SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934

For the fiscal year ended February 28, 2001

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ____________ to ____________

Commission File Number: 0-26581

                            DERMATOLOGY SYSTEMS, INC.
         --------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

         FLORIDA                                                65-0844181
------------------------------------------             -------------------------
(State or other jurisdiction of                        (I.R.S. Employer
         incorporation or organization)                      Identification No.)

222 Lakeview Avenue Suite 113
West Palm Beach, FL                                             33480
-------------------------------------------            -------------------------
 (Address of principal executive offices)                    (Zip Code)

Issuer's telephone number:  (561) 832-5699

Securities to be registered under Section 12(b) of the Act:

     Title of each class                                 Name of each exchange
                                                          on which registered
         None                                                     None
-----------------------------------                   --------------------------

Securities to be registered under Section 12(g) of the Act:

                    Common Stock, $.0001 par value per share
                 -----------------------------------------------
                                (Title of class)

Copies of Communications Sent to:
                                    Mintmire & Associates
                                    265 Sunrise Avenue, Suite 204
                                    Palm Beach, FL 33480
                              Tel: (561) 832-5696 Fax: (561) 659-5371



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     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days:

                  Yes  X        No
                      -----       -----

     Check if no  disclosure  of  delinquent  filers in  response to Item 405 of
Regulation S_B is contained in this form,  and no disclosure  will be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this  Form  10KSB or any
amendment to this Form 10 KSB. [X]

         Issuer's revenues for its 2001 fiscal year were $0.00.

     Of the  2,000,000  shares of voting  common of the  registrant  issued  and
outstanding as of February 28, 2001,  840,000 shares are held by non-affiliates.
Because of the absence of an  established  trading  market for the voting stock,
the  registrant is unable to calculate the aggregate  market value of the voting
stock held by non-affiliates as of a specified date within the past 60 days.













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                                TABLE OF CONTENTS


PART  I

Item 1. Description of Business.

Item 2. Description of Property.

Item 3. Legal Proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

Item 6. Management's Discussion and Analysis or Plan of Operation.

Item 7. Financial Statements.

Item 8.  Changes  In  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

Item 10. Executive Compensation.

Item 11. Security Ownership of Certain Beneficial Owners and Management

Item 12. Certain Relationships and Related Transactions.

Item 13. Exhibits and Reports on Form 8-K.












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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.

     Dr.  Haouzi's 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
hereinafter  referred to as "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.  The Company  intends to (a) open an initial  facility to
perform PTR procedures; (b) market the PTR technology by private label; and, (c)
franchise additional  operations at a later date. 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  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").. 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.  These  individuals  will  devote such time and
effort as may be necessary to participate  in the  day-to-day  management of the
Company. 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, 2001.
This  extended  commencement  date will permit the Company to secure its initial
funding,  locate  facilities  for operating,  secure  necessary  personnel,  and
attract  clients.  In addition it is projected  that this  extended  period will
permit the  Company to prepare an  application  to be filed for FDA  approval of
PTR.  In the event  FDA  approval  is not  obtained  in such time the  Company's
expected  commencement date will be delayed. It is difficult to predict when FDA
approval  may be  obtained.  At the  present  time  FDA  approval  has not  been
requested.  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

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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' 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 obtain the  licensing  to PTR  technology,
submit  PTR for FDA  approval,  locate,  secure and open its  initial  facility.
Additional funding thereafter of approximately  $200,000 will be required before
cash flow from  operations  will sustain the  Company.  These funds will sustain
operations  for  approximately  the next fifteen  (15)  months.  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

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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,  although lacking  marketing or
real estate experience,  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 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 training and  experience  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, 2002.  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.

                                        7

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     To  implement  the  initial  plan,  the  Company   intends  to  initiate  a
self-directed  private  placement under Rule 506 in order to raise an additional
$300,000.  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  subsequent  to the  submission of PTR for FDA approval and the
licensing  of such  technology  to other  medical  providers.  The  Company  has
extended its  commitment  date for the  submission of its PTR technology for FDA
approval  to the  end of the  Company's  2001  fiscal  year to  accommodate  the
anticipated thorough preparation required in preparing its FDA application.

     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 and to a limited
extent upon Mr.  Heleman to find  suitable  clients on a  profitable  and timely
basis.  Although  the  Company  believes  the  $300,000 is  sufficient  to cover
operations  through the end of its 2002 fiscal  year,  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  during the next year.
If it has been successful in securing the necessary  financing of  approximately
$300,000,  for its initial  location and initial  operations  for  approximately
fifteen (15) months,  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

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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 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.


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     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
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

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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) costs  associated  with its submission of PTR FDA approval
application,  (iii)  salaries  to Doctor  Haouzi and Mr.  Barrett  Alan  Hileman
(payroll cost),  (iv) marketing,  sales and advertising  costs,  and (vi) health
professional   employee  costs  (i.e  payroll  taxes)  and  associated  employee
benefits.  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,

                                       11

<PAGE>



(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 services which might not otherwise  result.  Such
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

                                       12

<PAGE>



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.

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

                                       13

<PAGE>



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.

     Competition for skin cancer  treatment will be  significant.  Most existing
medical  facilities,  including  but not limited to  hospitals  and  dermatology
centers regularly offer various forms of cancer  treatment.  PTR will be offered
as an alternative  form of treatment  which will be in direct  competition  with
existing facilities.

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.  The
anticipated  date for such  approval has been extended to on or before August 1,
2001.  However,  there is no assurance that such approval will be forthcoming on
that  approximate  date.  The  Company's  products  and  services are subject to
similar  regulations in its major  international  markets.  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

                                       14

<PAGE>



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

     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

                                       15

<PAGE>



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.

Item 2. Description of Property.

         Facilities

     In its initial phase,  the Company has operated 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
continue  tp  research  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.


Item 3. 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 4. Submission of Matters to a Vote of Security Holders.

         NONE



                                       16

<PAGE>



PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

     Market Information.

     There has been no  established  public  trading market for the Common Stock
since the Company's inception on May 21, 1998.

     Holders.

     As of February 28, 2001, the Company had 42  shareholders  of record of its
2,000,000 outstanding shares of Common Stock.

     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.

     Options and Warrants

     There are no  outstanding  options or warrants to purchase,  or  securities
convertible into common equity of the Company.

     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-KSB 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.

Item 6. 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, 2001 and 2000, the Company had no
income from operations and cumulative  operating expenses of $27,805 and $18,200
respectively,  and  cumulative  losses  from  operations  of $27,805 and $18,200
respectively. 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").


                                       17

<PAGE>



     Dr.  Pierre  Haouzi,  63 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
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  portions 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.  Such  forms of cancer
researched to which PTR  technology  may apply  includes  cancer of the bladder,
skin cancer and cancer of the vocal  chords.  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,  was  authorized  and  permitted  by
Lasertec of France to develop additional  technology while doing cancer research
and  has a  verbal  commitment  from  Lasertec  of  France  which  owns  the PTR
technology  that  he is  permitted  to  utilize  such  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 raise  additional  capital to meet its expenses
subsequent  to the  submission of PTR for FDA  approval,  management  intends to
explore all available  alternatives for debt and/or equity financing,  including
but  not  limited  to  additional  private  and  public  securities   offerings.
Management  anticipates  that it will be able to satisfy  its cash  requirements
through its 2002 fiscal year end 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 twelve
(12) months,  commencing  approximately  nine(9)  months from the date hereof 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.


                                       18

<PAGE>



     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.

Results of Operations - Full Fiscal Years - February 28, 2001 and February 29,
2000

     Financial Condition, Capital Resources and Liquidity

     At February 28, 2001 and February 29, 2000, the Company had assets totaling
$25,295 and $36,900 and  liabilities  of $3,000 and $5,000  respectively  . This
decrease is attributable to lowered legal  expenses,  organization  expenses and
professional fees subsequent to the filing of the Company's initial registration
statement.  Since the  Company's  inception,  it has  received  $50,000  in cash
contributed as consideration for the issuance of shares of Common Stock.

     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.

     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 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,  submitting PTR for FDA approval,  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

                                       19

<PAGE>



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 self-  directed  private  placement  under Rule 506 in order to an
additional  $300,000.  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  through its 2002 fiscal year end. 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 nine(9) months
beyond its 2002 fiscal year end.

     Net Operating Losses

     The Company has net operating loss  carry-forwards of $27,800,  with$9,600,
$4,300 and $13,900 expiring in 2021, 2020 and 2019 respectively. The Company has
as of February  28, 2001 a $4,200  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.

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 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.



                                       20

<PAGE>



Item 7.           Financial Statements.

     The  information  called  for by this item is  indexed  on Page F-1 of this
report and is contained on the pages following said page F-1.

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.


                          INDEX TO FINANCIAL STATEMENTS



Balance Sheets..............................................................F-2

Statements of Operations....................................................F-3

Statements of Stockholders' Equity..........................................F-4

Statements of Cash Flows....................................................F-5

Notes to Financial Statements...............................................F-6











<PAGE>



                          INDEPENDENT AUDITORS' REPORT




The Board of Directors
Dermatology Systems, Inc.
Palm Beach, Florida

We have audited the accompanying balance sheet of Dermatology  Systems,  Inc., a
development stage enterprise, as of February 28, 2001 and the related statements
of  operations,  stockholders'  equity  and cash  flows for the two years  ended
February 28, 2001 and the period from May 21, 1998 (Inception)  through February
28, 2001.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Dermatology Systems, Inc. as of
February 28, 2001,  and the results of its operations and its cash flows for the
two years ended  February 28, 2001 and the period from May 21, 1998  (Inception)
through  February 28, 2001 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 11, 2001





                                       F-2

<PAGE>


<TABLE>
<CAPTION>
                            Dermatology Systems, Inc.
                        (A Development Stage Enterprise)
                                 Balance Sheets
                                  February 28,




                                                                           2001            2000
                                                                   ----------------- ----------------
<S>                                                                <C>               <C>
                                     ASSETS
CURRENT ASSETS
   Cash                                                            $          22,295 $         36,900
   Deposits                                                                    3,000                0
                                                                   ----------------- ----------------

     Total current assets                                                     25,295           36,900
                                                                   ----------------- ----------------

Total Assets                                                       $          25,295 $         36,900
                                                                   ================= ================

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accrued expenses                                                $               0 $          2,000
   Accrued expenses - related party                                            3,000            3,000
                                                                   ----------------- ----------------

     Total current liabilities                                                 3,000            5,000
                                                                   ----------------- ----------------

Total Liabilities                                                              3,000            5,000
                                                                   ----------------- ----------------

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                             (27,805)         (18,200)

                                                                   ----------------- ----------------
Total Stockholders' Equity                                                    22,295           31,900
                                                                   ----------------- ----------------

Total Liabilities and Stockholders' Equity                         $          25,295 $         36,900
                                                                   ================= ================
</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 Operations
                         Years Ended February 28 and 29,



                                                                                             Period from
                                                                                             May 21, 1998
                                                                                             (Inception)
                                                                                               through
                                                       2001              2000               February 28, 2001
                                                  --------------    ----------------     ---------------------
<S>                                               <C>               <C>                  <C>
Revenues                                          $            0    $              0     $                   0
                                                  --------------    ----------------     ---------------------

Expenses
     General and administrative                              605                 635                     3,031
     Consulting fees - related party                           0                   0                       100
     Consulting fees                                       2,000               2,000                     4,000
     Professional fees                                     7,000               1,674                    17,674
     Professional fees - related party                         0                   0                     3,000
                                                  --------------    ----------------     ---------------------

Total expenses                                             9,605               4,309                    27,805
                                                  --------------    ----------------     ---------------------

Net loss                                          $       (9,605)   $         (4,309)    $             (27,805)
                                                  ==============    ================     =====================

Net loss per weighted average share, basic        $        (0.01)   $          (0.01)
                                                  ==============    ================

Weighted average number of shares                      2,000,000           2,000,000
                                                  ==============    ================
</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 Stockholders' Equity






                                                                                       Deficit
                                                                                     Accumulated
                                                                      Additional     During the          Total
                                           Number of      Common       Paid-in       Development      Stockholders'
                                             Shares        Stock       Capital          Stage            Equity
                                         -------------- ----------- -------------- --------------- ---------------
<S>                                      <C>            <C>         <C>            <C>             <C>
BEGINNING BALANCE,
   May 21, 1998 (inception)                           0 $         0 $            0 $             0 $             0
   May 1998 - services ($0.0001/sh)           1,000,000         100              0               0             100
   May 1998 - cash ($0.05/sh)                   565,000          57         28,193               0          28,250
   June 1998 - cash ($0.05/sh)                  371,000          37         18,513               0          18,550
   July 1998 - cash ($0.05/sh)                    4,000           0            200               0             200
   September 1998 - cash ($0.05/sh)              60,000           6          2,994               0           3,000

Net loss                                              0           0              0         (13,891)        (13,891)
                                         -------------- ----------- -------------- --------------- ---------------

BALANCE, February 28, 1999                    2,000,000         200         49,900         (13,891)         36,209

Net loss                                              0           0              0          (4,309)         (4,309)
                                         -------------- ----------- -------------- --------------- ---------------

BALANCE, February 29, 2000                    2,000,000         200         49,900         (18,200)         31,900

Net loss                                              0           0              0          (9,605)         (9,605)
                                         -------------- ----------- -------------- --------------- ---------------

BALANCE, February 28, 2001                    2,000,000 $       200 $       49,900 $       (27,805)$        22,295
                                         ============== =========== ============== =============== ===============
</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
                         Years Ended February 28 and 29,




                                                                                                        Period from
                                                                                                        May 21, 1998
                                                                                                        (Inception)
                                                                                                          through
                                                                          2001           2000        February 28, 2001
                                                                   --------------- ----------------- -----------------
<S>                                                                <C>             <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                           $        (9,605)$          (4,309)$         (27,805)
Adjustments to reconcile net loss to net cash used by
operating activities:
       Stock issued for services - related party                                 0                 0               100
Changes in operating assets and liabilities:
       (Increase) decrease in deposits                                      (3,000)                0            (3,000)
       Increase (decrease) in accrued expenses                              (2,000)           (2,500)                0
       Increase (decrease) in accrued expenses - related party                   0              (123)            3,000
                                                                   --------------- ----------------- -----------------

Net cash used by operating activities                                      (14,605)           (6,932)          (27,705)
                                                                   --------------- ----------------- -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
       None                                                                      0                 0                 0
                                                                   --------------- ----------------- -----------------

Net cash used by investing activities                                            0                 0                 0
                                                                   --------------- ----------------- -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from issuance of common stock                                      0                              50,000
                                                                   --------------- ----------------- -----------------

Net cash provided by financing activities                                        0                 0            50,000
                                                                   --------------- ----------------- -----------------

Net increase (decrease) in cash                                            (14,605)           (6,932)           22,295

CASH, beginning of period                                                   36,900            43,832                 0
                                                                   --------------- ----------------- -----------------

CASH, end of period                                                $        22,295 $          36,900 $          22,295
                                                                   =============== ================= =================
</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


(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.  In preparing the  financial  statements,
     management is required to make  estimates and  assumptions  that affect the
     reported amounts of assets and liabilities as of the date of the statements
     of financial condition and revenues and expenses for the period then ended.
     Actual results may differ significantly from those estimates.

           The following summarize the more significant accounting and reporting
policies and practices of the Company:

     a)  Start-up  costs Costs of start-up  activities,  including  organization
     costs,  are expensed as incurred,  in accordance with Statement of Position
     (SOP) 98-5.

     b) Net loss per share Basic net loss per weighted average share is computed
     by dividing the net loss by the weighted  average  number of common  shares
     outstanding during the period.

     c) Stock  compensation  for services  rendered The Company issues shares of
     common stock in exchange for services  rendered . The costs of the services
     are valued according to generally accepted  accounting  principles and have
     been charged to operations.

(2)  Stockholders'  Equity  The  Company  has  authorized  50,000,000  shares of
     $0.0001 par value common stock, and 10,000,000  shares of $0.0001 par value
     preferred  stock.  Rights and  privileges of the preferred  stock are to be
     determined  by the Board of Directors  prior to issuance.  On May 21, 1998,
     the Company issued a total of 1,000,000  restricted shares to its President
     and  Treasurer for the value of services  rendered in  connection  with the
     organization  of the Company.  In May 1998, the Company sold 565,000 shares
     of common stock for $28,250 in cash. In June 1998, the Company sold 371,000
     shares of common stock for cash of $18,550.  In July 1998, the Company sold
     4,000  shares of common  stock for cash of $200.  In  September  1998,  the
     Company sold 60,000 shares of common stock for cash of $3,000.

(3)  Income  Taxes  Deferred  income taxes  (benefits)  are provided for certain
     income and expenses which are  recognized in different  periods for tax and
     financial  reporting  purposes.  The Company has net operating  loss carry-
     forwards  for income tax  purposes  of  $27,800,  with  $9,600,  $4,300 and
     $13,900 expiring at February 28, 2021, 2020 and 2019.

     The amount  recorded  as  deferred  tax assets as of  February  28, 2001 is
     approximately  $4,200,  which  represents  the amount of tax benefit of the
     loss carryforward.  The Company has established a 100% valuation  allowance
     against  this  deferred  tax  asset,  as  the  Company  has no  history  of
     profitable operations.



                                       F-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
     $27,800  accumulated  from May 21, 1998  (inception)  through  February 28,
     2001.  The  ability  of the  Company  to  continue  as a going  concern  is
     dependent upon commencement of operations,  developing sales, and obtaining
     additional capital and financing.  The financial  statements do not include
     any  adjustments  that  might be  necessary  if the  Company  is  unable to
     continue as a going concern.  The Company is currently  seeking  additional
     capital to allow it to begin its planned operations.

(5)  Related parties Counsel to the Company indirectly owns 80,000 shares of the
     Company's  common stock  through the sole  ownership of the common stock of
     another  company which invested in the Company.  Also,  counsel's adult son
     owns 80,000  shares in the Company.  The Company's  president  owns a 42.5%
     interest in the Company,  consisting of 850,000  shares,  and the treasurer
     owns a 7.5% interest, consisting in 150,000 shares.

     During the period since  inception,  the Company incurred certain legal and
     consulting fees from related parties, in the amount of $3,100. Professional
     services  rendered by the Company's legal counsel and shareholder  amounted
     to $3,000 and is presented in Professional fees - related party. Consulting
     services rendered by the Company's secretary and treasurer amounted to $100
     and is presented in  Consulting  fees - related  party.  Legal counsel paid
     certain miscellaneous expenses on behalf of the Company, amounting to $123.
     Unpaid amounts at February 28, 2001 are $3,000 and are presented in Accrued
     expenses - related party.

                                       F-8




<PAGE>



Item 8.  Changes  In  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure.

         NONE

PART III

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. Dr. Haouzi
has no experience in marketing or real estate.

         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)          63          President, Chief Executive Officer
                                           & Director

Mr. Barrett Alan Hileman(4)    22          Secretary & Treasurer

                                       29

<PAGE>



     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.  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. .

         Compliance With Section 16(a) of the Exchange Act.

     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.

                                       30

<PAGE>



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, 2001.

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 11. Security Ownership of Certain Beneficial Owners and Managers

     The  following  table sets  forth  information  as of  February  28,  2001,
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.

<TABLE>
<CAPTION>
                                          Amount
Name and Address of                       Beneficially     Percent of
Beneficial Owner                          Owned            Class (1)
----------------                          ---------        --------
<S>                                       <C>              <C>
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)
-------------------
</TABLE>



                                       31

<PAGE>



(1)  Based  upon  2,000,000  shares of the  Company's  Common  Stock  issued and
     outstanding as of February 28, 2001.
(2)  Executive officer of the Company.
(3)  Member of the Board of Directors of the Company.

Item 12.  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.

     Dr. Haouzi and Mr. Hileman are the sole  "promoters"  of the Company.  (See
Directors, Executive Officers, Promoters and Control Persons).

Item 13.          Exhibits and Reports on Form 8-K.

     (a) The exhibits  required to be filed  herewith by Item 601 of  Regulation
     S-B, as described in the  following  index of  exhibits,  are  incorporated
     herein by reference, as follows:

Index to Exhibits

<TABLE>
<S>          <C>
Item No.     Exhibit
----------   ----------------------------------------------------
3(i).1       Articles of Incorporation of DSI filed May 22, 1998 (Electronically filed with original
             10SB on July 2, 1999)(1)

3(ii).1      Bylaws of DSI (Electronically filed with original 10SB on July 2, 1999)(1)
--------------------------------------------
</TABLE>


(1)  Incorporated  herein by  reference  to the  Registration  Statement on Form
     10-SB of Dermatology Systems, Inc. (File No. 0-26581),  filed with the U.S.
     Securities and Exchange Commission.

     (b) No Reports on Form 8-K were filed during the last quarter of the fiscal
     year ended February 28, 2001, covered by this Annual Report on Form 10-KSB.


                                       32

<PAGE>




                                   SIGNATURES
                                   ----------

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                           DERMATOLOGY SYSTEMS, INC..
                                  (Registrant)



Date: May 29, 2001                 By:  /s/ Dr.  Pierre Haouzi
                                     -------------------------
                                   Dr. Pierre Haouzi, President

     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.


Date                        Signature                       Title
----                        ---------                       -----

  May 29, 2001      By:   /s/ Dr.  Pierre Haouzi         President and Director
                    ---------------------------
                        Dr. Pierre Haouzi

  May 29, 2001      By:/s/ Barrett Alan Hileman          Director
                    ---------------------------
                        Barrett Alan Hileman













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