for
the years then ended and for the period from December 2, 1997 (date of inception
of development stage enterprise activities) through December 31, 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
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the 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 Dermalay Industries, Inc., as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended and for the period from December 2, 1997 (date of
inception of development stage activities) through December 31, 1999, in
conformity with generally accepted accounting principles.
BROWN ARMSTRONG RANDALL
REYES PAULDEN & McCOWN
ACCOUNTANCY CORPORATION
Bakersfield, California
May 15, 2000
1
<PAGE>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
---------- ---------
<S> <C> <C>
Current Assets
Cash $ 144 $ -
Inventory 35,268 22,750
---------- ---------
Total Current Assets 35,412 22,750
Equipment, net 18,087 22,609
Other Assets
Organizational costs, net of amortization of $448 and $360, respectively 279 352
---------- ---------
Total Assets $ 53,778 $ 45,711
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft $ - $ 1,468
Accounts payable 1,001 -
---------- ---------
Total Current Liabilities 1,001 1,468
---------- ---------
Shareholders' Equity
Common stock, $0.001 par value; authorized
50,000,000 shares; issued and outstanding, 19,400,000 shares 19,400 3,550
Additional paid-in capital 258,858 54,687
Stock subscriptions receivable (135,000) -
Retained deficit (360) (360)
Deficit accumulated in the development stage (90,121) (13,634)
---------- ---------
Total Shareholders' Equity 52,777 44,243
---------- ---------
Total Liabilities and Shareholders' Equity $ 53,778 $ 45,711
========== =========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
AND FOR THE PERIOD FROM DECEMBER 2, 1997
(DATE OF INCEPTION OF DEVELOPMENT STAGE ENTERPRISE ACTIVITIES)
THROUGH DECEMBER 31, 1999
For the
Period from
December 2,
1997
(Date of
Inception of
Development
Stage)
For the For the to
Year Ended Year Ended December 31,
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Sales $ 10,264 $ 6,890 $ 17,154
Cost of goods sold 3,425 2,372 5,797
------------ ------------ ------------
Gross profit 6,839 4,518 11,357
------------ ------------ ------------
Expenses
General and administrative 78,731 12,087 90,818
Depreciation and amortization 4,595 4,610 9,338
Feed - 1,455 1,455
------------ ------------ ------------
Total Expenses 83,326 18,152 101,611
------------ ------------ ------------
Net Loss $ (76,487) $ (13,634) $ (90,254)
============ ============ ============
Basic Earnings (Loss) Per Share $ (.02) $ -
============ ============
Weighted Average Shares Outstanding 4,306,438 3,550,000
============ ============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock
----------------------
Deficit
Accumulated
Additional Stock during the
Number of Paid in Subscriptions Retained Development
Shares Amount Capital Receivable Deficit Stage Total
---------- ------- ----------- --------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 3,550,000 $ 3,550 $ 4,650 $ - $ (360) $ - $ 7,840
Contribution of capital - - 50,037 - - - 50,037
Net loss - - - - - (13,634) (13,634)
---------- ------- ----------- --------------- ---------- ------------- ---------
Balance, December 31, 1998 3,550,000 3,550 54,687 - (360) (13,634) 44,243
Contribution of capital - - 35,021 - - - 35,021
Issuance of stock 14,500,000 14,500 35,500 - - - 50,000
Common stock subscribed 1,350,000 1,350 133,650 (135,000) - - -
Net loss - - - - - (76,487) (76,487)
---------- ------- ----------- --------------- ---------- ------------- ---------
Balance, December 31, 1999 19,400,000 $19,400 $ 258,858 $ (135,000) $ (360) $ (90,121) $ 52,777
========== ======= =========== =============== ========== ============= =========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
AND FOR THE PERIOD FROM DECEMBER 2, 1997
(DATE OF INCEPTION OF DEVELOPMENT STAGE ENTERPRISE ACTIVITIES)
THROUGH DECEMBER 31, 1999
For the
Period from
December 2,
1997
(Date of
Inception of
Development
Stage)
For the For the to
Year Ended Year Ended December 31,
1998 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (76,487) $ (13,634) $ (90,254)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 4,595 4,610 9,338
Increase (decrease) in liabilities:
Bank overdraft (1,468) 1,468 -
Accounts payable 1,001 - 1,001
(Increase) decrease is assets:
Inventory (12,518) (20,880) (33,398)
Prepaids - 5,530 5,530
------------ ------------ ------------
Net Cash Used by Operating Activities (84,877) (22,906) (107,783)
------------ ------------ ------------
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of equipment - (27,131) (27,131)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contributed capital 35,021 50,037 85,058
Issuance of common stock 50,000 - 50,000
------------ ------------ ------------
Net Cash Provided by Financing Activities 85,021 50,037 135,058
------------ ------------ ------------
Net Increase (Decrease) in Cash 144 - 144
Cash at Beginning of Period - - -
------------ ------------ ------------
Cash at End of Period $ 144 $ - $ 144
============ ============ ============
</TABLE>
5
<PAGE>
DERMALAY INDUSTRIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
AND FOR THE PERIOD FROM
DECEMBER 2, 1997 (DATE OF INCEPTION OF
DEVELOPMENT STAGE ENTERPRISE ACTIVITIES)
THROUGH DECEMBER 31, 1999
NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION
----------------------------------------
The Company was incorporated on August 22, 1995 as a Nevada corporation under
the name H. Herbig Land & Livestock Incorporated. From the date of
incorporation to December 2, 1997 the Company had no significant operating
activities. On December 2, 1997, the Company entered a purchase agreement with
Mr. William E. Edwards to purchase the name Dermalay Industries, Inc., and
inventory owned by Mr. Edwards in exchange for 2,550,000 shares of common stock.
The Company is deemed to have entered the development stage effective December
2, 1997.
Since December 2, 1997, the Company has developed a business plan which includes
raising capital to produce and build market awareness for the Company's products
which consist of skin care products and sports creams produced from "Emu Oil".
The Company has not had any significant operations to date, and is therefore
considered to be in the development stage.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
Use of Estimates
------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates
Earnings (Loss) per Common Stock (SFAS 128)
-------------------------------------------------
Income (loss) per share of common stock is computed based on the weighted
average number of shares outstanding. In accordance with SFAS 128 the Company's
financial statements present basic earnings (loss) per common share. At
December 31, 1999 and 1998, the Company did not have a complex capital
structure.
Income Taxes
-------------
The Company accounts for income taxes using the liability method, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Deferred tax assets and liabilities are determined based on the
difference between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
As of December 31, 1999, the Company had not experienced any significant
operating activities. Accordingly, the Company had no liability for income
taxes.
6
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
----------------------------------------------
Recent Accounting Pronouncements
----------------------------------
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5
establishes standards for the reporting and disclosure of start-up costs,
including organization costs. The Company adopted SOP 98-5 on January 1, 1999.
Inventory
---------
Inventory is valued at the lower of cost or market. Cost is determined using the
FIFO (first-in, first-out) method of inventory valuation.
Organization Costs
-------------------
Organization costs are being amortized over a five-year period.
NOTE 3 - RELATED PARTY TRANSACTIONS
----------------------------
All property and equipment of the Company was contributed by Mr. William E.
Edwards, the Company's majority shareholder. The Company recorded the assets at
fair market value on the date received.
NOTE 4 - PROPERTY AND EQUIPMENT
------------------------
As discussed in Note 3, the Company's property and equipment was contributed by
the majority shareholder. The contribution occurred on June 16, 1998.
Depreciation expense will be recorded under the straight-line method over the
remaining useful lives of the assets. The estimated useful life of the
Company's property and equipment is three years. Property and equipment as of
December 31, 1999 and 1998 are as follows:
1999 1998
---------------- --------------
Office furniture and equipment $ 22,631 $ 22,631
Ranch equipment 4,500 4,500
---------------- ---------------
27,131 27,131
Less accumulated depreciation 9,044 4,522
---------------- ---------------
$ 18,087 $ 22,609
=============== ===============
7
<PAGE>
NOTE 5 - COMMON STOCK
-------------
During 1999, two officers and directors of the Company were granted 14,000,000
shares of common stock. This was a non-cash transaction.
Additionally, 1,350,000 shares of common stock were subscribed for a $35,000
receivable and $100,000 in future services.
NOTE 6 - PRODUCT AGREEMENTS
-------------------
As discussed in Note 1, the Company's products consist of skin lotions and
sports creams made from "Emu Oil". The Company does not own the patents or the
exclusive rights on these products. The products are distributed and sold by
the Company under the label Dermalay Industries, Inc.
8
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
2 Reorganization Agreement (not applicable)
3.1 Articles of Incorporation and Amendments
3.2 By-Laws
4 Instruments defining the rights of holders (refer to
exhibit 3)
9 Voting Trust agreement (not applicable)
10 Material contracts: Electronic Commerce Agreement
11 Statement re: Computation of per share earnings (not
applicable)
16 Letter of change in certifying accountant (not
applicable)
21 Subsidiaries of the Registrant (not applicable)
24 Power of Attorney (not applicable)
27 Financial Data Schedule
99 Additional Exhibits (not applicable)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-SB to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dermalay Industries, Inc.
June 15, 2000 /s/ William E. Edwards
----------------------------------------
---------------
William E. Edwards, Jr.
Chairman of the Board and
Chief Executive Officer
June 15, 2000 /s/ Eric Tate
----------------------------------------
---------------
Eric Tate, Director
June 15, 2000 /s/ William Moton
----------------------------------------
---------------
William Moton, Chief
Financial Officer
<PAGE>