U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

þ Quarterly Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934

For the quarterly period ended March 31, 2010

¨ Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______.

Commission File No. 000-53680

DIVINE SKIN, INC.

(Name of Small Business Issuer in Its Charter)

Florida		20-8380461
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1680 Meridian Avenue, Suite 301, Miami Beach, Florida		33139
(Address of Principal Executive Offices)		(Zip Code)

(888) 404-7770

(Issuer’s Telephone Number, Including Area Code)

_______________________________________________________

(Former Name, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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  þ  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non- accelerated filer	¨	Smaller Reporting Company	þ
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨  No þ

There were 91,123,001 shares of common stock outstanding as of May 1, 2010.

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PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Divine Skin, Inc. (dba DS Laboratories)

Consolidated Balance Sheets

		March 31, 2010			December 31, 2009
ASSETS
Current Assets
Cash		$	202,987		$	259,449
Accounts receivable			591,516			689,484
Inventory			969,624			718,108
Prepaid expenses and other current assets			7,894			8,054
Total Current Assets			1,772,021			1,675,095
Furniture and Equipment, net			27,244			30,038
Other Assets			728,583			739,290
TOTAL ASSETS		$	2,527,848		$	2,444,423
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses		$	809,813		$	1,061,422
Other current liabilities			25,312			13,394
TOTAL LIABILITIES			835,125			1,074,816
COMMITMENTS AND CONTINGENCIES
Shareholder's Equity
Preferred stock, $0.001 par value, 30 million shares authorized: 10 million shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively			10,000			10,000
Common stock, $0.001 par value, 300 million shares authorized: 91,123,001 and 89,986,001 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively			91,123			89,986
Additional paid-in-capital			1,955,630			1,660,841
Accumulated deficit			(364,030	)		(391,220	)
Total Shareholders' Equity			1,692,723			1,369,607
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	2,527,848		$	2,444,423

See accompanying notes to consolidated financial statements

1

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Divine Skin, Inc. (dba DS Laboratories)

Consolidated Statements of Operations

		Three Months Ended March 31,
		2010			2009
Revenue:
Product sales		$	1,077,947		$	1,026,082
Less returns and allowances			(82,874	)		(15,298	)
Net revenue			995,073			1,010,784
Cost of Goods Sold			332,979			187,245
Gross Profit			662,094			823,539
Operating Costs and Expenses:
Selling and marketing			234,542			230,191
General and administrative			448,026			368,260
Total operating costs and expenses			682,568			598,451
Other Income (Expense)
Interest income			—			56
Interest expense			—			(199	)
Other income			47,664			8,939
Total other income (expense)			47,664			8,795
Income Before Taxes			27,190			233,883
Income Tax Provison			—			89,460
Net Income		$	27,190		$	144,423
Basic Earnings per Share:
Weighted average shares			89,986,001			89,345,957
Earnings per share		$	0.000		$	0.002
Diluted Earnings per Share:
Weighted average shares			92,582,711			89,422,712
Earnings per share		$	0.000		$	0.002

See accompanying notes to consolidated financial statements

2

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Divine Skin, Inc. (dba DS Laboratories)

Consolidated Statements of Changes in Equity

For the Three Months Ended March 31, 2010 and the Year Ended December 31, 2009

		Preferred Stock						Common Stock						APIC			Stock Subscription			Accumulated Deficit			Total Shareholders' Equity
		Shares			Amount			Shares			Amount
December 31, 2008			—		$	—			10,000		$	10		$	566,368		$	149,222		$	(430,693	)	$	284,907
Capitalization of undistributed Subchapter S losses			—			—			—			—			(430,693	)		—			430,693			—
Stock dividend			—			—			99,990,000			99,990			(99,990	)		—			—			—
Share exchange for preferred stock			10,000,000			10,000			(10,000,000	)		(10,000	)		—			—			—			—
Subscriptions to purchase common stock			—			—			—			—			—			220,600			—			220,600
Less: Issuance costs			—			—			—			—			—			(66,180	)		—			(66,180	)
Shares Issued:
Sold to foreign investors under PPM									4,087,548			4,088			1,209,686			(433,774	)					780,000
Less: Issuance costs			—			—			—			—			(364,132	)		130,132			—			(234,000	)
To foreign investors to adjust PPM pricing									767,548			768			(768	)		—
For services									74,000			74			18,426			18,500
As gifts									13,000			13			(13	)		—
Sold to investors									28,000			28			6,972			7,000
Distribution agreement									3,000,000			3,000			747,000			750,000
Shares cancelled:
Repurchased and cancelled									(5,000,000	)		(5,000	)		5,000						(75,000	)		(75,000	)
Surrendered for gifts									(13,000	)		(13	)		13			—
Surrendered by principals									(2,969,095	)		(2,969	)		2,969			—
Surrendered by others									(2,000	)		(2	)		2			—
Net income and comprehensive income
2009 Net (Loss)			—			—			—			—			—			—			(316,220	)		(316,220	)
December 31, 2009			10,000,000			10,000			89,986,001			89,986			1,660,841			—			(391,220	)		1,369,607
Shares Issued:
Sold to private investors									1,112,000			1,112			198,888									200,000
Less: Issuance costs															(60,000	)								(60,000	)
For services									25,000			25			4,475									4,500
Warrants:
Vested for trading symbol services															16,000									16,000
Issued for financial consulting services															135,426									135,426
Net income and comprehensive income
2010 Net Income																					27,190			27,190
March 31, 2010			10,000,000		$	10,000			91,123,001		$	91,123		$	1,955,630		$	—		$	(364,030	)	$	1,692,723

See accompanying notes to consolidated financial statements

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Divine Skin, Inc. (dba DS Laboratories)

Consolidated Statements of Cash Flows

		Three Months Ended March 31,
		2010			2009
Cash Flows from Operating Activities:
Net Income		$	27,190		$	144,423
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization			21,544			3,918
Allowance for doubtful accounts			30,292			—
Stock issued for services			4,500			—
Warrants issued for capital raise			18,904			—
Warrants vested for services			16,000			—
Changes in operating assets and liabilities:
Accounts receivable			67,677			(46,684	)
Inventory			(251,517	)		(285,995	)
Prepaid expenses and other current assets			160			(1,678	)
Accounts payable and accrued expenses			(135,088	)		(16,054	)
Other current liabilities			11,919			86,531
Net cash (used in) operating activities			(188,419	)		(115,538	)
Cash Flows from Investing Activities:
Purchase of furniture and equipment			—			(6,561	)
Recovery (issuance) of advances			—			29,587
Security deposits			(8,043	)		(8,000	)
Net cash (used in) provided by investing activities			(8,043	)		15,026
Cash Flows from Financing Activities:
Proceeds from sale of stock subscription to investors			—			170,600
Less Issuance costs			—			(51,180	)
Proceeds from sale of stock to others			200,000			—
Less Issuance costs			(60,000	)
Net cash provided by financing activities			140,000			119,420
(Decrease) Increase in cash			(56,462	)		18,908
Cash, Beginning of Period			259,449			141,918
Cash, End of Period		$	202,987		$	160,826
Supplemental Information:
Cash paid for interest		$	—		$	42
Cash paid for taxes		$	—		$	—
Investing and Financing
Non-Cash Transactions:
Capitalization of undistributed subchapter S losses		$	—		$	430,693
Warrants for financial consulting services		$	135,426		$	—

See accompanying notes to consolidated financial statements

4

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. – ORGANIZATION AND NATURE OF BUSINESS

Terms and Definitions

AICPA

American Institute of Certified Public Accountants

ASC

Accounting Standards Codification

ASU

Accounting Standards Update

FASB

Financial Accounting Standards Board

FIFO

First-in, First-out

GAAP (US)

Generally Accepted Accounting Principles as applied in the United States

PPM

Private Placement Memorandum

SEC

Securities Exchange Commission

SFAS or FAS

Statement of Financial Accounting Standards

Q109

Three months ended March 31, 2009

Q110

Three months ended March 31, 2010

Organization and Nature of Business

Divine Skin, Inc. (the “Company”, “Divine Skin”, “DS Laboratories”, “we”, “us” or “our”) is a Florida company organized under the laws of the State of Florida in January 2007. Through its predecessors, including Divine Skin, Inc., (a New York company) the Company has been developing and marketing skin care and personal care products for over ten years. The Company has grown steadily over the last few years with a network of top specialty retailers across North America and distributors throughout Europe, Asia and South America. Divine Skin researches and develops its own products, which management believes keeps the Company at the forefront of innovation. Management believes the Company is currently a leading innovator of “Liposome Technology”, which acts as a carrier agent, and has been designed to enhance the action of active ingredients contained in pharmaceutical and cosmeceutical products. We currently offer skin care, aging, cellulite, hair loss and personal care products. The majority of these products are within the following product lines:

·

Skin Care

·

Aging

·

Cellulite

·

Hair Loss

·

Personal Care

History of the Company

In January 2007 the operations of Divine Skin, Inc. (a New York company), were terminated and its assets were distributed to its shareholders. Those assets and certain liabilities were used to capitalize Divine Skin, Inc. (a Florida corporation). The companies had common shareholders. The Company currently conducts business under the “Divine Skin” trade name and also under the “DS Laboratories” trade name.

Our shareholders also own DS Laboratories, Inc. (a Florida company), which was formed in January 2007 to secure the DS Laboratories trade name and was essentially idle through 2007 and 2008. We operated under the “DS Laboratories” trade name through the informal consent of the shareholders of DS Laboratories, Inc., who are also our shareholders. Because DS Laboratories, Inc. is a legally registered entity, we have not filed a fictitious name notification. DS Laboratories, Inc. (a New York Corporation) was closed in December 2006 and recapitalized as a Florida corporation in January 2007. Divine Skin, Inc. (a Florida corporation) has operated out of South Florida since its inception in 2007.

In January 2008 the Company engaged two consultants to assist it developing production operations in Brazil as a means to simplify the regulatory requirements surrounding importation of its product. Production operations in Brazil are not yet fully commercialized. All costs associated with exploring this production alternative have been expensed.

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In January 2009, the Company acquired 100% of the outstanding shares of DS Laboratories, Inc. (a Florida Corporation) for a nominal amount. DS Laboratories, Inc. (a Florida Corporation) was established in January 2007 for the purposes to holding the trade and brand name. The company recorded no transactions during the fiscal years 2007 and 2008. DS Laboratories, Inc. (a Florida Corporation) was a related but separate entity until the acquisition. Subsequent to the acquisition, DS Laboratories, Inc. (a Florida Corporation) operates as a wholly owned subsidiary of the Company.

In January 2009, the Company acquired 100% of the outstanding shares of Sigma Development and Holding Co., Inc. for a nominal amount. Sigma was founded as an upscale brand addition to the Company’s product portfolio. Sigma operated as a related but separate entity until the acquisition. Subsequent to the acquisition, Sigma operates as a wholly owned subsidiary of the Company.

In March 2009, Polaris Labs, Inc. was founded as a wholly owned subsidiary of the Company. Polaris was founded, to distribute Polaris branded versions of the Company’s products that, for marketing purposes, are sold through physicians and foreign distributors.

In Q1 2010, the Company filed an S-1 Selling Shareholder Registration Statement with the SEC which was declared effective by the SEC and obtained its trading symbol (DSKX) permitting the quotation of its shares of common stock on the Over the Counter Bulletin Board (OTCBB).

NOTE 2. – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The financial statements are prepared using the accrual basis of accounting where revenues and expenses are recognized in the period in which they were incurred. The basis of accounting conforms to accounting principles generally accepted in the United States of America.

Principles of Consolidation and Presentation

The consolidated financial statements include the accounts of Divine Skin, Inc. and its wholly owned operating subsidiaries DS Laboratories, Inc. (a Florida Corporation), Sigma Development and Holding Co., Inc. and Polaris Labs, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made in the 2008 results to conform to the presentation used in 2009.

Interim Financial Statements

The interim financial statements presented herein have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The interim financial statements should be read in conjunction with the Company’s annual financial statements, notes and accounting policies included in the Company’s Annual Report. In the opinion of management, all adjustments which are necessary to provide a fair presentation of financial position as of March 31, 2010 and the related operating results and cash flows for the interim period presented have been made. All adjustments are of a normal recurring nature. The results of operations, for the period presented are not necessarily indicative of the results to be expected for the year ended December 31, 2010.

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial -statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

Risks and Uncertainties

The Company’s business could be impacted by price pressure on its product manufacturing, acceptance of its products in the market place, new competitors, changes in federal and/or state legislation and other factors. Adverse changes in these areas could negatively impact the Company’s financial position, results of operations and cash flows.

Cash and Cash Equivalents

We maintain our cash in bank deposit accounts that are federally insured. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At March 31, 2010 and December 31, 2009 cash and cash equivalents included cash on hand and cash in the bank.

Accounts Receivable

Accounts receivable are reported at net realizable value. The Company establishes an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At March 31, 2010 and December 31, 2009 the provision for doubtful accounts was $34,214 and $25,000, respectively.

Inventory

Inventory is reported at the lower end of cost or market on the first-in, first-out (FIFO) method. Our inventory is subject to expiration and obsolescence, accordingly quantities purchased and sell through rates are periodically monitored for potential overstocking or pending expiration as a basis for establishing the appropriate reserve for any estimated expiration or obsolescence.

Furniture and Equipment

Furniture and equipment are recorded at cost and depreciation is provided using the 200% declining balance method over the estimated useful lives of the assets, which range from 5 to 7 years. Expenditures for repairs and maintenance of equipment are charged to expense as incurred. Major replacements and betterments are capitalized and depreciated over the remaining useful lives of the assets.

Furniture and equipment is reviewed whenever events or changes in circumstances occur that indicate possible impairment in accordance with ASC Topic 360, “Accounting for Impairment or Disposal of Long-Lived Assets”.

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition

The Company’s product revenues represent primarily sales of Revita and Spectral DNC, which together represent 62.2% of total sales and Oligo DX, Spectral DNC-L and Spectral RS, which together account for another 25.7% of total sales. Revenue is recognized when a product is shipped. The Company manages the collection process for transactions processed on its website, but it outsources its fulfillment (delivery) process to third parties.

The Company’s revenue recognition policies are in compliance with ASC Topic 605, “Revenue Recognition”, which establishes criteria that must be satisfied before revenue is realized or realizable and earned. The Company recognizes revenue when all of the following four criteria are met:

·

persuasive evidence of a sales arrangement exists,

·

delivery has occurred,

·

the sales price is fixed or determinable and

·

Collectability is probable.

Shipping and handling charges related to sales transactions are recorded as sales revenues when billed to customers or included in the sales price in accordance with ASC Topic 605, “Accounting for Shipping and Handling Fees and Costs”. Shipping and handling costs are included in cost of revenue.

The Company accepts product returns and will issue a credit, refund or product exchange. To date, product returns have occurred but are not considered material. The Company has not established a product return reserve.

Research and Development

The Company does not engage in research and development as defined in ASC Topic 730, “Accounting for Research and Development Costs.” However, the Company does incur formulation costs that include salaries, materials and consultant fees. These costs are classified as product development, selling, general and administrative expenses in the statements of operations.

Income Taxes

In January 2007, the Company elected to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code (sections 1361 through 1379), wherein all earnings and losses of the Company are passed through to its shareholders and become taxable income or loss to them as individuals.

In January 2009, when the Company accepted the subscription for common shares from a foreign investor, the Company no longer qualified for its Subchapter S election.

The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

Earnings per share

The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, “Earnings per Share”. Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Segment Information

ASC Topic 280, “Disclosures about Segments of an Enterprise and Related Information,” established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to stockholders. The Company operates in one segment for management reporting purposes.

NOTE 3. – RECENT ACCOUNTING UPDATES

Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.

Consolidations: In June 2009, the FASB amended its accounting guidance on the consolidation of variable interest entities (“VIE”). Among other things, the new guidance requires a qualitative rather than a quantitative assessment to determine the primary beneficiary of a VIE based on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. In addition, the amended guidance requires an ongoing reconsideration of the primary beneficiary. The provisions of this new guidance were effective as of the beginning of our 2010 fiscal year, and the adoption did not have a material impact on our financial statements.

Revenue Recognition: In October 2009, the FASB issued updated guidance on multiple-deliverable revenue arrangements. Specifically, the guidance amends the existing criteria for separating consideration received in multiple-deliverable arrangements, eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The guidance also establishes a hierarchy for determining the selling price of a deliverable, which is based on vendor-specific objective evidence; third-party evidence; or management estimates. Expanded disclosures related to multiple-deliverable revenue arrangements will also be required. The new guidance is effective for revenue arrangements entered into or materially modified on and after January 1, 2011. The Company does not expect the application of this new standard to have a significant impact on its consolidated financial statements.

Consolidations: In December 2009, the FASB issued ASU No. 2009-17 (formerly Statement No. 167), “Consolidations (Topic 810) – Improvements to Financial Reporting for Enterprises involved with Variable Interest Entities”. ASU 2009-17 amends the consolidation guidance applicable to variable interest entities. The amendments to the consolidation guidance affect all entities, as well as qualifying special-purpose entities (“QSPEs”) that are currently excluded from previous consolidation guidance. ASU 2009-17 was effective as of the beginning of the first annual reporting period that begins after November 15, 2009. ASU 2009-17 did not have an impact on our financial condition, results of operations, or disclosures.

Accounting for Transfers of Financial Assets: In December 2009, the FASB issued ASU No. 2009-16 (formerly Statement No. 166), “Transfers and Servicing (Topic 860) – Accounting for Transfers of Financial Assets”. ASU 2009-16 amends the derecognition accounting and disclosure guidance. ASU 2009-16 eliminates the exemption from consolidation for QSPEs and also requires a transferor to evaluate all existing QSPEs to determine whether they must be consolidated. ASU 2009-16 was effective as of the beginning of the first annual reporting period that begins after November 15, 2009. ASU 2009-16 did not have an impact on our financial condition, results of operations, or disclosures.

9

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. – RECENT ACCOUNTING UPDATES (Continued)

Fair Value Measurements: In January 2010, the FASB issued ASU 2010-06 which is intended to improve disclosures about fair value measurements. The guidance requires entities to disclose significant transfers in and out of fair value hierarchy levels, the reasons for the transfers and to present information about purchases, sales, issuances and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3). Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3). The Company has applied the new disclosure requirements as of January 1, 2010, except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be effective for interim and annual periods beginning after December 15, 2010. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

Subsequent Events: In February 2010, the FASB issued ASU 2010-09 which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s consolidated financial statements.

Other ASUs not effective until after March 31, 2010, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

NOTE 4. – INVENTORY

Significant components of inventory at March 31, 2010 and December 31, 2009 consist primarily of:

		2010			2009
Bulk product and raw materials		$	457,384		$	267,267
Merchandise inventory			250,908			310,970
Inventory in transit			261,332			139,871
		$	969,624		$	718,108

Bulk product and raw materials – Bulk product consists of completed product formulations that have not yet been packaged in market ready packaging. Raw materials consist of bulk quantities of the various chemical components of product formulations.

Merchandise inventory – Merchandise inventory consists of completed formulations in market ready packaging. Our formulations are batch controlled and subject to various government regulations which, among other things, govern the purity and safety of our product and in some cases limit the concentration of certain ingredients, which would restrict the distribution of these products to medical professionals.

Inventory in transit – In transit inventory consists of primarily bulk product and raw materials where title has transferred to the Company but the inventory has yet to arrive in a designated warehouse facility either company owned or under contract.

Management evaluated the inventory at March 31, 2010 and December 31, 2009 and any obsolete inventory was excluded from our reported inventory value, accordingly no allowance for obsolescence was necessary.

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. – OTHER ASSETS

Significant components of other assets at March 31, 2010 and December 31, 2009 consist primarily of:

		2010			2009
Distribution rights		$	750,000		$	750,000
Less amortization of distribution rights			(37,500	)		(18,750	)
Net distribution rights			712,500			731,250
Security deposits			16,043			8,000
Other deposits			40			40
		$	728,583		$	739,290

Distribution rights – The Company issued 3,000,000 shares of common stock in exchange for a 10 year exclusive distribution agreement in Brazil. The transaction is valued at the private placement price of $0.25 per share. The Company is currently developing a generic Minoxodil product along with appropriate packaging for the Brazilian market, which is planned for introduction in the three months ended March 31, 2010.

The Company will amortize its distribution rights over the next 10 year as follows:

		2010			2011			2012			2013			Beyond			Total
Distribution Rights:
Brazil (exclusive)		$	56,250		$	75,000		$	75,000		$	75,000		$	431,250		$	712,500
		$	56,250		$	75,000		$	75,000		$	75,000		$	431,250		$	712,500

Security deposits – Security deposits represent funds advanced for our office and production facilities.

NOTE 6. – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Significant components of accounts payable and accrued expenses at March 31, 2010 and December 31, 2009 consist primarily of:

		2010			2009
Trade payables		$	344,967		$	394,358
Advances to vendors			--			24,345
Accrued expenses and claims:
Advertising and marketing			350,916			364,566
Production materials			60,425			38,460
Freight			24,349			24,349
Human resources			12,684			12,684
Warrant expense			--			116,522
Credits due to customers			16,472			2,421
Other			--			83,717
		$	809,813		$	1,061,422

11

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. – ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Continued)

Warrant expense – As discussed more fully in Note 8, the Company has issued warrants to a selling agent to purchase one share of Common Stock of the Company for every ten Shares sold under the Regulation S offerings. The Company has accrued the intrinsic value of the warrants granted. To date no warrants have been exercised.

Accrued expenses and claims – As discussed more fully in Note 7, the Company has responded to several claims from suppliers, primarily advertisers and media suppliers, alleging unpaid balances on services or materials provided. The Company has responded in many cases that the services or materials did not fully comply with required specifications or supplier commitments. In all cases, the Company has shifted its purchasing to more compatible suppliers. The Company has accrued the estimated settlement value of the claim based on an evaluation of the individual circumstances of each matter.

NOTE 7. – COMMITMENTS AND CONTINGENCIES

During Q110 and 2009, the Company operated under several material agreements as listed below:

Lease for office facilities –

·

The Company leases its corporate headquarters office space located in Miami Beach, Florida. Monthly lease payments are $6,500 per month or $78,000 on an annual basis. The Company is currently in negotiation with its current landlord to extend the lease. Pending completion of the negotiation, the Company leases its Miami Beach facilities on a month to month basis at existing rates.

·

In March 2009, the Company leased a 3,500 square foot facility in Pompano Beach, Florida as its production facility to assemble small production runs of its products.  The lease provides for monthly rent of $2,600 and terminates in March 2011. The Company is currently in negotiations to terminate the lease.

·

In March of 2010, the Company entered into a lease for 7,500 square feet in new production facilities in Deerfield Beach, Florida. The new facility replaced its Pompano Beach production facilities and began operations in April 2010. The lease provides for monthly rentals of $3,437 in monthly rent in the first year with and increasing scale for years 2 – 5. The lease matures in 5 years and provides for a 5 year renewal option.

The Company is committed to lease payments over the next five years are as follows:

		2010			2011			2012			2013			Beyond			Total
Facility Leases:
Pompano Beach (Production)		$	25,589		$	13,957		$	—		$	—		$	—		$	39,546
Deerfield Beach (Production)			24,063			42,213			43,901			45,657			47,483			203,317
		$	49,652		$	56,170		$	43,901		$	45,657		$	47,483		$	242,863

12

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. – COMMITMENTS AND CONTINGENCIES (Continued)

Pending and threatened litigation –

·

Divine Skin, Inc. has received several threatened litigations from various suppliers typically over non-payment for goods or services. The threatened litigations are generally directed at DS Laboratories, Inc. being one of the operating trade names of Divine Skin. Such vendor disputes are typical in the normal course of business. Divine Skin is vigorously challenging these claims on the grounds of the substandard materials or services provided. However, we established an accrual for certain media, materials and freight supplier claims of $448,374 and $440,059 at March 31, 2010 and December 31, 2009, respectively.

The Company has been working to resolve these claims and has negotiated settlements with several suppliers resulting in the reduction of the supplier claim recorded and repayment through a structured payout. As discussed above, accruals have been provided, when the facts of each claim, warrants it.

·

Divine Skin Inc. has been named in a lawsuit brought by a former employee of 301 Model, an entity also related to Divine Skin, Inc. through common ownership. Divine Skin was named because it originally hired the employee rather than 301 Model as the latter was not yet an established entity. Our management is vigorously defending our position that the employee was terminated after two weeks for cause and that the employee subsequently violated their non-compete agreement. Accordingly, we do not anticipate that any material assessment or settlement will result from the lawsuit.

NOTE 8. – EQUITY

Recapitalization

In January 2009, Divine Skin authorized an amendment and restatement to its articles of incorporation to provide, among other things, (a) that the authorized common stock be increased to 300,000,000 shares and (b) that up to 30,000,000 shares of “blank check” preferred stock are authorized. Immediately thereafter, the Company declared a stock dividend of 10,000 shares for one share. Subsequent to the stock dividend, there were 100,000,000 shares of common stock outstanding.

Private Placement Memorandum

During the first quarter of 2009, the Company began selling its common stock at a purchase price of $0.50 per share, to qualified investors. The offering is being conducted on a “best efforts” basis with respect to all shares. The offering also provides that the Company shall pay the selling agents the following fees and commissions: 15% sales commission, a 5% due diligence fee and payment of expenses of up to 10% of the gross proceeds.

The PPM offering was made solely to “non U.S. Persons” within the meaning of Rule 902 of Regulation S under the Securities Act of 1933. These securities have not been registered with or approved by the SEC or any state securities commission nor has any commission or state authority passed on the accuracy or adequacy of this memorandum.

During the third quarter of 2009, the offering was retroactively re-priced to $0.25 per share and a total of 767,548 additional shares were issued, at no additional cost, to investors that had previously paid $0.50 per share, to achieve that re-pricing.

13

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. – EQUITY (Continued)

The following table summarizes transactions under the private placement offering as follows:

Common Stock Sold Under PPM
		Common Shares			Price			Gross Proceeds			Issuance Costs			Net Proceeds
Period
2008			426,348		$	0.50		$	213,174		$	(63,952	)	$	149,222
Q1 2009			341,200		$	0.50			170,600			(51,180	)		119,420
Q2 2009			—		$	—			—			—			—
Q3 2009			4,087,548		$	0.20			830,000			(249,000	)		581,000
Q4 2009			28,000		$	0.25			7,000			—			7,000
			4,883,096		$	0.25		$	1,220,774		$	(364,132	)	$	856,642

The Company received and accepted funded subscriptions to purchase 4,883,096 common shares, under the offering referred to above. The Company received $856,642 in net proceeds after issuance costs of $364,132. The accepted funded subscriptions are recorded as a component of the Company’s equity pending issuance of common shares. Once the common shares have been issued, the amounts previously recorded as funded subscriptions are transferred to common stock par value and additional paid in capital, accordingly.

As of March 31, 2010 the PPM expired and all share certificates for all paid subscriptions have been issued.

Warrants

The Company has issued warrants to the selling agent to purchase one share of Common Stock of the Company for every ten Shares sold under the PPM offering. The exercise price of each warrant is $0.01 per share and such warrants are exercisable for a period of five years from the date of issuance. Based on the PPM’s “repriced” sale price of $0.25 per share, the warrants are “in the money” upon issuance. For the year ended December 31, 2009 the Company accrued $116,522 for financial consulting services, based on the value of the warrants granted.

During Q110, the selling agent assisted in a private sale of the Company’s common shares under Regulation S that the Company agreed to grant the selling agent additional warrants under the same terms offered under the PPM offering. Accordingly, the Company accrued an additional expense for financial consulting services, based on the value of the warrants of $18,904.  To date, no warrants have been exercised. Effective March 31, 2010 the warrant liability of $135,426 was transferred to additional paid in capital.

				Shares				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value
Outstanding at January 1, 2010					485,510			$	0.01				4.0			$	116,522
Issued					2,111,200			$	0.01				5.0				498,904
Exercised					--			$	--
Forfeited					--			$	--
Outstanding at March 31, 2010					2,596,710			$	0.01				4.8			$	615,426
Exercisable at March 31, 2010					596,710			$	0.01				4.1			$	135,426

14

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8. – EQUITY (Continued)

Option

The selling agent engaged by the Company has also entered into a Consulting Agreement under which he will assisted the Company in filing a registration statement on Form 10 and quotation of its shares on the Over the Counter Bulletin Board (OTCBB). The Company has issued an option to the selling agent to purchase 2,000,000 share of common stock at an exercise price of $0.01 per share. At grant date, the option was valued based on the offering price of the PPM of $0.25 per share, which was $480,000. The option expires in five years. The option vests and is exercisable subject to certain lock up and leak out provisions which commence upon the effective date of the Company obtaining OTCBB listing. Leak out provisions limit exercisability of the option number to 200,000 shares per quarter. During the first quarter of 2010, the Company obtained its trading symbol and accordingly recorded an expense for consulting services of $16,000 reflecting the structured vesting.

Common Stock

During the third quarter of 2009, the Company issued 74,000 common shares to consultants and professional advisors for services. The shares were valued at $0.25 per share, consistent with the revised offering price of the PPM. The Company also issued 13,000 shares to certain “friends and family” of the company in acknowledgement of their assistance in starting the Company. These shares were offered at no cost and the Company has not assigned any value to the transactions.

During the fourth quarter of 2009, the Company issued 3,000,000 shares for the exclusive distribution rights in Brazil. The shares were valued at $0.25 per share, consistent with the revised offering price of the PPM. In addition, the Company issued 28,000 to certain investors, which it also valued at $0.25 per share, consistent with the revised offering price of the PPM.

Also during the fourth quarter of 2009, the Company repurchased and 5,000,000 shares from a founder of the Company for $0.015 or $75,000 as part of its effort to restructure the Company’s equity ownership. As part of this restructuring effort, the founders of the Company also surrendered 2,982,095 shares at a nominal value.

During the first quarter of 2010, the Company issued 1,112,000 shares to two investors in a private sale. The shares were priced at $0.18 per share. The Company received $140,000 in net proceeds after issuance costs of $60,000. In addition, the Company issued 25,000 shares for services, which it also valued at $0.18 per share, which resulted in recording an expense of $4,500.

Preferred Stock

Following the stock dividend, the three shareholders of the Company (which at such time constituted all of the shareholders of the Company) exchanged an aggregate of 10,000,000 shares of common stock for 10,000,000 shares of Series A Preferred Stock. As provided under Certificate of Designation for Series A Preferred Stock dated January 14, 2009, but filed in April 2009 and amended in September 2009, each share of Series A Preferred Stock is entitled to 2 votes per share and the Series A Preferred Stock votes together with the Company’s common stock, except as otherwise provided under Florida law.

15

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. – INCOME TAXES

In January 2007, the Company elected to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code (sections 1361 through 1379), wherein all earnings and losses of the Company are passed through to its shareholders and become taxable income or loss to them as individuals.

In January 2009, when the Company accepted the subscription for common shares from a foreign investor, the Company no longer qualified for its Subchapter S election.

The provision for income taxes for the three months ended March 31, 2010 and 2009 is summarized as follows:

		2010			2009
Current:
Federal		$	—		$	81,859
State			—			7,601
Deferred:
Federal			(9,517	)		—
State			(884	)		—
Increase (Decrease) in valuation allowance			10,401			—
Total provision (benefit) for income taxes		$	—		$	89,460

The provision for income taxes for the three months ended March 31, 2010 was offset by available net operating loss carry-forwards.

The provision for income taxes for the three months ended March 31, 2010 and 2009 differs from the amount computed by applying the federal statutory rate to income (loss) before provision (benefit) for income taxes as follows:

		2010			2009
Expected provision(benefit) at statutory rate			35.0%			35.0%
State taxes			3.3%			3.3%
Valuation allowance for Net Loss			-38.3%
Total provision (benefit) for income taxes			0.0%			0.0%

Deferred income taxes reflect the net tax effect of tax carry forward items and the temporary differences between the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax assets and liabilities at March 31, 2010 and December 31, 2009 are as follows:

		2010			2009
Deferred tax assets:
Net operating loss carry-forwards		$	110,553		$	120,954
			—			—
Total deferred tax assets			110,553			120,954
Valuation allowance			(110,553	)		(120,954	)
Net deferred tax assets		$	—		$	—

16

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. – INCOME TAXES (Continued)

As of March 31, 2010 and December 31, 2009 the Company had a valuation allowance on its deferred tax assets of $110,553 and $120,954, which relates to net operating losses. The pro forma valuation allowance decreased $10,401 in the three months ended March 31, 2009. The decrease in Q110 was attributable to accumulated net operating losses being offset by net income reported in three months ended March 31, 2010.

As of March 31 2010 and December 31, 2009, the Company had net operating loss carry-forwards of $289,030 and $316,220, respectively. Unused net operating loss carry-forwards will expire at various dates beginning 2027.

As of March 31, 2010 and 2009, the Company had no unrecognized tax benefit and accordingly no related accrued interest or penalties. The Company is not under examination by either the US Federal or State of Florida tax authorities.

NOTE 10. – 2009 EQUITY INCENTIVE PLAN

Overview – The Company initiated a 2009 Equity Incentive Plan (the "Plan") to:

1.

attract and retain the best available personnel for positions of substantial responsibility,

2.

provide additional incentives to Employees, Directors and Consultants, and

3.

promote the success of the Company and the Company's Affiliates.

Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights, time vested and/or performance vested Restricted Stock, Stock Appreciation Rights and Unrestricted Shares may also be granted under the Plan.

Subject to the Plan – The initial maximum number of shares of Common Stock that may be issued under the Plan is 5,000,000 shares. No more than 100,000 Shares of Common Stock may be granted to any one Participant with respect to Options, Stock Purchase Rights and Stock Appreciation Rights during any one calendar year period. Common Stock to be issued under the Plan may be either, authorized and unissued shares or shares held in treasury.

Eligibility – Nonstatutory Stock Options, Stock Purchase Rights, Stock Awards, Stock Appreciation Rights and Unrestricted Shares may be granted to all Service Providers. Incentive Stock Options may be granted only to Employees.

Limitations – Each Option shall be designated as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, if an Employee becomes eligible in any given year to exercise Incentive Stock Options for Shares having a Fair Market Value in excess of $100,000, those Options representing the excess shall be treated as Nonstatutory Stock Options.

Term – The term of each Option shall be stated in the applicable Option Agreement or, if not stated, ten years from the date of grant. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns, directly or indirectly, stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company and any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the applicable Option Agreement.

Exercise and Vesting – Unless otherwise determined by the Administrator and provided for in the Option Agreement, each Option shall vest and become exercisable as to one-sixth (1/6) of the Shares subject to the Option on the date that is nine months after the date of grant, and an additional one-sixth (1/6) of the Shares subject to the Option every nine months thereafter until fully vested and exercisable.

17

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DIVINE SKIN, INC.

(dba DS LABORATORIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. - SIGNIFICANT CUSTOMERS

During Q110 two customers generated 34.7% of the Company’s sales and a substantial portion of the outstanding accounts receivable balance at March 31, 2010. These customers are distributors of the Company.

Sales to these customers during Q110 and their accounts receivable at March 31, 2010 were:

Customer		Sales Amount		Percent		Accounts Receivable		Percent
A		$235,239		23.4%		$179,427		30.3%
B		$113,728		11.3%		$           0		0%

Sales to these customers during Q110 and their accounts receivable at March 31, 2009 were:

Customer		Sales Amount		Percent		Accounts Receivable		Percent
A		$311,758		30.8%		$165,122		32.9%
B		$214,468		21.2%		$  60,792		12.1%

NOTE 12. – SUBSEQUENT EVENTS

In accordance with the guidance offered in ASC Topic 855, formerly SFAS 165 – “Subsequent Events”, the Company has evaluated its activities from March 31, 2010 through May 13, 2010, the date the financial statements were issued, and determined that there were no reportable subsequent events.

18

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introductory Statements

Information included or incorporated by reference in this filing may contain forward -looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

This filing contains forward-looking statements, including statements regarding, among other things, (a) our projected sales and profitability, (b) our Company’s growth strategies, (c) our Company’s future financing plans and (d) our Company’s anticipated needs for working capital. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the matters described in this filing generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur.

Overview

Divine Skin, Inc. is a Florida corporation organized on January 26, 2007. Divine Skin, Inc. and its subsidiaries (collectively, the “Company” or “Divine Skin”) develop products for skin care and personal care needs. Through its predecessors, including Divine Skin, Inc. (a New York company), the Company has been developing and marketing skin care and personal care products for over ten years. In January 2007 the operations of Divine Skin, Inc. (a New York company), were terminated and its assets were distributed to its shareholders. Those assets and certain liabilities were used to capitalize Divine Skin, Inc. (a Florida corporation). The companies had common shareholders. The Company currently conducts business under the “Divine Skin” trade name and also under the “DS Laboratories” trade name.

Our shareholders also owned DS Laboratories, Inc. (a Florida company), which was formed in January 2007 to secure the DS Laboratories trade name and was essentially idle through 2007 and 2008. The issued and outstanding shares of DS Laboratories, Inc. (a Florida company) were transferred to the Company for nominal consideration. We operated under the “DS Laboratories” trade name through the informal consent of the shareholders of DS Laboratories, Inc., who are also our shareholders. Because DS Laboratories, Inc. is a legally registered entity, we have not filed a fictitious name notification. DS Laboratories, Inc. (a New York Corporation) was closed in December 2006 and recapitalized as a Florida corporation in January 2007. Divine Skin, Inc. (a Florida corporation) has operated out of South Florida since its inception in 2007.

In January 2009, the Company acquired 100% of the outstanding shares of Sigma Development and Holding Co., Inc. for a nominal amount. Sigma was founded by our Vice President’s father. Sigma was founded as an upscale brand addition to the Company’s product portfolio. Sigma operated as a related but separate entity until the acquisition. Subsequent to the acquisition, Sigma operates as a wholly owned subsidiary of the Company. We currently distribute hair growth products, facial moisturizers and anti-aging facial cleansers through Sigma. In March 2009, Polaris Labs, Inc. was founded as a wholly owned subsidiary of the Company. Polaris was founded for marketing purposes to distribute Polaris branded versions of the Company’s products through physicians and foreign distributors. We currently distribute hair care products through Polaris.

The Company has grown steadily since inception with a network of specialty retailers across North America and distributors throughout Europe, Asia and South America. Divine Skin researches and formulates its own products. We currently offer skin care, personal care and hair care products.

We formulate, market and sell these products through specialty retailers, spas, salons and other distributors. Our products are produced through various third party manufacturers on an order by order basis.

19

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Results of Operations for the Three Months Ended March 31, 2010 (Q110), As Compared To the Three Months Ended March 31, 2009 (Q109)

Revenues - Total revenues decreased $15,711 or 1.6%, to $995,073 (Q110) from $1,010,784 (Q109). The Company’s product revenues represent primarily sales of Revita and Spectral DNC, which together represent 62.2% of total sales and Oligo DX, Spectral DNC-L and Spectral RS, which together account for another 25.7% of total sales.

Revenues decreased as a result of $67,575 of additional sales discounts and allowances the Company granted during Q110 in response to overall economic issues. The Company conducts a significant portion of business with two distributors, Cellway International, Inc. and WR Group, Inc., which total approximately 11.3% and 23.4% of Q110 revenues, respectively.

Cost of Goods Sold - Total cost of goods sold increased $145,734 or 77.8%, to $332,979 (Q110) from $187,245 (Q109). The increase is attributable to two primary factors. First, due to overall economic issues the Company incurred increased discounts and allowances on its sales. Second, because of unexpected personnel turnover in our production, warehousing and fulfillment functions we incurred certain inefficiencies and increased costs in these functions.

Selling and Marketing Costs - Selling and marketing costs increased $4,351 or 1.9%, to $234,542 (Q110) from $230,191 (Q109). The increase is primarily due to the following:

–

Increases in:

·

$7,597 for marketing and promotion costs, we increased our advertising in current markets; and

·

$51,739 for consulting services and sales commissions resulting from our efforts to reach additional markets, such as the amortization of our new Brazilian distribution agreement;

–

that were partially offset by decreases in:

·

$19,598 for warehousing expenses due to a reduction in outsourced distribution;

·

$9,193 for travel and entertainment cost cutting efforts;

·

$16,424 for call center operations, which were discontinued;

·

$6,701 for product development, as a result of redirecting resources from new products to new markets;

·

$4,148 for postage, resulting from changes in distribution operations; and

·

$1,079 for other selling and marketing costs, net.

General and Administrative Costs - General and administrative costs increased $79,766 or 21.7%, to $448,026 (Q110) from $368,260 (Q109). The increase is primarily due to the following:

–

Increases in:

·

$21,446 for professional fees for attorneys and accountants to draft and review various agreements and SEC filings and other public company costs,

·

$62,204 for personnel costs due to increased staffing and executive compensation; and

·

$17,626 for amortization primarily related to the financial services option;

–

and partially offset by a decrease in:

·

$8,137 for repairs and maintenance, which were partially curtailed;

·

$11,684 for credit card fees; and

20

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·

$1,689 for net other general and administrative expenses, including rent and utilities.

Other Income (Expense) - Other income (expense) increased $38,868 to $47,664 (Q110) from $8,795 (Q109). The increase was primarily a result of net settlements of various supplier related claims and litigations for less than the original claim, net of various other nominal expenses which individually are not significant.

Net Income (Loss) – As a result of the various fluctuations discussed above, Net Income (Loss) decreased $117,234 or 81.2% to $27,190 net income (Q110) from $144,423 net income (Q109).

Liquidity and Capital Resources

We had working capital of $936,896 at March 31, 2010. Our operating and capital requirements in connection with supporting our expanding operations and introducing new products have been and will continue to be significant to us. Our losses from 2008 and 2009 operations along with the increased costs and working capital required to grow our business were satisfied through the initial contribution by our founders in 2007 and through the sale of common shares under private placements which we began in early 2009.

Based on our current plans for the next 12 months, we anticipate that additional revenues earned from our expanded product line and broadened distribution channels will be the primary organic source of funds for future operating activities in 2010. To fund continued expansion of our product line and extend our reach to broader markets, including foreign markets, we may rely on bank borrowing, if available, and the private placement of securities.

During the three months ended March 31, 2010, the Company accepted $200,000 from two foreign investors to subscribe for an aggregate of 1,112,000 shares of our common shares under a private offering pursuant to Regulation S under the Securities Act of 1933, as amended. The offering provided for issuance costs of 30% which amounted to $60,000 in relation to the offering. As a result, the Company netted $140,000 in proceeds from the subscription.

Financial Position

Total Assets - Our total assets increased $83,425 or3.4% to $2,527,848 as of March 31, 2010 from $2,444,423 as of December 31, 2009 primarily as a result of a net increase in current assets of $96,927; which was partially offset by a net decrease in furniture and equipment of $2,794, primarily associated with depreciation; and a net decrease in other assets of $10,707 primarily associated with amortizing our prepaid Brazilian distribution agreement.

Current Assets - The net increase in current assets was associated with a $251,609 increase in inventory levels, which was offset by a $97,968 decrease in accounts receivable, and a $56,462 decrease in cash.

Inventory - Inventory levels increased 35.0%, in part as a result of our change in production methodology to stock raw materials to support increased batch production runs from 5,000 units to 10,000 and 20,000 units in an effort to reduce production costs and to support the in- house formulation of our own finish product rather than continuing to rely solely on outsourced formulation production.

The increased inventory level on hand at March 31, 2010, represents approximately 72.8% of annualized COGS or an 8.7 month supply based on the annualized sell through rate achieved for the three months ended March 31, 2010. Management believes that the sales achieved in Q110 is consistent with its projections and will continue throughout fiscal year 2010. Management also understands that these inventory decisions result in an inventory turnover rate of 1.4 times. Management intends to improve this turnover rate in the future and its ultimate goal is to achieve at least a 3 times inventory turnover rate, once it has satisfactorily explored alternative production methodologies and established a profitable and sustainable production cost structure. Management has no projections as to when its inventory turnover rate goal may be achieved.

As part of its decision, management has considered the potential impairment costs and storage costs associated with slow turning inventory. Before embarking on these decisions management consulted its chemist and determined that most of its materials and components had a shelf life of 3-5 years. Even its active ingredients, whose normal shelf life is a relatively short 6 months, is stabilized and extended, when mixed into finished product. Accordingly, management has concluded that no impairment reserves are required at March 31, 2010.

21

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Accounts Receivable – Our accounts receivable at March 31, 2010 were $591,516. The decrease represents a14.2% decrease in the accounts receivable balance at December 31, 2009. The decrease is the result of the completion and collection of a large consulting contract initiated in Q409. Management believes that its current receivables are collectable and have adequately reserved those in doubt.

Cash – The increase in cash is explained more fully by the following discussion of cash flows.

Cash Flows for the Three months March 31, 2010

Cash Flows from Operating Activities

Operating activities used net cash for the three months ended March 31, 2010 of $188,419. Net cash used reflects adjusted net income for the period ended of approximately $118,430, as adjusted for various items which impact net income but do not impact cash during the period, such as depreciation and amortization. Net cash used also reflects $306,851 of cash used to support net changes in working capital items, which included:

·

a $67,677 decrease in accounts receivable as a result collection on a large consulting contract initiated in Q409 for design and branding services on behalf of two significant customers;

·

a $251,517 increase in inventory costs due to the increase in raw materials and bulk materials for current production;

·

a $135,088 decrease in accounts payable as a result of satisfying certain outstanding vendor balances, and

·

a $12,077 net increase in other current payables and decrease in other current receivables.

Cash Flows used in Investing Activities

Our investing activities used $8,043 in net cash during the three months ended March 31, 2010. Net cash used is primarily composed of additional deposits required on for new leased facilities.

Cash Flows from Financing Activities

Our financing activities provided net cash of approximately $140,000 for the three months ended March 31, 2010. We raised approximately $200,000 through subscriptions to purchase our common stock at $0.18 per share, net of $60,000 in issuance costs.

Recent Accounting Pronouncements

See footnotes to the financial statements provided herein.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to Smaller Reporting Company.

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ITEM 4T.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Principal Executive Officer/Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving the Company’s disclosure control objectives. The Company’s Principal Executive Officer/Principal Accounting Officer has concluded that the Company’s disclosure controls and procedures are effective at this reasonable assurance level as of the end of period covered by this report.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the period covered by this report that have materially affected or are likely to materially affect the Company’s internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1A.

RISK FACTORS

Not Applicable to Smaller Reporting Company.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2010, the Company issued an aggregate of 1,112,000 shares of common stock to two foreign investors in consideration of gross proceeds of $200,000 under a private placement pursuant to Regulation S under the Securities Act of 1933, as amended (the “Act”). The Company paid fees and commissions of approximately $60,000. As a result, the Company netted $140,000 in proceeds from the subscription. The certificates representing the shares contain legends restricting transferability absent registration or applicable exemption.

During the three months ended March 31, 2010, the Company issued 25,000 shares of its common stock to a service provider in consideration of sales training services. The shares were issued pursuant to the exemption from registration provided under Section 4(2) of the Act. The service provider had access to information concerning the Company and an opportunity to ask questions about the Company. The certificate representing the shares contains a legend restricting its transferability absent registration or applicable exemption.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

(REMOVED)

None.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

EXHIBIT NO.

DESCRIPTION

3.1

Amended and Restated Articles of Incorporation of Divine Skin, Inc., dated January 13, 2007 ⁽¹⁾

3.2

Amendment to Amended and Restated Articles of Incorporation of Divine Skin, Inc., dated January 14, 2009 ⁽²⁾

3.3

Bylaws of Divine Skin, Inc. ⁽¹⁾

10.1

2009 Divine Skin, Inc. Equity Incentive Plan ⁽¹⁾

10.2

Kane Concourse Lease Agreement ⁽¹⁾

10.2.1

Kane Concourse Lease Termination Agreement ⁽¹⁾

10.2.2

Meridian Center Lease Agreement, as amended ⁽¹⁾

10.3

Consulting Agreement ⁽¹⁾

10.4

Form of Exclusive Distribution Agreement ⁽¹⁾

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EXHIBIT NO.

DESCRIPTION

10.5

Amendment to Gamma Investors Exclusive Distribution Agreement⁽³⁾

10.6

Form of Regulation S Subscription Agreement⁽³⁾

10.7

Form of Section 4(2) Subscription Agreement⁽³⁾

10.8

Form of Services Agreement⁽³⁾

21.1

List of subsidiaries of the Company⁽¹⁾

31.1

Certification Pursuant to Rule 13a-14(a)/15d-14(a) (Provided herewith)

31.2

Certification Pursuant to Rule 13a-14(a)/15d-14(a) (Provided herewith)

32.1

Certification Pursuant to Section 1350 (Provided herewith)

32.2

Certification Pursuant to Section 1350 (Provided herewith)

99.1

Code of Ethics⁽⁴⁾

———————

(1)

Previously filed on Form 10 registration statement, as amended.

(2)

Previously filed on Form 10-Q for period ended September 30, 2010.

(3)

Previously filed on Form S-1 registration statement, as amended (333-163449).

(4)

Previously filed on Form 10-K Annual Report for the year ended December 31, 2009.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:	May 15, 2010	DIVINE SKIN, INC.
		By:	/s/ Daniel Khesin
			Daniel Khesin
			President, Chief Executive Officer,
			Chief Financial Officer/
			Principal Accounting Officer

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