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 29, 2000

[_]  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 SB 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 10KSB. [X]

         Issuer's revenues for its 2000 fiscal year were $0.00.

         Of the 2,000,000  shares of voting common of the registrant  issued and
outstanding as of February 29, 2000,  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".(See:  Part  I. - Item  1.  "Description  of
Business - PTR") The specific area of application for PTR by the Company will be
in the removal of unsightly blemishes including birthmarks,  discolorations, age
spots, and other skin  discolorations  as well as unwanted body and facial hair.
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.



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         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.

         (b)      Business of Issuer.

General

         Since its inception,  the Company has conducted no business  operations
except for organizational activities and an offering of Common Stock pursuant to
which it has received gross offering proceeds in the amount of $50,000. Further,
the Company has had no employees since its organization.  It is anticipated that
the Company's two (2) executive  officers and directors will receive  reasonable
salaries  for  services  as  executive  officers  at such  time  as the  Company
commences   business   operations.   (See   Part   III,   Item  10.   "Executive
Compensation.")  These  individuals  will  devote such time and effort as may be
necessary to participate in the day-to-day  management of the Company. (See Part
III, Item 9.  "Directors,  Executive  Officers,  Promoters and Control Persons -
Executive   Officers  and  Directors.")  The  Company  proposes  to  attempt  to
profitably  participate in the recent trend in the  medical/cosmetic  removal of
blemishes  through  the  use  of  laser  technology;  and,  in  particular,  the
development of PTR as it pertains to the correction of human skin abnormalities.

         The expected commencement date of business is on or about June 1, 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.

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         PTR can identify the optical  resonance of malignant and abnormal cells
using a  laser-based  device.  The  Company  believes  that PTR can  effectively
identify  selected  malignant and abnormal  cells.  PTR can identify the optical
resonance of these cells using the laser-based device. The Company believes that
it can effectively  treat selected bad cells when the resonance of all malignant
and  abnormal  cells of an organ  are the  same  and the  peak of  resonance  of
malignant and normal cells of the same tissues are very different, the malignant
cells with a higher  level of  resonance  will absorb and release  significantly
more energy than the normal  cells.  As a result,  the  malignant  cells will be
destroyed while the normal cells will not be affected.

         The  term  "resonancy   response"   refers  to  the  amount  of  energy
selectively  absorbed,  and then  released,  by the cells.  The  technology  can
identify the resonance response of healthy cells and malignant or abnormal cells
by  radiating  the cells  with laser  having a  wavelength  matching  the cells'
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.

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         Dr. Haouzi  decided to market PTR because of the belief that his formal
education  and  experience  as a physician,  when  combined  with Mr.  Hileman's
efforts and assistance with marketing and real estate will enable them to market
and sell PTR which will have the  advantages  of,  among other  things,  greater
availability of capital and potential for growth through the vehicle of a public
company as compared to a privately-held company. The time required to be devoted
by Dr. Haouzi and Mr. Hileman to manage the day-to-day affairs of the Company is
presently  estimated to be  approximately  five to ten hours per week. This time
commitment  on the part of these  individuals  is  expected  to increase at such
time,  if ever,  as DSI obtains  sufficient  funding  with which to commence the
search  for a site  where the  Company  can  locate  its  offices  and  commence
additional business operations.

         The Company will be dependent upon Dr.  Haouzi,  to market and sell the
application of PTR for the Company.  Dr. Haouzi,  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, 2000.  Presently  the
technology  is not licensed by any third party and the Company is  attempting to
negotiate  an exclusive  license,  although  presently  the Company is unable to
determine  whether an  exclusive  license will be granted.  However  there is no
assurance  that such  license  arrangement  will be achieved.  Nevertheless  the
Company believes that Dr. Haouzi will be successful in his efforts to obtain the
PTR license from the  developers of the technology and has decided to market PTR
initially  in the United  States.  DSI  intends to market PTR, as it pertains to
applications involving the skin, globally at a later date. There is no assurance
however  that DSI will be  successful  in bringing the PTR to market in a manner
that will be profitable.

         In its  initial  phase,  while  establishing  its  first  location  for
operations  and providing  treatment  services,  the Company will operate out of
offices provided by Dr. Haouzi. At the time the Company was formed,  265 Sunrise
Avenue,  Suite 204, Palm Beach,  Florida,  33840 was used as an initial location
pending  funding of the  Company.  At the request of the Company the address has
been changed to 222 Lakeview Avenue, Suite 113, West Palm Beach, Florida, 33401.
Mr. Hileman will begin  researching the real estate market in order to determine


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the most appropriate  site to locate DSI's offices and facilities.  In the event
the Company  requires  additional  capital during this phase,  Dr. Haouzi has an
unwritten  and  unsigned  agreement  to fund the  operation  in an amount not to
exceed $50,000 until such time as additional capital is available.

         Due to the limited  capital  available  to the Company,  the  principal
risks  during this phase are that the  Company is  dependent  upon Dr.  Haouzi's
efforts,  that Mr. Hileman lacks specific medical licensing  experience and that
the Company will not be able to establish a sufficiently  profitable client base
to establish the business.

         To  implement  the  initial  plan,  the  Company  intends to initiate a
self-directed  private  placement under Rule 506 in order to raise an additional
$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

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itself,  the  Company  intends  to  seek  additional  financing  in the  form of
conventional bank financing,  small business administration  financing,  venture
capital or the private  placement of corporate debt for a total of approximately
$1,000,000. This should enable the Company to open a minimum of two (2) or three
(3) additional locations and provide additional funding for the initial location
if needed. There can be no assurance that any of these financing sources will be
available to the Company. If the Company's plan to seek additional  financing is
successful,  the Company intends to open additional offices which compliment the
Southern  Florida  operations  and  add a  regional  manager  to  oversee  these
additional  operations.  The Company believes that such expansion will place the
Company in a position to be a major  force in the  cosmetic  application  of PTR
laser technology  initially in the State of Florida. If the Company's subsequent
expansion is  implemented,  Dr. Haouzi and Mr. Heleman believe that they will be
able to oversee the operation with the addition of the manager.

         The  Company  has not  sought  as of yet any  debt  financing  since it
believes that any qualified  venture capital firm will not loan any funds to the
Company until such time as it is fully  reporting and has completed at least two
years of  profitable  operations.  Once it has met those  criteria,  the Company
intends to seek out funds from licensed  venture  capital firms and to negotiate
terms  which  will fit the  financial  capabilities  of the  Company.  Since the
Company does not expect to seek debt financing until such time as it has several
locations operating successfully,  it believes that it can negotiate appropriate
placement  and repayment  terms for such  borrowings.  However,  there can be no
assurance  that such funds will be available to it or that suitable  terms which
are most advantageous to the Company can be negotiated. In addition, the Company
does not, at this time,  anticipate that it will require substantial leverage to
fund the expanded operations. However, in the event the Company did receive debt
financing  and in the  event  the  Company  were not  successful  in  sustaining
operations or meeting such 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.


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         In the event the  Company is  successful  in  securing  the  additional
financing  for its  long  term  expansion,  it  plans  to seek  acquisitions  of
qualified  companies  which the Company  believes  will  compliment  its overall
strategy  inside and  outside of the State of  Florida.  The  Company  will seek
acquisitions of related and/or un-related companies and expand its operations to
eventually  encompass  the entire  United  States.  At such time as the  Company
commences business and enters markets outside the State of Florida,  the Company
will be required to comply with  applicable  state  regulations  regarding  such
entities.

         Such increased expansion may increase greatly the risks associated with
the  Company's  operations.  The  Company  will  continue to be  dependent  upon
obtaining a sufficient  client base to purchase PTR technology  after it is able
to  establish  a  licensing  relationship  with  a  manufacturer.  In  addition,
increased  operations  and  expansion  into other  geographic  areas  expose the
Company to the potential of intense  competition  and  unfavorable  governmental
regulations.  In addition,  the larger the  geographic  market,  the greater the
chance of increased  support staff costs.  Furthermore,  exposure to competition
from larger and more established medical equipment suppliers,  many of whom have
greater  resources than the Company may be detrimental to the continued  success
of the  Company.  The  Company  anticipates  that  revenues  from such  expanded
operations may also result in greater revenue fluctuations due to differences in
regional  market demand and the Company's  increasing  support  staffing  needs.
Also,  the Company will be required to pay wages to a larger support staff while
still  experiencing  possible  delays in direct  payments  received from product
sales receivables. In addition, with expansion and implementation of an employee
benefit  plan  which  is  necessary  in order to be  competitive  for  qualified
employees,  in the  event  such plan were to be  disallowed,  loss of  qualified
status  could have an adverse  effect  upon the  Company.  Finally,  as a larger
Company, it could face possible adverse affects from fluctuations in the general
economy and business of its clients.

         Another avenue available to the Company to aid its ability to expand is
to seek a reverse merger with a larger, public company. While the Company has no
present long or short term intention to seek such a merger, in the event that an
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

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there was a change of control, if the Company acquires or disposes of assets, if
there is a bankruptcy  or  receivership,  if the Company  changes its  certified
accountants,  upon the  occurrence of other events which may be pertinent to the
security holders, and after certain resignations of directors.  Being subject to
such reporting requirements reduces the pool of potential acquisitions or merger
candidates  for the  Company  since such  transactions  require  that  certified
financials  must be provided for the  acquiring,  acquired or merging  candidate
within a specified  period of time.  That is why the  Company  intends to expand
through internal  operations  through the short and medium term. At such time as
the Company will seek acquisitions or mergers, it will limit itself to companies
which either  already have  certified  financial  statements or companies  whose
operations  lend  themselves to review for a certified audit within the required
time.

         The  plastic  surgery  and/or  dermatology  offices  is one of the most
lucrative  categories  of  medical  services  in  the  United  States.  As  such
competition  to supply  medical  products in this market is extremely  vigorous,
characterized by a relatively large number of companies. Many of these companies
have established  reputations for successfully  developing and marketing medical
products, as well as a variety of well-established  distribution networks.  Many
such companies also have greater financial,  managerial, and technical resources
than the Company.

Business Strategy

         The Company's business strategy,  which is dependent upon its obtaining
sufficient  financing  with which to implement its business plan (of which there
is no  assurance),  is to  profitably  participate  in the  recent  trend in the
medical/cosmetic  removal of blemishes  through the use of laser technology and,
specifically  through the application of PTR. Once the Company obtains the right
to market the PTR under its own label and/or under the manufacturer's brand-name
its revenues  will be remain  dependent  upon the ability of the Company to sell
this medical  technology to cosmetic medical providers and  dermatologists on an
Outpatient basis.

         The Company's  primary  direct costs will be (i) licensing fees paid to
the  provider  of PTR,  (ii) 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.

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<PAGE>



         The  Company's  objective  is to become a  dominant  provider  of laser
technology  to  remove  cosmetic   blemishes,   skin   abnormalities  and  other
applications at first in a select  geographic area,  beginning in Palm Beach and
Broward County,  Florida,  and then to contiguous counties in South Florida and,
eventually  throughout the State of Florida.  The Company will thereafter expand
into selected  areas  nationwide and  eventually  worldwide  provided it has the
financial  resources to do so. To achieve  this  objective,  and  assuming  that
sufficient  operating  capital  becomes  available,  the Company intends to: (i)
obtain a license to PTR and then to  aggressively  sell and  distribute  it and,
(ii)  focus at first on the Palm  Beach  and  Broward  County  cosmetic  surgery
markets which have high growth opportunities.

         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.


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<PAGE>



         The Company  anticipates that its initial marketing efforts will be via
direct sales of services.  Good quality presentations and professional follow-up
with clients will be essential to the Company's success.  Initially,  Dr. Haouzi
will secure the Company's  client base.  He will visit  clients and  prospective
clients on a regular  schedule to allow for the necessary lead time to unfold to
permit clients to build confidence in the effectiveness of PTR. To insure client
satisfaction,  Dr. Haouzi will pursue a pro-active approach with prospective and
existing  clients.  This  pro-active  approach  will  include the  providing  of
customized marketing information illustrating the various applications of PTR as
well as providing attractive  financing  alternatives which the Company believes
will, in many cases,  close a sale with a customer.  Mr.  Hileman will also join
Dr.  Haouzi on client visits as a means to not only  establish a sound  business
relationship  between  the clients and the  Company's  principals  but also as a
learning tool whereby Mr. Hileman may become as knowledgeable  about the various
features  and  benefits  of  PTR  as  does  Dr.  Haouzi.  However,  the  Company
anticipates  that  it  will  employ,  as its  sales  increase,  qualified  sales
personnel  to establish  new customer  accounts.  The Company  believes  that by
employing  its own  sales  personnel  it will  be able to  penetrate  additional
markets at a minimal cost since sales  associates  receive  compensation  in the
form of commissions  based upon a client's use of the Company's  programs.  This
commission  based  compensation  program will reduce the  overhead  costs to the
Company.

         The  Company's  ability to develop  markets  through the efforts of Dr.
Haouzi and,  eventually a sales force is, of course dependent upon  management's
ability  to obtain  necessary  financing,  of which  there can be no  assurance.
Assuming the  availability of adequate  funding,  DSI intends to stay abreast of
changes in the marketplace by ensuring that it remain in the field where clients
and competitors  can be observed  firsthand.  DSI does not anticipate  obtaining
long-term  writen  contracts with clients since such contracts are not common in
the medical technology area;  however,  management  believes that the loyalty of
such  clients can be  maintained  through a  continuous  presence,  relationship
building and, more importantly,  through effective and professional servicing of
client accounts.

         The Company will attempt to maintain  diversity  within its client base
in order to decrease its exposure to downturns or volatility  in any  particular
industry.  As part of this client  selection  strategy,  the Company  intends to
offer its  services  to those  clients  which have a  reputation  for  reputable
dealings and a  sufficiently  broad  patient  base.  The Company will attempt to
avoid doing business with cosmetic surgery and dermatology clinics/offices which
have a record  of high  patient  malpractice  claims to avoid  placing  PTR in a
negative market position.  Where feasible,  the Company intends to evaluate each
client's  practice for patient claims history and reputation in the professional
community.

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


13

<PAGE>


received  FDA  clearance to market a laser-like  system using  filtered  intense
light to remove hair. The Company  expects that other hair removal  devices will
be developed and/or  introduced in 1999, making laser hair removal a competitive
application within the cosmetic laser marketplace. The Company also expects that
there may be further  consolidation  of companies  within the laser hair removal
industry  via  acquisitions,  partnering  arrangements  or joint  ventures.  The
Company's  products  will also  compete  with other hair  removal  products  and
methods.  The Company  competes  primarily on the basis of  technology,  product
performance, price, quality, reliability,  distribution and customer service and
support. To remain competitive, the Company will be required to continue to seek
out the  licensing  rights  to new  laser  products,  periodically  enhance  its
existing  products when possible and compete  effectively in the areas described
above.

         In the cosmetic  laser  services  industry,  the Company may  encounter
Esthetica, a subsidiary of Palomar Medical Technology,  Inc. which not only will
compete with other laser  companies  but which also either  revenue-shares  with
physicians  and/or  operates its own medical  centers,  but also  partners  with
healthcare  providers.  Esthetica  and Palomar are examples of the companies who
have the market and with which the Company  will have to compete.  Although  not
dominant  in the  industry  at  the  current  time  this  information  regarding
Esthetica  is important to  illustrate  the types of companies  currently in the
market or likely to enter the market.  Esthetica's  services  also  competes for
business with other aesthetic service providers such as  electrologists,  beauty
salons,  spas, and aestheticians,  among others. The Company believes that if it
presents  PTR  product  efficacy,  provides  location  support,  client  focused
marketing,  a diverse offering of laser  procedures,  cost effective pricing and
superior  customer  service  it  will  be able  to  effectively  compete  in the
marketplace.

         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. Such

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<PAGE>



approval is not expected on or before April 1, 2000. The Company's  products and
services are subject to similar regulations in its major international  markets.
The developer of PTR will first have to comply with these  regulations  in order
for the Company's  strategy of expanding the market  application  of PTR and its
services into these countries. These approvals may necessitate clinical testing,
limitations  on the number of sales and  controls  of end user  purchase  price,
among other things.  In certain  instances,  these constraints can delay planned
shipment schedules as design and engineering  modifications are made in response
to regulatory  concerns and requests.  The Company's  competitors are subject to
the same regulations.

Healthcare Reimbursement and Reform Exposure

         The healthcare industry is subject to changing political,  economic and
regulatory  influences that may affect the procurement  practices and operations
of healthcare  industry  participants.  During the past several years, state and
federal government regulation of reimbursement rates and capital expenditures in
the United  States  healthcare  industry has  increased.  Lawmakers  continue to
propose  programs  to reform  the United  States  healthcare  system,  which may
contain  programs to increase  governmental  involvement  in  healthcare,  lower
Medicare and Medicaid  reimbursement  rates or  otherwise  change the  operating
environment for the Company's  customers.  Healthcare industry  participants may
react to these  proposals  by  curtailing  or deferring  investments,  including
investments in the Company's services.

Dependence  on  Third  Party  Researchers.

  The  Company is  substantially  dependent  upon third  party  researchers  and
others, over which the Company will not have absolute control, to satisfactorily
conduct  and  complete  research on PTR on behalf of the Company and to grant to
the Company  favorable  terms to provide  services based upon the products which
may be developed.  The Company is dependent upon the validity and  effectiveness
of third party research  developments  with  recognized  research  hospitals and
clinical  laboratories.  The Company may provide  research funding in return for
the right to market  and sell the  laser  technology  and  optics  know-how  and
specific  PTR  applications.  Management  believes  that  this  method  of doing
business  and  development  provides a higher  level of  technical  and clinical
expertise than it could provide on its own and in a more cost efficient  manner.
The  Company's  success will be highly  dependent  upon the results of the third
party  research,  and there can be no assurance that such research  arrangements
will provide the Company with  marketable  services in the future or that any of
the products developed by these third party researchers under these arrangements
will be profitable for the Company.

Seasonality

         The Company  does not believe  that its results of  operations  will be
impacted  by  factors  relating  to  seasonality.  To the extent  that  economic
conditions may at times vary within geographic areas the company may then become
susceptible to fluctuations in sales. The Company  believes,  however,  that the
purchaser of cosmetic services is less sensitive to economic cycles. The Company
believes  that  the  demographic  trend  of  aging  baby  boomers  is a long and
pervasive  cycle that will provide a strong and  profitable  force driving sales


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<PAGE>


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 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 will operate out of offices provided
by Dr. Haouzi.  At the time the Company was formed,  265 Sunrise  Avenue,  Suite
204, Palm Beach, Florida,  33840 was used as an initial location pending funding
of the  Company.  At the request of the Company the address has been  changed to
222 Lakeview  Avenue,  Suite 113, West Palm Beach,  Florida,  33401. Mr. Hileman
will begin  researching  the real estate  market in order to determine  the most
appropriate  site wherein to locate DSI's offices and  facilities.  In the event
the Company  requires  additional  capital  during this  phase,  Dr.  Haouzi has
committed  to fund the  operation  until  such  time as  additional  capital  is
available.



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         Risk Factors

         Before making an  investment  decision,  prospective  investors  in the
Company's  Common  Stock should  carefully  consider,  along with other  matters
referred to herein,  the  following  risk factors  inherent in and affecting the
business of the Company.

         1. Development  Stage Company.  DSI was only recently  organized on May
21, 1998, and  accordingly,  is in the early form of its  development  stage and
must be considered promotional. Management's efforts, since inception, have been
allocated  primarily  to  organizational  and fund  raising  activities  and the
ability of the Company to establish  itself as a going concern is dependent upon
the receipt of  additional  funds from  operations  or other sources to continue
those  activities.  Potential  investors  should  be aware  of the  difficulties
normally  encountered by a new enterprise in its  development  stage,  including
under-capitalization,  cash  shortages,  limitations  with respect to personnel,
technological,  financial  and  other  resources  and lack of a client  base and
market  recognition,  most of  which  are  beyond  the  Company's  control.  The
likelihood  that the Company  will succeed  must be  considered  in light of the
problems,  expenses and delays  frequently  encountered  in connection  with the
competitive environment in which the Company will operate. The Company's success
depends to a large  extent on  establishing  a licensing  relationship  with the
provider of PTR technology and then successfully building a large and profitable
client base. There is no guarantee that the Company's  proposed  activities will
attain the level of  recognition  and  acceptance  necessary  for the Company to
become viable.  There is intense  competition in the medical  products market in
Southern  Florida,  the remaining  State of Florida and  nationwide,  several of
which are large public companies,  which are already  positioned in the business
and which are better  financed than the Company.  There can be no assurance that
the Company, with its very limited capitalization,  will be able to compete with
these companies and achieve profitability.  (See Part I, Item 1. "Description of
Business.")

         2. No Operating History,  Revenues or Earnings.  As of the date hereof,
the Company has not yet commenced operations and,  accordingly,  has received no
operating  revenues  or  earnings.  Since  its  inception,  most of the time and
resources  of DSI's  management  have  been  spent in  organizing  the  Company,
obtaining  interim  financing  and  developing a business  plan.  The  Company's
success is dependent  upon its  obtaining  additional  financing  from  intended
operations,  from  placement  of its equity or debt or from third party  funding
sources.  The  Company's  success in the  business of  supplying  medical  laser
technology to cosmetic and dermatology  clinics/centers  is dependent  initially
upon its ability to establish a licensing  relationship  with a PTR provider and
then the  generation  of a  sufficient  amount of sales to enable the Company to
continue in  operation.  There is no  assurance  that DSI will be able to obtain
additional  debt or equity  financing from any source.  The Company,  during the
development  stage of its  operations,  can be expected  to sustain  substantial
operating  expenses without  generating any operating  revenues or the operating
revenues  generated can be expected to be insufficient to cover expenses.  Thus,
for the foreseeable  future,  unless the Company attains profitable  operations,
which is not  anticipated,  the  Company's  financial  statements  will  show an
increasing net operating loss. (See Part I, Item 1. "Description of Business.")

         3. Minimal  Assets,  Working  Capital and Net Worth. As of February 29,
2000,  the  Company's  total  assets  in  the  amount  of  $36,900,   consisted,
principally, of paid-in capital of $50,000 less accrued expenses. As a result of
its minimal  assets,  as of February 29, 2000,  the Company has very minimal net
worth presently.  Further,  DSI's working capital is presently minimal and there
can be no assurance that the Company's  financial  condition  will improve.  The
Company is expected to continue  to have  minimal  working  capital or a working


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<PAGE>


capital deficit as a result of current  liabilities.  The Company, at inception,
issued  850,000 shares of the Company's  Common Stock to Dr.  Haouzi,  executive
officer and  director of DSI,  for the fair value of $.0001 per share or $85.00.
At the same  time,  Mr.  Barrett  Alan  Hileman,  the  Company's  Secretary  and
Treasurer,  received  150,000 shares of the Company's  Common Stock for the fair
value of $.0001 per share or $15.00.  In May,  1998,  the Company  sold  565,000
shares of common  stock for $28,250 in cash.  In June,  1998,  the Company  sold
371,000 shares of common stock for $18,550 in cash. The Company,  in July, 1998,
sold a total of 4,000 shares of common stock for $200 in cash. Then in September
1998,  the Company sold 60,000  shares of common stock for $3,000 in cash.  Even
though management  believes,  without assurance,  that it will obtain sufficient
capital  with which to  implement  its  business  plan on a limited  scale,  the
Company is not expected to continue in operation without an infusion of capital.
In order to obtain additional  equity  financing,  management may be required to
dilute the interest of existing  shareholders or forego a substantial portion of
its revenues, if any. (See Part I, Item 1. "Description of Business")

         4. Need for Additional Capital:  Going Concern Qualification  Expressed
by  Auditor.  Without an  infusion  of  capital,  the Company may not be able to
continue in  operation  six (6) months after the  expiration  of its 2001 fiscal
year end.  Accordingly,  the Company is not expected to become a viable business
entity  unless  additional  equity  and/or debt  financing  is  obtained.  DSI's
independent  certified public accountant has expressed this as a "going concern"
qualification to the opinion of Durland and Company,  CPAs P.A. on the Company's
financial  statements.  The Company does not anticipate the receipt of operating
revenues until  management  successfully  implements its business plan, which is
not assured. Further, DSI may incur significant unanticipated expenditures which
deplete its  capital at a more rapid rate  because of among  other  things,  the
development stage of its business, its limited personnel and other resources and
its lack of clients and market recognition.  Because of these and other factors,
management  is  presently  unable to  predict  what  additional  costs  might be
incurred by the Company beyond those currently contemplated to obtain additional
financing and achieve market  penetration on a commercial  scale in its proposed
line of business,  i.e.  the sale of laser  technology  in the  medical/cosmetic
removal  of skin  blemishes  and other  applications  to  cosmetic  surgery  and
dermatology medical clinics/offices, DSI has no identified sources of funds, and
there can be no assurance  that  resources will be available to the Company when
needed.

         5.       Dependence on Management:  The possible success of the Company
is expected to be largely  dependent on the  continued  services of Dr.  Hoauzi,
because Mr. Hileman,  the Company's  secretary and treasurer,  does not have any
medical experience or expertise in selling medical technology to medical service
providers.  Mr.  Hileman and Dr.  Haouzi have no experience in marketing or real
estate.  Virtually all decisions  concerning (i)the clients to contact,  (ii)the
type of medical laser features and benefits to sell,  (iii)associated  financing
programs to design,  (iv)direct  marketing  material to disseminate,  and (v)the
establishment  of a  client  profile  database  by the  Company  will be made or
significantly  influenced by Mr. Haouzi.  He is currently serving as the medical
director in research  and  development  of laser  therapy for the  treatment  of
cancer and continues to serve as such.  Dr. Haouzi and Mr.  Hileman are expected
to devote only such time and effort to the  business  and affairs of the Company
as may be necessary to perform their responsibilities as executive officers DSI.
Dr. Haouzi and Mr.  Hileman may not in fact be able to devote  adequate time and
efforts to the business, given other employment and other responsibilities.  The
loss of the  services of Dr.  Haouzi would  adversely  affect the conduct of the
Company's business and its prospects for the future. The Company presently holds
no key-man  life  insurance on the lives of, and has no  employment  contract or
other agreement with Dr. Haouzi or Mr. Hileman.

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         6. No License and Existing  Client Base.  The Company was only recently
organized.  While DSI intends to engage in the sale of laser  technology  in the
medical/cosmetic  removal of skin blemishes and other  applications  to cosmetic
surgery and dermatology  medical  clinics/offices,  the Company currently has no
license  to  market  and sell PTR and no  existing  clients.  Further,  the very
limited  funding  currently  available  to the  Company  will not  permit  it to
commence  business  operations  except on a very limited scale.  There can be no
assurance  that the debt  and/or  equity  financing,  which  is  expected  to be
required  by the  Company in order for DSI to  continue  in  business  after the
expiration  of the next  five(5) to  seven(7)  months,  will be  available.  The
Company has no clients  presently and there can be no assurance  that it will be
successful  in  obtaining  clients in its  initial  prospective  marketing  area
encompassing  Palm  Beach  and  Broward  Counties.  DSI does not  expect to have
long-term contracts with any clients; thus, management believes that the Company
must,  in order to survive,  ultimately  obtain the loyalty of a large volume of
clients. The Company could be expected to experience  substantial  difficulty in
attracting  the high volume of clients in the  prospective  target  market which
would enable DSI to achieve commercial viability.  The Company will be dependent
upon Dr. Haouzi,  who has been  associated  with many key leaders in the medical
industry  specializing  in  Dermatology.  (See Part I, Item 1.  "Description  of
Business,"  (b)  "Business  of  Issuer  -  Business  Strategy;  and - Sales  and
Marketing.")

         7. High Risks and Unforeseen Costs Associated with DSI's Entry into the
Sale of Medical Laser  Technology  Industry.  There can be no assurance that the
costs  associated  with  obtaining  a license to market and sell PTR and for the
establishment of a client base, or for the obtaining of a substantial  volume of
sales by DSI will not be  significantly  greater than those estimated by Company
management. Therefore, the Company may expend significant unanticipated funds or
significant  funds may be expended by DSI without  development of a commercially
viable Medical Laser Technology  sales business.  There can be no assurance that
cost  overruns  will not  occur or that such cost  overruns  will not  adversely
affect the Company.  Further,  unfavorable  general economic conditions and/or a
downturn in client  confidence has in the past had, and could be expected in the
future to have, an adverse  affect on client  ability to purchase  medical laser
technology  which  could,  in turn,  adversely  affect the  Company's  business.
Additionally,  competitive  pressures  and  changes in client  mix,  among other
things,  which  management  expects the Company to  experience  in the uncertain
event that it achieves  commercial  viability,  could reduce the Company's gross
profit margin from time to time. Accordingly, there can be no assurance that DSI
will be capable of establishing  itself in a commercially viable position in the
local,  state and nationwide  Medical Laser Technology  Industry sales business.
(See Part I, Item 1. "Description of Business," (b) "Business of Issuer.")

         8.  The Company's Services are Dependent Upon Numerous FDA Regulations.
FDA  Compliance  is expensive  and  time-consuming.  The products upon which the
Company's  service  will  rely  may not be  able to  obtain  the  necessary  FDA
clearance  before they can be marketed and sold.  All of our  services  shall be
dependent upon laser medical  devices.  Laser medical devices are subject to FDA
regulations   regulating   clinical  testing,   manufacture,   labeling,   sale,
distribution  and  promotion  of  medical  devices.  Before a new  device can be
introduced into the market,  we must obtain  clearance from the FDA.  Compliance
with the FDA clearance process is expensive and  time-consuming,  and we may not
be able to obtain such clearances in a timely manner or at all.


19

<PAGE>



         9. Conflict of Interest.  There are existing and potential conflicts of
interest,  including  time,  effort and corporate  opportunity,  involved in the
participation by the Company's executive officers and director in other business
entities and transactions.  Dr. Haouzi, by virtue of his relation to the Company
is an  affiliate  of the  Company,  will divide his time and effort  between the
Company,   his  existing   employment  and  his  other   business   obligations.
Accordingly,  Dr. Haouzi and Mr. Hileman may become subject to direct  conflicts
of interest and the  corporate  opportunities  doctrine with respect to business
opportunities in the business which come to their attention.  Dr. Haouzi and Mr.
Hileman,  who is not presently a director of DSI, have agreed, in the event that
each is elected to serve as a director  of the  Company in the  future,  that he
would abstain from voting on any related party contract or transaction involving
his existing business. All contracts and transactions in which either Dr. Haouzi
or  Mr.  Hileman  are  parties  may  not be  presented  to the  Board.  In  such
circumstances  no  safeguards  are in place for avoiding  conflicts of interest.
Nevertheless, assuming Mr. Hileman's future election to DSI's Board of Directors
and his  abstention  from voting on any related party contract or transaction in
accordance  with his  agreement,  it would  still be  possible  for the Board of
Directors of the  Company,  by a vote of a  sufficient  number of  disinterested
directors,  to authorize,  approve or ratify such a contract or transaction with
Dr.  Haouzi's  existing  business or any other  affiliate even if the terms were
unfair to the Company and unreasonable.

         Because of the existing  and/or  potential  future  associations of the
Company's  executive  officers and  directors in various  capacities  with other
firms  involved in a range of business  activities and because of the limited or
minimal amount of time and effort which is expected to be devoted to the Company
by such persons, there are existing and potential conflicts of interest in their
acting as executive officers and directors of the Company. None of the executive
officers or the  directors of the Company  will be able to devote a  significant
amount of time or effort to the business  and affairs of the Company  because of
their  simultaneous  participation in, employment by and/or commitments to other
firms  involved  in a range of business  activities.  In  addition,  all of such
persons are or may become, in their individual capacities,  officers, directors,
controlling  shareholders  and/or partners of other entities (in addition to Dr.
Haouzi's  existing  business)  involved  in a variety  of  businesses  which are
engaged,  or may in the  future  engage,  in  various  transactions,  or compete
directly, with the Company. Conflicts of interest and transactions which are not
at arm's-length may arise in the future because the Company's executive officers
and/or  directors are involved in the management of any company which  transacts
business, or competes directly with, the Company. (See Part I, Item 1.
"Description of Business," (b) Business of Issuer - General.")

         10. Governmental  Regulation and Litigation.  The Company's business is
subject to extensive federal,  state and local regulation and supervision.  Such
regulation, among other things, requires the Company to market and sell only FDA
approved  medical devices.  Such regulations  exist primarily for the benefit of
consumers,  rather than for the protection of medical product  distributors  and
manufacturers  and  could  limit  the  Company's  discretion  in  operating  its
business.  Noncompliance  with any applicable FDA statutes or regulations  could
result in the  suspension  or  revocation  of any  license at issue,  as well as
extensive  litigation  time and expenses as a result of the  imposition of civil
fines, criminal penalties.

         11. Ability to Grow.  The Company expects to grow through acquisitions,
internal  growth and by granting  franchises.  The  Company  plans to expand its
business from its current location and by entry into other markets. There can be
no  assurance  that  the Company will be able to create a market presence, or if

20

<PAGE>



such market is created,  to expand its market  presence  or  successfully  enter
other  markets.  The  ability of the  Company to grow will depend on a number of
factors,  including the  availability of working capital to support such growth,
existing  and  emerging  competition  and  the  Company's  ability  to  maintain
sufficient profit margins in the face of increasingly  competitive industry. The
Company must also manage costs in a changing regulatory  environment,  adapt its
infrastructure and systems to accommodate growth and recruit and train qualified
personnel.

         The  Company  also  plans to  expand  its  business,  in part,  through
acquisitions of other related medical service  providers  and/or medical product
distributors.   Although  the  Company  will   continuously   review   potential
acquisition candidates, it has not entered into any agreement,  understanding or
commitment  with  respect  to any  acquisitions  at this  time.  There can be no
assurance  that  the  Company  will be able to  successfully  identify  suitable
acquisition candidates,  complete acquisitions on favorable terms, or at all, or
integrate  acquired  businesses into its operations.  Moreover,  there can be no
assurance  that  acquisitions  will not have a  material  adverse  effect on the
Company's  operating  results,  particularly in the fiscal quarters  immediately
following the  consummation  of such  transactions,  while the operations of the
acquired  business are being  integrated  into the  Company's  operations.  Once
integrated,   acquisitions  may  not  achieve  comparable  levels  of  revenues,
profitability  or  productivity as at then existing  Company-owned  locations or
otherwise perform as expected.  The Company is unable to predict whether or when
any prospective  acquisition  candidate will become  available or the likelihood
that any  acquisitions  will be  completed.  The Company will be  competing  for
acquisition and expansion  opportunities  with entities that have  substantially
greater resources than the Company. In addition,  acquisitions  involve a number
of special risks, such as diversion of management's  attention,  difficulties in
the integration of acquired operations and retention of personnel, unanticipated
problems or legal  liabilities,  and tax and accounting  issues,  some of all of
which  could  have a  material  adverse  effect  on  the  Company's  results  of
operations and financial condition.

         Franchise  growth  poses the  additional  risk of the  inability of the
Company to control the quality of services provided by its franchise associates.
Moreover,  the failure of any  franchise  associate to pay  royalties due to the
Company  could  have  a  material  adverse  effect  on the  Company's  financial
condition  and  results  of  operations  (See  Part I, Item 1.  "Description  of
Business (b) "Business Strategy.")

         12."Potential for Unfavorable Interpretation of Government Regulations"
and Part I, Item 1. "Description of  Business"  (b) "Business of Issuer-Industry
Regulation.")

         At such time as the  Company  enters  into  franchise  agreements,  the
Company may be subject to claims asserting that it is vicariously liable for the
damages allegedly caused by the franchisees. Generally, franchisor liability for
the acts or  inactions  of its  franchisees  are based on agency  concepts.  The
Company  intends for its franchise  agreements to state that the parties are not
agents and that the  franchisees  control  the  day-to-day  operations  of their
businesses.  Furthermore,  it is intended  that the  franchise  agreements  will
require the  franchisees to undertake  certain efforts to inform the public that
they are not agents of the  Company  and that they are  independently  owned and
operated.  Moreover,  the Company will take certain additional steps to insulate
its potential liability based on claims from the franchisee's  conduct including
requiring  the  franchisees  to  indemnify  the  franchiser  for such claims and
mandating  that the  franchisees  carry certain  insurance  coverage  naming the


21

<PAGE>


Company as an additional insured.  Despite these efforts to minimize the risk of
vicarious  liability,  there can be no  assurance  that a claim will not be made
against the Company,  nor that the  indemnification  requirements  and insurance
coverage  will be  sufficient  to  cover  any  judgments,  settlements  or costs
relating to such a claim.

         13. Competition. The markets in which the Company is engaged is subject
to keen competition and rapid  technological  change. The Company's  competitors
include  local,   regional  and  national  medical  product   manufacturers  and
distributors,  many of which are larger and have greater financial and marketing
resources  than the Company.  To the extent that such  competitors  aggressively
protect their existing market share through the reduction of product pricing and
the providing of other purchasing  incentives to the Company's targeted clients,
the Company's financial condition,  results of operations or cash flows could be
materially and adversely affected.

         Many of the  Company's  competitors  have  significantly  greater  name
recognition and have greater  marketing,  financial and other resources than the
Company. The Company expects that there will be significant consolidation in the
industry,  resulting in increased  competition from larger national and regional
companies.  There can be no assurance  that the Company will be able to complete
effectively  against  such  competitors  in the  future.  (See  Part I.  Item 1.
"Description of Business," (b) "Business of Issuer-Competition.")

         14. Lack of Working  Capital  Funding  Source.  The Company  expects to
receive payments on the internally  financed sales  ("receivables")  on a timely
basis.   However,   the  Company  will  plan  for  a  reserve  to  be  held  for
non-performing  receivables.  In the event that such reserve for non- performing
receivables  increases  substantially  the  Company's  working  capital  will be
negatively impacted directly impairing  operations.  In addition, as new offices
are established or acquired,  or as the existing office is expanded,  there will
be increasing  requirements  for cash to fund the Company's plans for expansion.
The  Company  has no current  source of working  capital  funds,  and should the
Company  be unable to secure  additional  financing  on  acceptable  terms,  its
business,  financial  condition,  results of operations  and liquidity  would be
materially adversely affected.

         15. Absence of Public Market for Shares. The Company's shares of Common
Stock are not registered with the U.S.  Securities and Exchange Commission under
the Act.  There is no  public  market  for the  shares  of  Common  Stock and no
assurance  that one  will  develop.  Of such  shares,  the  Company  has  issued
1,160,000 shares of common stock to persons  affiliated withe DSI pursuant to an
exemption  from  registration  provided  by Rule  4(2) and 506 of  Regulation  D
promulgated  under  Section  3(b)  of the  Act.  These  shares  are  "restricted
securities".  Rule  144 of  the  Act  provides,  in  essence,  that  holders  of
restricted  securities,  for a period of one year after the acquisition  thereof
from the Company or an affiliate of the Company,  may, every three months,  sell
to a market maker or in ordinary  brokerage  transactions an amount equal to one
percent of the Company's  then  outstanding  securities.  Non-affiliates  of the
Company who hold restricted  securities for a period of two years may sell their
securities without regard to volume limitations or other  restrictions.  Resales
of the  free-trading  shares of Common  Stock by  "affiliates,  control  persons
and/or  underwriters"  of DSI, as those  terms are  defined in the Act,  will be
subject to the volume  limitations,  described in paragraph (e) of Rule 144. Any
transfer  or resale of the  shares of DSI's  Common  Stock will be  subject,  in
addition to the Federal securities laws, to the "blue sky" laws of each state in
which  such  transfer  or  resale  occurs.  A total of  1,000,000  shares of the
Company's Common Stock will be available for

22

<PAGE>



resale  under Rule 144  commencing  on May 21,  1999.  Sales of shares of Common
Stock  under Rule 144 may have a  depressive  effect on the market  price of the
Company's  Common  Stock,  should a public market  develop for such stock.  Such
sales also might impede future financing by the Company. (See Part III, Item 11.
"Security Ownership of Certain Beneficial Owners and Management.")

         16. No Dividends. While payments of dividends on the Common Stock rests
with the  discretion of the Board of Directors,  there can be no assurance  that
dividends  can or will ever be paid.  Payment of dividends is  contingent  upon,
among other things,  future earnings, if any, and the financial condition of the
Company,  capital  requirements,  general business  conditions and other factors
which cannot now be predicted.  It is highly unlikely that cash dividends on the
Common Stock will be paid by the Company in the foreseeable future.

         17. No Cumulative Voting. The election of directors and other questions
will be decided by a majority vote. Since cumulative voting is not permitted and
less than  one-half of the  Company's  outstanding  Common  Stock  constitute  a
quorum, investors who purchase shares of the Company's Common Stock may not have
the power to elect  even a single  director  and,  as a  practical  matter,  the
current management will continue to effectively control the Company.

         18. Control by Present  Shareholders.  The present  shareholders of the
Company's  Common Stock will, by virtue of their  percentage share ownership and
the lack of cumulative  voting,  be able to elect the entire Board of Directors,
establish the Company's policies and generally direct its affairs.  Accordingly,
persons  investing in the Company's Common Stock will have no significant  voice
in Company  management,  and cannot be assured of ever having  representation on
the Board of Directors.  (See Part III, Item 11. "Security  Ownership of Certain
Beneficial Owners and Management.")

         19. Potential  Anti-Takeover and Other Effects of Issuance of Preferred
Stock May Be Detrimental to Common  Shareholders.  Potential  Anti-Takeover  and
Other  Effects of  Issuance  of  Preferred  Stock May Be  Detrimental  to Common
Shareholders.  The Company is  authorized  to issue up to  10,000,000  shares of
preferred  stock.  $.0001 par value per share  (hereinafter  referred  to as the
"Preferred  Stock");  none of which  shares has been  issued.  The  issuance  of
Preferred Stock does not require  approval by the  shareholders of the Company's
Common Stock. The Board of Directors,  in its sole discretion,  has the power to
issue  shares of  Preferred  Stock in one or more  series and to  establish  the
dividend  rates  and  preferences,   liquidation  preferences,   voting  rights,
redemption and conversion terms and conditions and any other relative rights and
preferences with respect to any series of Preferred Stock.  Holders of Preferred
Stock  may  have  the  right  to  receive  dividends,   certain  preferences  in
liquidation and conversion and other rights; any of which rights and preferences
may operate to the detriment of the  shareholders of the Company's Common Stock.
Further, the issuance of any shares of Preferred Stock having rights superior to
those of the  Company's  Common  Stock may result in a decrease  in the value of
market price of the Common Stock  provided a market  exists,  and  additionally,
could be used by the Board of Directors as an anti-takeover measure or device to
prevent a change in control of the Company.

         20.     No Secondary Trading Exemption.  In the event a market develops
in the Company's shares,  of which there can be no assurance,  secondary trading
in the Common Stock will not be

23

<PAGE>



possible in each state until the shares of Common Stock are  qualified  for sale
under the applicable  securities laws of the state or the Company  verifies that
an  exemption,  such as listing in certain  recognized  securities  manuals,  is
available for secondary trading in the state. There can be no assurance that the
Company will be successful  in  registering  or qualifying  the Common Stock for
secondary  trading,  or availing itself of an exemption for secondary trading in
the Common Stock, in any state. If the Company fails to register or qualify,  or
obtain or verify an exemption for the secondary  trading of, the Common Stock in
any  particular  state,  the shares of Common Stock could not be offered or sold
to, or purchased  by, a resident of that state.  In the event that a significant
number of states  refuse to permit  secondary  trading in the  Company's  Common
Stock,  a public market for the Common Stock will fail to develop and the shares
could be deprived of any value.

         21. Possible Adverse Effect of Penny Stock  Regulations on Liquidity of
Common  Stock in any  Secondary  Market.  In the event a market  develops in the
Company's  shares,  of which  there  can be no  assurance,  then if a  secondary
trading market  develops in the shares of Common Stock of the Company,  of which
there can be no  assurance,  the Common  Stock is  expected  to come  within the
meaning of the term "penny  stock" under 17 CAR  240.3a51-1  because such shares
are issued by a small company; are low-priced (under five dollars);  and are not
traded on NASDAQ or on a national  stock  exchange.  The Securities and Exchange
Commission has  established  risk  disclosure  requirements  for  broker-dealers
participating in penny stock  transactions as part of a system of disclosure and
regulatory  oversight for the  operation of the penny stock  market.  Rule 15g-9
under the Securities Exchange Act of 1934, as amended, obligates a broker-dealer
to satisfy special sales practice requirements,  including a requirement that it
make an individualized  written  suitability  determination of the purchaser and
receive the purchaser's written consent prior to the transaction.  Further,  the
Securities  Enforcement  Remedies  and Penny Stock  Reform Act of 1990 require a
broker-  dealer,  prior  to a  transaction  in  a  penny  stock,  to  deliver  a
standardized  risk disclosure  instrument that provides  information about penny
stocks and the risks in the penny stock market. Additionally,  the customer must
be provided by the  broker-dealer  with current bid and offer quotations for the
penny stock,  the compensation of the  broker-dealer  and the salesperson in the
transaction  and monthly  account  statements  showing the market  value of each
penny stock held in the customer's account.  For so long as the Company's Common
Stock is considered penny stock, the penny stock  regulations can be expected to
have an adverse  effect on the  liquidity of the Common  Stock in the  secondary
market, if any, which develops.

Item 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


PART II


24

<PAGE>



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 29, 2000, 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 29, 2000 and 1999, the Company had no
income from operations and accumulated operating expenses of $18,200 and $13,891
respectively,  and losses from operations of $4,309 and $$13,891  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").



25

<PAGE>


         Dr.  Pierre Haouzi, 61 years old,  is a graduate of the Paris School of
Medicine,  specializing in Biology and is Licensed to practice general medicine.
He has a specialty in Sports Medicine and Traumatology and in 1979 was certified
by the Country of France.  Dr. Haouzi has testified numerous times in court as a
medical expert. He also holds a certification in Homeopathy and Accupuncture. In
June 1995 Dr. Haouzi resigned his position managing retirement homes and private
clinics.  In 1996 he assumed  the  position  of Medical  Director of Lasertec of
France's research and development of laser therapy for the specialized treatment
of cancer.  Dr. Pierre  Haouzi is associated  with all of the key leaders in the
medical industry specializing in Dermatology.  His networking power will connect
the Company with all the current  industry issues and procedures.  Dr. Haouzi is
developing  the sales of this medical laser  technology  for the Company for the
following, among other, reasons: (i) because of his belief that a public company
could  exploit his  talents,  services  and business  reputation  to  commercial
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 2001 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 fifteen
(15) months,  commencing approximately twelve(12) 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.


26

<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.

         Financial Condition, Capital Resources and Liquidity

         At February  29, 2000 and  February  28,  1999,  the Company had assets
totaling $36,900 and $43,832 and liabilities of $5,000 and $7,623 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.  (See Part I, Item 1.  "Description  of  Business";  See Part III, Item 11.
"Security  Ownership of Certain  Beneficial Owners and Management" and Part III,
Item 12. "Certain Relationships and Related Transactions.")

         The Company has no potential capital resources from any outside sources
at the current time. In its initial  phase,  the Company will operate out of the
facility  provided by Dr. Haouzi.  Dr. Haouzi will begin by finding  clients for
the Company and  instructing Mr. Hileman in the operation of medical laser sales
business.  To attract  clients,  Dr. Haouzi and Mr. Hileman will visit potential
clients in order to determine their needs. The Company will place advertising in
local area  newspapers  in Palm Beach  County to  directly  solicit  prospective
clients  and  to  brand-name  awareness.  In  the  event  the  Company  requires
additional  capital  during this phase,  Dr.  Haouzi has  committed  to fund the
operation until such time as additional capital is available.

         The 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
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

27

<PAGE>



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 2001 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 six(6)
months beyond its 2001 fiscal year end.

         Net Operating Losses

         The Company has net  operating  loss  carry-forwards  of $18,200,  with
$13,891 and $4,309 expiring in 2019 and 2020 respectively. The Company has as of
February  29,  2000  a  $3,600  deferred  tax  asset  resulting  from  the  loss
carry-forwards,  for which it has established a 100% valuation allowance.  Until
the Company's current operations begin to produce earnings, it unclear as to the
ability of the Company to utilize such carry-forwards.

         Year 2000 Compliance

         The Company has not  experienced  a material  impact as a result of the
YEAR 2000  event and does not  anticipate  that it will  experience  a  material
impact to the Company's  operations  or financial  condition in the future since
all of the  internal  software  developed  and  utilized by the Company has been
upgraded to support Year 2000 versions.

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

28

<PAGE>



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.

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.

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

29

<PAGE>



     Set  forth  below are the  names,  ages,  positions  with the  Company  and
business experiences of the executive officers and directors of the Company.

Name                         Age       Position(s) with Company
----                         --         ------------------
Dr. Pierre Haouzi (4)        62        President, Chief Executive Officer
                                       & Director

Mr. Barrett Alan Hileman(4)  21        Secretary & Treasurer

     (a)  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.

30

<PAGE>




         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.  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 29, 2000.


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  29,  2000,
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.

31

<PAGE>





                                          Amount
Name and Address of                       Beneficially          Percent of
Beneficial Owner                          Owned                 Class (1)
----------------                          ---------             --------
Dr. Pierre Haouzi          (1)(2)(3)      850,000               42.50%
222 Lakeview Avenue, Suite 113
West Palm Beach, Florida 3340

Barrett Alan Hileman (2)                  150,000                 7.5%
222 Lakeview Avenue, Suite 113
West Palm Beach, Florida 33401

All Executive Officers and Directors      1,000,000             50.00%
as a Group (two persons)
-------------------
(1)      Based upon  2,000,000  shares of the Company's  Common Stock issued and
         outstanding as of February 29, 2000.
(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.(See  Part I, Item 1.  "Description  of  Business - (b)  Business  of
Issuer.")

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

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.






33


<PAGE>


                          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






































                                       F-1

<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 29 and 28, 2000 and 1999 and the
related  statements of operations,  stockholders'  equity and cash flows for the
year ended  February  29,  2000 and the  period  from May 21,  1998  (Inception)
through February 28, 1999. These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our 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 29 and 28, 2000 and 1999,  and the  results of its  operations  and its
cash flows for the year ended February 29, 2000 and the period from May 21, 1998
(Inception)  through  February 28, 1999 in conformity  with  generally  accepted
accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 4 to the
financial  statements,  the Company has experienced a loss since inception.  The
Company's financial position and operating results raise substantial doubt about
its  ability to  continue as a going  concern.  Management's  plans in regard to
these  matters are also  described in Note 4. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.




                                                   /s/ Durland & Company
                                                   Durland & Company, CPAs, P.A.
Palm Beach, Florida
June 13, 2000





                                       F-2

<PAGE>


<TABLE>
<CAPTION>
                            Dermatology Systems, Inc.
                        (A Development Stage Enterprise)
                                 Balance Sheets
                               February 29 and 28,




                                                                  2000                 1999
                                                          --------------------  ------------------
<S>                                                       <C>                   <C>
                      ASSETS
CURRENT ASSETS
   Cash                                                   $             36,900  $           43,832
                                                          --------------------  ------------------

     Total current assets                                               36,900              43,832
                                                          --------------------  ------------------

Total Assets                                              $             36,900  $           43,832
                                                          ====================  ==================

        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accrued expenses                                       $              2,000  $            4,500
   Accrued expenses - related party                                      3,000               3,123
                                                          --------------------  ------------------

     Total current liabilities                                           5,000               7,623
                                                          --------------------  ------------------

Total Liabilities                                                        5,000               7,623
                                                          --------------------  ------------------

STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value, authorized
  10,000,000   shares, none issued                                           0                   0
Common stock, $0.0001 par value, authorized
  50,000,000  shares: 2,000,000 issued and outstanding                     200                 200
Additional paid-in capital                                              49,900              49,900
Deficit accumulated during the development stage                       (18,200)            (13,891)

                                                          --------------------  ------------------
Total Stockholders' Equity                                              31,900              36,209
                                                          --------------------  ------------------

Total Liabilities and Stockholders' Equity                $             36,900  $           43,832
                                                          ====================  ==================
</TABLE>







               The accompanying notes are an integral part of the
                             financial statements.


                                       F-3



<PAGE>


<TABLE>
<CAPTION>
                            Dermatology Systems, Inc.
                        (A Development Stage Enterprise)
                            Statements of Operations



                                                                                 Period from
                                                                                May 21, 1998             Period from
                                                                                 (Inception)             May 21, 1998
                                                            Year Ended             through               (Inception)
                                                           February 29,         February 28,               through
                                                               2000                 1999              February 29, 2000
                                                          ---------------    -------------------    ----------------------
<S>                                                       <C>                <C>                    <C>

Revenues                                                  $             0    $                 0    $                    0
                                                          ---------------    -------------------    ----------------------

Expenses
     General and administrative                                       635                  1,791                     2,426
     Consulting fees - related party                                    0                    100                       100
     Consulting fees                                                2,000                      0                     2,000
     Professional fees                                              1,674                  9,000                    10,674
     Professional fees - related party                                  0                  3,000                     3,000
                                                          ---------------    -------------------    ----------------------

Total expenses                                                      4,309                 13,891                    18,200
                                                          ---------------    -------------------    ----------------------

Net loss                                                  $        (4,309)   $           (13,891)   $              (18,200)
                                                          ===============    ===================    ======================

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

Weighted average number of shares                               2,000,000              1,952,590
                                                          ===============    ===================
</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
                                               ============ ========= ============ ================ ================
</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




                                                                                Period from
                                                                                May 21, 1998        Period from
                                                                                (Inception)        May 21, 1998
                                                               Year Ended         through           (Inception)
                                                              February 29,      February 28,          through
                                                                  2000              1999         February 29, 2000
                                                            ---------------- ------------------ -------------------
<S>                                                         <C>              <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                    $         (4,309)$          (13,891)$           (18,200)
Adjustments to reconcile net loss to net cash used by
operating activities:
       Stock issued for services - related party                           0                100                 100
Changes in operating assets and liabilities:
       Increase (decrease) in accrued expenses                        (2,500)             4,500               2,000
       Increase (decrease) in accrued expenses - related party          (123)             3,123               3,000
                                                            ---------------- ------------------ -------------------

Net cash used by operating activities                                 (6,932)            (6,168)            (13,100)
                                                            ---------------- ------------------ -------------------

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              50,000
                                                            ---------------- ------------------ -------------------

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

Net increase (decrease) in cash                                       (6,932)            43,832              36,900

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

CASH, end of period                                         $         36,900 $           43,832 $            36,900
                                                            ================ ================== ===================
</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
      TheCompany Dermatology  Systems,  Inc. is a Florida chartered  development
         stage corporation which conducts business from its headquarters in West
         Palm Beach,  Florida. The Company was incorporated on May 21, 1998, and
         has elected February 28 as its fiscal year end.

         The  Company  has not  yet  engaged  in its  expected  operations.  The
         Company's future  operations will be to provide certain  treatments for
         skin diseases. Current activities include raising additional equity and
         negotiating  with potential key personnel and  facilities.  There is no
         assurance  that any  benefit  will  result  from such  activities.  The
         Company will not receive any operating  revenues until the commencement
         of operations,  but will nevertheless  continue to incur expenses until
         then.

         The  financial   statements  have  been  prepared  in  conformity  with
         generally accepted  accounting  principles.  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  $18,200,  with  $13,891
         expiring in 2019, and $4,309, expiring in 2020.

         The amount  recorded as deferred  tax assets as of February 29, 2000 is
         approximately $3,600, 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  $18,200  accumulated  from May 21,  1998  (inception)
         through  February 29, 2000. 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
         29,  2000 are $3,000 and are  presented  in Accrued  expenses - related
         party.

                                       F-8

<PAGE>





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

Item No.               Exhibit
----------    ----------------------------------------------------
3(i).1        Articles of Incorporation of DSI filed May 22, 1998
              (Electronically filed with originial 10SB on July 2, 1999)(1)

3(ii).1       Bylaws of DSI (Electronically filed with originial 10SB on
              July 2, 1999)(1)

27.1      *   Financial Data Schedule
-------------------------------------------------
*    Included Herein
(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  29,  2000,  covered by this
                  Annual Report on Form 10-KSB.










34

<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: June 14, 2000                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
     ----                     ---------                   -----

June 14, 2000          By:/s/ Dr.  Pierre Haouzi
                          -----------------------         President
                            Dr. Pierre Haouzi             and Director

June 14, 2000          By:/s/ Barrett Alan Hileman
                          ------------------------
                           Barrett Alan Hileman           Director