DS HEALTHCARE GROUP, INC. - FORM 8-K - EX-99.1 - FINANCIAL STATEMENTS

Attached files

file	filename
8-K - CURRENT REPORT - DS HEALTHCARE GROUP, INC.	dskx_8k.htm
EX-99.2 - PROFORMA FINANCIALS - DS HEALTHCARE GROUP, INC.	dskx_99z2.htm
EX-2.1 - SHARE EXCHANGE AGREEMENT - DS HEALTHCARE GROUP, INC.	dskx_ex2z1.htm
EX-10.19 - EMPLOYMENT AGREEMENT - DS HEALTHCARE GROUP, INC.	dskx_ex10z17.htm
EX-10.18 - PERFORMANCE AGREEMENT - DS HEALTHCARE GROUP, INC.	dskx_ex10z18.htm

EXHIBIT 99.1

^{DIVINE SKIN LABORATORIES, S.A. DE C.V.}

[dskx_99z1004.jpg]

^{TABLE OF CONTENTS}


	PAGE

INDEPENDENT AUDITOR’S OPINION	3 - 4

FINANCIAL STATEMENTS – USGAAP (DECEMBER 2010)	5 - 8

FINANCIAL STATEMENTS – USGAAP (DECEMBER 2011)	9 - 12

FINANCIAL STATEMENTS – USGAAP (SEPTEMBER 2011)	13 - 16

FINANCIAL STATEMENTS – USGAAP (SEPTEMBER 2012)	17 - 20

FINANCIAL STATEMENTS (COMPARATIVE)	21 – 23

NOTES TO THE AUDIT REVIEW	24 - 29

[dskx_99z1005.jpg]

^{INDEPENDENT AUDITORS´S OPINION}

To the Honorable Board of Directors of:

DIVINE SKIN LABORATORIES, S.A. DE C.V.

We have examined the Financial position Statements of DIVINE SKIN LABORATORIES, S.A. DE C.V., up to September 30, 2012, December 31, 2011 and December 31, 2010 and the correlative profit and loss statements for the years that ended on those dates.

These Financial Statements are the responsibility of DIVINE SKIN LABORATORIES, S.A. DE C.V., management. Our responsibility consists of expressing an opinion on these Financial Statements with grounds on our review.

Our exams were completed according to the generally accepted Audit standards in Mexico, which require that the audit be planned and carried out in such a way that it allows having a reasonable certainty that the Financial Statements do not contain relevant errors, and that they are prepared according to the Financial Reporting Standards and the applicable USGAAP.

The audit consists of the exam, with grounds on selective tests, of the evidence supported by the figures and revelations of the Financial Statements; likewise, it includes the assessment of the Financial Reporting Standards used and the applicable USGAAP, of the relevant estimates made by the management and of the submission of the Financial Statements globally considered. I consider that my exams provide reasonable basis that supports my opinion.

1. ‐ As mentioned in the third note to the Financial Statements, the firm has not acknowledged the effects of the inflation in the Financial Information up to September 30, 2012, December 31, 2011 and December 31, 2010, established by the Financial Reporting Standards, which should be considered very important because of the amount and age of the no monetary assets, the shareholders’ investment and the average monetary position during the fiscal year.

During the fiscal years of 2010 and 2011, as of well as of September 30, 2012, it´s not required to recognize the inflation of the year, cause the sum of the inflation of the years 2009, 2010 and 2011 don’t exceed the 26%.

2. ‐ As mentioned in the fourth note, the firm has not acknowledged the effects of employee obligations according to Financial Reporting Standards NIF D‐3 as of September 30, 2012.

3. ‐ As mentioned in the fifth note, the firm has not acknowledged the effects of profit tax, according to Financial Reporting Standards NIF D‐4 as of September 30, 2012.

The Financial Statements mentioned before has not been prepared to be use by the Federal Fiscal General Administration of the tax authorities, but we have applied the necessary Audit tests to assure that the information provided, was captured, classified and presented according the way and formats provided by the Administration.

In my opinion, the afore mentioned Financial Statements reasonably display in all the relevant aspects, the Financial Situation of DIVINE SKIN LABORATORIES, S.A. DE C.V., up to September 30, 2012, December 31, 2011 and December 31, 2010, according to the Financial Reporting Standards applicable in México, and the applicable USGAAP.

After our review to the Financial Statements and all the operations of the company, we assure that the company compliments the regulations in accordance with the Sarbanes Oxley Law.

C.P.C. GERMAN GODOY LUNA Registro en la A.G.A.F.F. 1 6221

STATEMENT OF FINANCIAL POSITION

As of December 31st 2010.

(Amounts stated in USGAAP)


	2010

ASSETS

CURRENT ASSETS

CASH AND CASH EQUIVALENTS		5,582		N1
ACCOUNTS RECEIVABLE		97,786		N2
COLLECTABLE TAXES		349		N3
INVENTORY		51,498
PREPAID EXPENSES		4,082		N4
OTHER ASSETS		390		N5
		159,687
FIXED ASSETS

PROPERTY, PLANT AND EQUIPMENT		21,695		N6
ACCUMULATED DEPRECIATION		(1,850	)
		19,845

DEFERRED ASSETS

EXPENSES TO BE AMORTIZED
AMORTIZATIONS
	‐
TOTAL ASSETS		179,532

LIABILITIES

ACCOUNTS PAYABLE		203,557		N7
PAYABLE TAXES		941
OTHER LIABILITIES		13,377		N8
		217,875

CAPITAL

CAPITAL		4,049
NET INCOME OF THE YEAR		(19,027	)
ACCUMULATED LOSS		(23,484	)	N9
ACCUMULATED GAIN		119		N10
ACCUMULATED EFFECT FOR CONVERSION
		(38,343	)

TOTAL LIABILITIES AND CAPITAL		179,532

STATEMENT OF INCOME

As of December 31st 2010.

(Amounts stated in USGAAP)


	2010

TOTAL REVENUE		551,465
COST OF SALES		349,385
GROSS PROFIT		202,079

OPERATING EXPENSES

ADMINISTRATIVE EXPENSES		217,785

OPERATING PROFIT		(15,705	)

INTEREST INCOME		-

INTEREST EXPENSE		(2,165	)

FOREIGN EXCHANGE GAIN		7,479

FOREIGN EXCHANGE LOSS		(8,855	)

OTHER INCOMES AND EXPENSES

OTHER INCOMES		275

OTHER EXPENSES		(56	)

		(3,322	)

PROFIT BEFORE TAXES		(19,027	)

TAXES

INCOME TAX		-

NET PROFIT		(19,027	)

STATEMENT OF CASH FLOW

As of December 31st, 2010.

(Amounts stated in USGAAP)


	2010
OPERATING ACTIVITIES

NET PROFIT BEFORE TAXES		-19,027

RELATED ENTRIES WITH INVESTING ACTIVITIES

DEPRECIATION AND AMORTIZATIONS		1,267
EFFECT FOR CONVERSION		0
INTEREST INCOME		0

TOTAL RELATED ENTRIES WITH INVESTING ACTIVITIES		1,267

RELATED ENTRIES WITH FINANCING ACTIVITIES

INTEREST EXPENSE		-2,165

TOTAL RELATED ENTRIES WITH FINANCING ACTIVITIES		-2,165

ACCOUNTS RECEIVABLE		-49,439
INVENTORY		26,265
PREPAID EXPENSES		0
OTHER ASSETS		0
PAYABLE TAXES		290
SUPPLIERS DISMINUTION		36,408
OTHER LIABILITIES		9,660

CASH FLOW FROM OPERATING ACTIVITIES		3,259

INVESTING ACTIVITIES

ACCRUED INTEREST		0
ADQUISITION OF FIXED ASSETS		-20,238
EXPENSES TO BE AMORTIZED		0
LEGAL RESERVE		0
DIVIDENDS		0
INCREASE OF CAPITAL		0

CASH FLOW FROM INVESTING ACTIVITIES		-20,238

SURPLUS TO BE APPLY IN FINANCING ACTIVITIES		-16,979

FINANCING ACTIVITIES

INTEREST PAID		2,165

CASH FLOW FROM FINANCING ACTIVITIES		2,165

NET INCREASE IN CASH AND CASH EQUIVALENTS		-14,813

AT THE BEGINNING OF THE PERIOD		20,396
AT THE END OF THE PERIOD		5,582

NOTES TO THE FINANCIAL STATEMENTS

As of December 31st 2010.

(Amounts stated in USGAAP)


				2010

N1	CASH AND CASH EQUIVALENTS			5,582
	CASH	1,300
	BANAMEX (794)	1,384
	BANAMEX (575)	2,870
	BANCOMER	0
	OTHERS	28

N2	ACCOUNTS RECEIVABLE			97,786
	CUSTOMERS M.N		87,562
	CUSTOMERS 0%		1,134
	DEBTORS M.N.		6,573
	DEBTORS M.E.		2,518

N3	COLLECTABLE TAXES				349
	VAT IN FAVOR		349

N4	PREPAID EXPENSES				4,082
	PREPAID TAXES		3,596
	ADVANCE TO SUPPLIERS M.E.		0
	ADVANCE TO SUPPLIERS M.N.		486

N5	OTHER ASSETS				390
	CREDITABLE VAT NOT PAID		390

N6	PROPERTY, PLANT AND EQUIPMENT				21,695
	TRANSPORT EQUIPMENT		19,423
	COMPUTER EQUIPMENT OFFICE EQUIPMENT		2,272

N7	ACCOUNTS PAYABLE				203,557
	FOREIGN SUPPLIERS		56,037
	SUNDRY CREDITORS		147,520

N8	OTHER LIABILITIES				13,377
	ADVANCE FOR CUSTOMERS		1,300
	VAT PAID TO BE CHARGE		12,077

N9	ACCUMULATED LOSS			23,484
	FISCAL YEAR 2008		16,580
	FISCAL YEAR 2009		6,904
	FISCAL YEAR 2010

N10	ACCUMULATED GAIN				119
	FISCAL YEAR 2007		119
	FISCAL YEAR 2011

STATEMENT OF FINANCIAL POSITION

As of December 31st 2011.

(Amounts stated in USGAAP)


	2011

ASSETS

CURRENT ASSETS

CASH AND CASH EQUIVALENTS		12,137		N1
ACCOUNTS RECEIVABLE		357,647		N2
COLLECTABLE TAXES		15,637		N3
INVENTORY		135,239
PREPAID EXPENSES		19,766		N4
OTHER ASSETS		23,496		N5
		563,922
FIXED ASSETS

PROPERTY, PLANT AND EQUIPMENT		77,960		N6
ACCUMULATED DEPRECIATION		(14,305	)
		63,655

DEFERRED ASSETS

EXPENSES TO BE AMORTIZED		180,061
AMORTIZATIONS
		180,061
TOTAL ASSETS		807,639

LIABILITIES

ACCOUNTS PAYABLE		447,197		N7
PAYABLE TAXES		12,866
OTHER LIABILITIES		48,873		N8
		508,936

CAPITAL

CAPITAL		118,300
NET INCOME OF THE YEAR		217,938
ACCUMULATED LOSS		(37,640	)	N9
ACCUMULATED GAIN		105		N10
ACCUMULATED EFFECT FOR CONVERSION
		298,703

TOTAL LIABILITIES AND CAPITAL		807,639

STATEMENT OF INCOME

As of December 31st 2011.

(Amounts stated in USGAAP)


	2011

TOTAL REVENUE		1,145,219
COST OF SALES		547,067
GROSS PROFIT		598,152

OPERATING EXPENSES

ADMINISTRATIVE EXPENSES		350,793

OPERATING PROFIT		247,359

INTEREST INCOME		-

INTEREST EXPENSE		(2,505	)

FOREIGN EXCHANGE GAIN		21,372

FOREIGN EXCHANGE LOSS		(35,657	)

OTHER INCOMES AND EXPENSES

OTHER INCOMES		20

OTHER EXPENSES		(1	)

		(16,771	)

PROFIT BEFORE TAXES		230,587

TAXES

INCOME TAX		12,650

NET PROFIT		217,938

STATEMENT OF CASH FLOW

As of December 31st, 2011.

(Amounts stated in USGAAP)


	2011

OPERATING ACTIVITIES

NET PROFIT BEFORE TAXES		217,938

RELATED ENTRIES WITH INVESTING ACTIVITIES

DEPRECIATION AND AMORTIZATIONS		12,455
EFFECT FOR CONVERSION		4,856
INTEREST INCOME		0

TOTAL RELATED ENTRIES WITH INVESTING ACTIVITIES		17,311

RELATED ENTRIES WITH FINANCING ACTIVITIES

INTEREST EXPENSE		-2,505

TOTAL RELATED ENTRIES WITH FINANCING ACTIVITIES		-2,505

ACCOUNTS RECEIVABLE		-259,861
INVENTORY		-83,741
PREPAID EXPENSES		-15,684
OTHER ASSETS		-38,394
PAYABLE TAXES		11,925
SUPPLIERS DISMINUTION		243,640
OTHER LIABILITIES		35,496

CASH FLOW FROM OPERATING ACTIVITIES		126,125

INVESTING ACTIVITIES

ACCRUED INTEREST		0
ADQUISITION OF FIXED ASSETS		-56,265
EXPENSES TO BE AMORTIZED		-180,061
LEGAL RESERVE		0
DIVIDENDS		0
INCREASE OF CAPITAL		114,251

CASH FLOW FROM INVESTING ACTIVITIES		-122,075

SURPLUS TO BE APPLY IN FINANCING ACTIVITIES		4,050

FINANCING ACTIVITIES

INTEREST PAID		2,505

CASH FLOW FROM FINANCING ACTIVITIES		2,505

NET INCREASE IN CASH AND CASH EQUIVALENTS		6,555

AT THE BEGINNING OF THE PERIOD		5,582
AT THE END OF THE PERIOD		12,137

NOTES TO THE FINANCIAL STATEMENTS

As of December 31st 2011.

(Amounts stated in USGAAP)


				2011

N1	CASH AND CASH EQUIVALENTS				12,137
	CASH	1,138
	BANAMEX (794)	1,169
	BANAMEX (575)	9,338
	BANCOMER	467
	OTHERS	25

N2	ACCOUNTS RECEIVABLE				357,647
	CUSTOMERS		336,399
	M.N CUSTOMERS 0%		3,434
	DEBTORS M.N.		15,296
	DEBTORS M.E.		2,518

N3	COLLECTABLE TAXES					15,637
	VAT IN FAVOR		15,637

N4	PREPAID EXPENSES					19,766
	PREPAID TAXES		7,975
	ADVANCE TO SUPPLIERS M.E.		11,371
	ADVANCE TO SUPPLIERS M.N.		419

N5	OTHER ASSETS					23,496
	CREDITABLE VAT NOT PAID		23,496

N6	PROPERTY, PLANT AND EQUIPMENT					77,960
	TRANSPORT EQUIPMENT		66,864
	COMPUTER EQUIPMENT		9,845
	OFFICE EQUIPMENT		1,252

N7	ACCOUNTS PAYABLE					447,197
	FOREIGN SUPPLIERS		202,781
	SUNDRY CREDITORS		244,416

N8	OTHER LIABILITIES					48,873
	ADVANCE FOR CUSTOMERS		2,473
	VAT PAID TO BE CHARGE		46,400

N9	ACCUMULATED LOSS				37,640
	FISCAL YEAR 2008		14,680
	FISCAL YEAR 2009		6,113
	FISCAL YEAR 2010		16,847

N10	ACCUMULATED GAIN					105
	FISCAL YEAR 2007		105

STATEMENT OF FINANCIAL POSITION

As of September 30st 2011.

(Amounts stated in USGAAP)


	2011

ASSETS

CURRENT ASSETS

CASH AND CASH EQUIVALENTS		6,736		N1
ACCOUNTS RECEIVABLE		245,965		N2
COLLECTABLE TAXES		2,996		N3
INVENTORY		104,862
PREPAID EXPENSES		16,767		N4
OTHER ASSETS		10,508		N5
		387,833
FIXED ASSETS

PROPERTY, PLANT AND EQUIPMENT		73,924		N6
ACCUMULATED DEPRECIATION		(9,624	)
		64,300

DEFERRED ASSETS

EXPENSES TO BE AMORTIZED		51,010
AMORTIZATIONS
		51,010
TOTAL ASSETS		503,143

LIABILITIES

ACCOUNTS PAYABLE		334,663		N7
PAYABLE TAXES		1,099
OTHER LIABILITIES		31,016		N8

		366,778

CAPITAL

CAPITAL		3,623
NET INCOME OF THE YEAR		170,679
ACCUMULATED LOSS		(38,044	)	N9
ACCUMULATED GAIN		106		N10
ACCUMULATED EFFECT FOR CONVERSION
		136,364

TOTAL LIABILITIES AND CAPITAL		503,143

STATEMENT OF INCOME

As of September 30st 2011.

(Amounts stated in USGAAP)


	2011

TOTAL REVENUE		795,832
COST OF SALES		401,838
GROSS PROFIT		393,993

OPERATING EXPENSES

ADMINISTRATIVE EXPENSES		209,413

OPERATING PROFIT		184,580

INTEREST INCOME		-

INTEREST EXPENSE		(1,698	)

FOREIGN EXCHANGE GAIN		8,634

FOREIGN EXCHANGE LOSS		(20,855	)

OTHER INCOMES AND EXPENSES

OTHER INCOMES		20

OTHER EXPENSES		(1	)

		(13,901	)

PROFIT BEFORE TAXES		170,679

TAXES
		-
INCOME TAX

NET PROFIT		170,679

STATEMENT OF CASH FLOW

As of September 30,2011.

(Amounts stated in USGAAP)


	2011

OPERATING ACTIVITIES

NET PROFIT BEFORE TAXES		170,679

RELATED ENTRIES WITH INVESTING ACTIVITIES

DEPRECIATION AND AMORTIZATIONS		7,774
EFFECT FOR CONVERSION		4,030
INTEREST INCOME		0

TOTAL RELATED ENTRIES WITH INVESTING ACTIVITIES		11,804

RELATED ENTRIES WITH FINANCING ACTIVITIES

INTEREST EXPENSE		-1,698

TOTAL RELATED ENTRIES WITH FINANCING ACTIVITIES		-1,698

ACCOUNTS RECEIVABLE		-148,179
INVENTORY		-53,364
PREPAID EXPENSES		-12,685
OTHER ASSETS		-12,765
PAYABLE TAXES		158
SUPPLIERS DISMINUTION		131,106
OTHER LIABILITIES		17,639

CASH FLOW FROM OPERATING ACTIVITIES		102,695

INVESTING ACTIVITIES

ACCRUED INTEREST		0
ADQUISITION OF FIXED ASSETS		-52,229
EXPENSES TO BE AMORTIZED		-51,010
LEGAL RESERVE		0
DIVIDENDS		0
INCREASE OF CAPITAL		0

CASH FLOW FROM INVESTING ACTIVITIES		-103,239

SURPLUS TO BE APPLY IN FINANCING ACTIVITIES		-544

FINANCING ACTIVITIES

INTEREST PAID		1,698

CASH FLOW FROM FINANCING ACTIVITIES		1,698

NET INCREASE IN CASH AND CASH EQUIVALENTS		1,154

AT THE BEGINNING OF THE PERIOD		5,582
AT THE END OF THE PERIOD		6,736

NOTES TO THE FINANCIAL STATEMENTS

As of September 30st 2011.

(Amounts stated in USGAAP)


				2011

N1	CASH AND CASH EQUIVALENTS			6,736
	CASH	1,142
	BANAMEX (794)	790
	BANAMEX (575)	4,779
	BANCOMER	0
	OTHERS	25

N2	ACCOUNTS RECEIVABLE			245,965
	CUSTOMERS M.N		221,410
	CUSTOMERS 0%		1,170
	DEBTORS M.N.		20,867
	DEBTORS M.E.		2,518

N3	COLLECTABLE TAXES				2,996
	VAT IN FAVOR		2,996

N4	PREPAID EXPENSES				16,767
	PREPAID TAXES		4,972
	ADVANCE TO SUPPLIERS M.E.		11,371
	ADVANCE TO SUPPLIERS M.N.		423

N5	OTHER ASSETS				10,508
	CREDITABLE VAT NOT PAID		10,508

N6	PROPERTY, PLANT AND EQUIPMENT				73,924
	TRANSPORT EQUIPMENT		67,582
	COMPUTER EQUIPMENT OFFICE EQUIPMENT		6,342

N7	ACCOUNTS PAYABLE				334,663
	FOREIGN SUPPLIERS		118,086
	SUNDRY CREDITORS		216,577

N8	OTHER LIABILITIES				31,016
	ADVANCE FOR CUSTOMERS		477
	VAT PAID TO BE CHARGE		30,539

N9	ACCUMULATED LOSS			38,044
	FISCAL YEAR 2008		14,838
	FISCAL YEAR 2009		6,178
	FISCAL YEAR 2010		17,028

N10	ACCUMULATED GAIN				106
	FISCAL YEAR 2007		106

STATEMENT OF FINANCIAL POSITION

As of September 30st 2012.

(Amounts stated in USGAAP)


	2012

ASSETS

CURRENT ASSETS

CASH AND CASH EQUIVALENTS		70,762		N1
ACCOUNTS RECEIVABLE		392,323		N2
COLLECTABLE TAXES		11,165		N3
INVENTORY		249,296
PREPAID EXPENSES		43,248		N4
OTHER ASSETS		2,778		N5
		769,571
FIXED ASSETS

PROPERTY, PLANT AND EQUIPMENT		148,702		N6
ACCUMULATED DEPRECIATION		(38,590	)
		110,112

DEFERRED ASSETS

EXPENSES TO BE AMORTIZED		195,145
AMORTIZATIONS		(48,786	)
		146,359
TOTAL ASSETS		1,026,042

LIABILITIES

ACCOUNTS PAYABLE		374,969		N7
PAYABLE TAXES		7,718
OTHER LIABILITIES		49,489		N8

		432,175

CAPITAL

CAPITAL		128,210
LEGAL RESERVE		12,130
NET INCOME OF THE YEAR		290,889
ACCUMULATED LOSS		(40,793	)	N9
ACCUMULATED GAIN		203,431		N10
ACCUMULATED EFFECT FOR CONVERSION
		593,867

TOTAL LIABILITIES AND CAPITAL		1,026,042

STATEMENT OF INCOME

As of September 30st 2012.

(Amounts stated in USGAAP)


	2012

TOTAL REVENUE		1,334,820
COST OF SALES		416,398
GROSS PROFIT		918,422

OPERATING EXPENSES

ADMINISTRATIVE EXPENSES		639,569

OPERATING PROFIT		278,853

INTEREST INCOME		-

INTEREST EXPENSE		(4,030	)

FOREIGN EXCHANGE GAIN		46,149

FOREIGN EXCHANGE LOSS		(30,726	)

OTHER INCOMES AND EXPENSES

OTHER INCOMES		660

OTHER EXPENSES		(18	)

		12,036

PROFIT BEFORE TAXES		290,889

TAXES

INCOME TAX		-

NET PROFIT		290,889

STATEMENT OF CASH FLOW

As of September 30,2012.

(Amounts stated in USGAAP)


	2012

OPERATING ACTIVITIES

NET PROFIT BEFORE TAXES		290,889

RELATED ENTRIES WITH INVESTING ACTIVITIES

DEPRECIATION AND AMORTIZATIONS		73,071
EFFECT FOR CONVERSION		9,940
INTEREST INCOME		0

TOTAL RELATED ENTRIES WITH INVESTING ACTIVITIES		83,011

RELATED ENTRIES WITH FINANCING ACTIVITIES

INTEREST EXPENSE		-4,030

TOTAL RELATED ENTRIES WITH FINANCING ACTIVITIES		-4,030

ACCOUNTS RECEIVABLE		-34,676
INVENTORY		-114,057
PREPAID EXPENSES		-23,482
OTHER ASSETS		25,190
PAYABLE TAXES		-5,148
SUPPLIERS DISMINUTION		-72,228
OTHER LIABILITIES		616

CASH FLOW FROM OPERATING ACTIVITIES		146,085

INVESTING ACTIVITIES

ACCRUED INTEREST		0
ADQUISITION OF FIXED ASSETS		-70,742
EXPENSES TO BE AMORTIZED		0
LEGAL RESERVE		0
DIVIDENDS		-20,748
INCREASE OF CAPITAL		0

CASH FLOW FROM INVESTING ACTIVITIES		-91,490

SURPLUS TO BE APPLY IN FINANCING ACTIVITIES		54,595

FINANCING ACTIVITIES

INTEREST PAID		4,030

CASH FLOW FROM FINANCING ACTIVITIES		4,030

NET INCREASE IN CASH AND CASH EQUIVALENTS		58,625

AT THE BEGINNING OF THE PERIOD		12,137
AT THE END OF THE PERIOD		70,762

NOTES TO THE FINANCIAL STATEMENTS

As of September 30st 2012.

(Amounts stated in USGAAP)


				2012

N1	CASH AND CASH EQUIVALENTS			70,762
	CASH	389
	BANAMEX (794)	596
	BANAMEX (575)	68,425
	BANCOMER	1,325
	OTHERS	27

N2	ACCOUNTS RECEIVABLE			392,323
	CUSTOMERS M.N		358,791
	CUSTOMERS 0%		11,083
	DEBTORS M.N.		20,916
	DEBTORS M.E.		1,533

N3	COLLECTABLE TAXES				11,165
	VAT IN FAVOR		11,165

N4	PREPAID EXPENSES				43,248
	PREPAID TAXES		28,187
	ADVANCE TO SUPPLIERS M.E.		14,607
	ADVANCE TO SUPPLIERS M.N.		454

N5	OTHER ASSETS				2,778
	CREDITABLE VAT NOT PAID		2,778

N6	PROPERTY, PLANT AND EQUIPMENT				148,702
	TRANSPORT EQUIPMENT		129,398
	COMPUTER EQUIPMENT		17,947
	OFFICE EQUIPMENT		1,356

N7	ACCOUNTS PAYABLE				374,969
	FOREIGN SUPPLIERS		184,875
	SUNDRY CREDITORS		190,094

N8	OTHER LIABILITIES				49,489
	ADVANCE FOR CUSTOMERS		49,489
	VAT PAID TO BE CHARGE

N9	ACCUMULATED LOSS			40,793
	FISCAL YEAR 2008		15,910
	FISCAL YEAR 2009		6,625
	FISCAL YEAR 2010		18,258

N10	ACCUMULATED GAIN				203,431
	FISCAL YEAR 2007		114
	FISCAL YEAR 2011		203,317

STATEMENT OF FINANCIAL POSITION

(COMPARATIVE‐ USGAAP)


	SEPTEMBER			DECEMBER				SEPTEMBER			DECEMBER
	2012			2011				2011			2010
ASSETS

CURRENT ASSETS

CASH AND CASH EQUIVALENTS		70,762			12,137				6,736			5,582
ACCOUNTS RECEIVABLE		392,323			357,647				245,965			97,786
COLLECTABLE TAXES		11,165			15,637				2,996			349
INVENTORY		249,296			135,239				104,862			51,498
PREPAID EXPENSES		43,248			19,766				16,767			4,082
OTHER ASSETS		2,778			23,496				10,508			390
		769,571			563,922				387,833			159,687
FIXED ASSETS

PROPERTY, PLANT AND EQUIPMENT		148,702			77,960				73,924			21,695
ACCUMULATED DEPRECIATION		(38,590	)		(14,305	)			(9,624	)		(1,850	)
		110,112			63,655				64,300			19,845
DEFERRED ASSETS

EXPENSES TO BE AMORTIZED		195,145			180,061				51,010			‐
AMORTIZATIONS		(48,786	)		-				‐			-
		146,359			180,061				51,010			‐

TOTAL ASSETS		1,026,042			807,639				503,143			179,532

LIABILITIES

ACCOUNTS PAYABLE		374,969			447,197				334,663			205,557
PAYABLE TAXES		7,718			12,866				1,099			941
OTHER LIABILITIES		49,489			48,873				31,016			13,377
		432,175			508,936				366,778			217,875

CAPITAL

CAPITAL		128,210			118,300				3,623			4,049
LEGAL RESERVE		12,130		‐			‐			‐
NET INCOME OF THE YEAR		290,889			217,938				170,679			(19,027	)
ACCUMULATED LOSS		(40,793	)		(37,640	)			(38,044	)		(23,484	)
ACCUMULATED GAIN		203,431			105				106			119
		593,867			298,703				136,364			(38,343	)

TOTAL PASIVO Y CAPITAL		1,026,042			807,639				503,143			179,532

STATEMENT OF INCOME

(COMPARATIVE‐ USGAAP)


	SEPTEMBER			DECEMBER			SEPTEMBER			DECEMBER
	2012			2011			2011			2010

TOTAL REVENUE	1,334,820			1,145,219			795,832			551,465

COST OF SALES	416,398			547,067			401,838			349,385

GROSS PROFIT	918,422			598,152			393,993			202,079

OPERATING EXPENSES

ADMINISTRATIVE EXPENSES	639,569			350,793			209,413			217,785

OPERATING PROFIT	278,853			247,359			184,580			(15,705		)

INTEREST INCOME	-			-			-			-
INTEREST EXPENSE	(4,030		)	(2,505		)	(1,698		)	(2,165		)
FOREIGN EXCHANGE GAIN		46,149			21,372			8,634			7,479
FOREIGN EXCHANGE LOSS		(30,726	)		(35,657	)		(20,855	)		(8,855	)

OTHER INCOMES AND EXPENSES

OTHER INCOMES		660			20			20			275
OTHER EXPENSES		(18	)		(1	)		(1	)		(56	)
		12,036			(16,771	)		(13,901	)		(3,322	)
PROFIT BEFORE TAXES		290,889			230,587			170,679			(19,027	)

TAXES

INCOME TAX		-			12,650

NET PROFIT		290,889			217,938			170,679			(19,027	)

STATEMENT OF CASH FLOW

COMPARATIVE

(Amounts stated in USGAAP)


	SEP-2012		DIC-2011		SEP-2011		DIC-2010
OPERATING ACTIVITIES

NET PROFIT BEFORE TAXES		290,889		217,938		170,679		-19,027

RELATED ENTRIES WITH INVESTING ACTIVITIES

DEPRECIATION AND AMORTIZATIONS		73,071		12,455		7,774		1,267
EFFECT FOR CONVERSION		9,940		4,856		4,030		0
INTEREST INCOME		0		0		0		0

TOTAL RELATED ENTRIES WITH INVESTING ACTIVITIES		83,011		17,311		11,804		1,267

RELATED ENTRIES WITH FINANCING ACTIVITIES

INTEREST EXPENSE		-4,030		-2,505		-1,698		-2,165

TOTAL RELATED ENTRIES WITH FINANCING ACTIVITIES		-4,030		-2,505		-1,698		-2,165

ACCOUNTS RECEIVABLE		-34,676		-259,861		-148,179		-49,439
INVENTORY		-114,057		-83,741		-53,364		26,265
PREPAID EXPENSES		-23,482		-15,684		-12,685		0
OTHER ASSETS		25,190		-38,394		-12,765		0
PAYABLE TAXES		-5,148		11,925		158		290
SUPPLIERS DISMINUTION		-72,228		243,640		131,106		36,408
OTHER LIABILITIES		616		35,496		17,639		9,660

CASH FLOW FROM OPERATING ACTIVITIES		146,085		126,125		102,695		3,259

INVESTING ACTIVITIES

ACCRUED INTEREST		0		0		0		0
ADQUISITION OF FIXED ASSETS		-70,742		-56,265		-52,229		-20,238
EXPENSES TO BE AMORTIZED		0		-180,061		-51,010		0
LEGAL RESERVE		0		0		0		0
DIVIDENDS		-20,748		0		0		0
INCREASE OF CAPITAL		0		114,251		0		0

CASH FLOW FROM INVESTING ACTIVITIES		-91,490		-122,075		-103,239		-20,238

SURPLUS TO BE APPLY IN FINANCING ACTIVITIES		54,595		4,050		-544		-16,979

FINANCING ACTIVITIES

INTEREST PAID		4,030		2,505		1,698		2,165

CASH FLOW FROM FINANCING ACTIVITIES		4,030		2,505		1,698		2,165

NET INCREASE IN CASH AND CASH EQUIVALENTS		58,625		6,555		1,154		-14,813

AT THE BEGINNING OF THE PERIOD		12,137		5,582		5,582		20,396
AT THE END OF THE PERIOD		70,762		12,137		6,736		5,582

NOTES TO THE AUDIT REVIEW

Method of presentation and translation into English:

The accompanying Financial Statements were originally issued in Spanish for use in Mexico. They have been translated into English for convenience of the user.

As indicated in note 3 below, these Financial Statements have been prepared on the basis of Financial

Reporting Standards applicable in Mexico and the applicable USGAAP.

NOTE 1. BASE PRESENTATION.

The attached Financial Statements and the related notes were not prepared for the federal tax auditing general management’s use; therefore they have not been submitted and classified according to the formats designed by said management, therefore the aforementioned Financial Information was produced based on the existing firm’s Financial Statements by December 31, 2010, December 31,2011 and September 30t 2012.

NOTE 2. INCORPORATION AND PURPOSE.

The company was incorporated by the First certified copy of public deed No. 20139 (hereinafter the “INCORPORATION AGREEMENT”), dated September 11th, 2007 granted before Efrain Martin Virues y Lazos, Notary Public No. 214 in the Federal District, duly recorded in the Public Property Registry in this City with date October 15,2007, evidencing the integration of “MD LABORATORIES S.A. DE C.V.” (Hereinafter the “Corporation”).

Such “Incorporation Agreement” provides the following:

Name: MD LABORATORIES SA de CV

Duration: 99 years

Domicile: México, Federal District

Purpose: buying, selling, importing, exporting, distributing, marketing, administrating, controlling, registering, representing, transporting, commercializing, producing, elaborating, fabricating, transforming and representing any kind of commercial and industrial products, including but not limited pharmaceutical and medical products and exploitations of patents, rights, brand and commercial names. Providing services of advice, consultancy and orientation about commercial opportunities inside and outside the country, also related with technology, brands and patents.

Capital stock:

100 shares of 500 Mexican Pesos each

Shareholders


Shareholder	Stocks	Value (MX Pesos)
Fernando Tamez Gutiérrez	50	25,000.00
Alfonso Tamez García	25	12,500.00
María Concepción Gutiérrez Ruiz	25	12,500.00

1 Stated in current Mexican Pesos

Mexican Corporation – Foreigners exclusion

Sole Administrator‐ Fernando Tamez Gutiérrez

Commissary‐ Adriana Ivonne Aguirre Gómez

Power of attorney granted to: Fernando Tamez Gutiérrez, Alfonso Tamez García and María

Concepción Gutiérrez Ruiz

Minutes of Extraordinary Shareholders Meeting, No. 22,541 held on July 15, 2008, granted before Efrain Martin Virues y Lazos, Notary Public No. 214 in the Federal District, duly recorded in the Public Property Registry in this City with date August 06, 2008 by which it was decided to change the name of the “Corporation” and to change its articles of incorporation.

Based on the above, the name of the “Corporation” will be change to:

“DIVINE SKIN LABORATORIES” S.A. de C.V.

II.

Minutes of Ordinary Shareholders Meeting held on December 30, 2011, by which it was decided to increase the capital stock of the “Corporation” in its variable portion in 1,600,000.00 (One million sixth hundred thousand 00/00)Mexican pesos and to change its articles of incorporation.

Based on the above, the capital stock is integrated as follows:

Fixed Capital


Shareholder	Stocks	Value (MX Pesos)
Fernando Tamez Gutiérrez	50	25,000.00
Alfonso Tamez García	25	12,500.00
María Concepción Gutiérrez Ruiz	25	12,500.00

Variable Capital


Shareholder	Stocks	Value (MX Pesos)
Fernando Tamez Gutiérrez	3,000	1,500,000.00
Alfonso Tamez García	200	100,000.00
María Concepción Gutiérrez Ruiz	0	0

Capital Stock


Shareholder	Fixed Stocks	Variable Stocks	Value (MX Pesos)
Fernando Tamez Gutiérrez	50	3,000	1,525,000.00
Alfonso Tamez García	25	200	112,500.00
María Concepción Gutiérrez Ruiz	25	0	12,500.00
TOTAL	100	3,200	1,650,000.00

NOTE 3. MAIN ACCOUNTING POLICIES.

A)CASH FLOW STATUS.

As of the accounting year of 2008, the NIF B‐2 came into effect (cash flow status) instead of bulletin B‐12 (statement of changes in the financial situation), the NIF B‐2 shows the cash receipts and payments during one period, by applying the direct method (at least, the most important gross charges and payments shall be presented) or indirect (starting from the profit or loss before taxes and entries related to investment activities are added, with financing activities). The form decided is to use the indirect method.

B) ACKNOWLEDGEMENT OF THE EFFECTS OF INFLATION

Derived from the changes to the NIF B‐10, for the accounting years ended in 2008 and for those subsequent, it is necessary that the effects of inflation be acknowledged in the Financial Information whenever their effects are relevant, which occurs when the inflation equals or exceeds the accumulated26% during the three former annual accounting years. Besides, it includes the possibility of choosing between using the national consumer price index or investment units for measuring the effects of inflation, it eliminates the specific methods for restitution and indexing cost assessment for inventories and fixed assets. And it requires that the results for property monetary position and the results for the possession of non‐monetary assets be classified again into accumulative results.

The Financial Statements by September 30, 2012 were prepared on the basis of the original historic value, therefore, they do not recognize the effects of inflation in the financial information, in the terms set forth in the NIF B‐10 and its adaptations, which provides that entries shall be presented in legal tender (pesos) of the closing of the last accounting year.

C) BASES FOR THE PREPARATION AND PRESENTATION OF FINANCIAL INFORMATION

The accompanying Financial Statements have been prepared in accordance with Financial Reporting Standards (FRS) issued by the Mexican Board for Research and Development of Financial Reporting Standards or CINIF.

FRS are comprised of:

FRS, their Improvements, their interpretation(IFRS),and Orientation to FRS(OFRS);

Accounting Principles Bulletins issued by the IMCP that have not been amended, substituted or repealed by FRSs; and

By International Financial Reporting Standards or IFRS issued by the International Accounting Standards Board, which are supplementary applicable.

D) CHANGES IN ACCOUNTING POLICIES DUE TO THE RECENTLY ADOPTED FRS

The company has adopted the following FRS, IFRS, and Improvements to FRS which are applicable and effective as of January 1, 2011.

NIFC‐5“Prepaidexpenses”

NIFC‐6“Property,plant and equipment

Improvements to FRS 2011.

E) PREPAID EXPENSES

Prepaid expenses represent benefits for which the risks inherent to the services that it is about to receive are not transferred to the company yet.

F) FURNITURE AND EQUIPMENT

Furniture and equipment are recorded at acquisition cost. Depreciation is calculated by using the straight‐line method, based on the useful life thereof, in accordance with the following annual rates: Furniture and office equipment 10%, transportation equipment 25%, Computer equipment 30%.

G) FOREIGN CURRENCY TRANSACTIONS

Foreign currency denominated transactions is recorded at the current exchange rate at the date on which they are carried out. Foreign currency assets and liabilities are restated by using the exchange rates applicable at the end of every period. Exchange rate fluctuations are part of the integral result of financing, and applied or charged directly to income of the period.

H) LABOR LIABILITIES.

The payments on account of indemnifications to the personnel, retirement benefits and seniority bonuses set forth in the federal labor law, are charged to the results of the accounting year in which they are made.

I) FIXED ASSETS

The fixed assets are registered with their acquisition cost; the depreciation is calculated through the straight line method, applying the rates indicated in the tax legislation currently effective.

J) LIABILITIES IN FOREIGN CURRENCY

The operations in foreign currency are registered with the exchange rates effective on the operation date. The assets and liabilities in foreign currency are reflected in the official exchange rate of the closing of the accounting year. The exchange rate variations are applied to the results.

NOTE 4. LABOR LIABILITIES

According to the federal labor law, the firm has labor liabilities to be paid to the employees who stop working there under certain circumstances.

Until today, the firm has not adopted the regulations contained in the NIF D‐3 benefits for the employees, which provides the acknowledgement of liabilities generated by benefits for the employees during and at the end of their labor relationship.

The NIF D‐3 includes the employees’ profit sharing as part of its internal regulations. The cost and liabilities were not calculated.

NOTE 5. TAXES ON THE PROFITS.

As of the accounting year of 2008, the NIF D‐4 taxes on profits changed. The most important taxes to be mentioned now: relocating the accounting treatment of the employees’ profit sharing to NIF D‐3. It eliminates the term of permanent difference and requires that the balance of “Accumulative effect of income tax” be classified again in accumulative results unless they are identified with some of the integral entries pending to be applied to results.

The deferred tax shall be determined using the assets and liabilities method, under this method, a tax deferred by all the temporary differences between the accounting and tax values of the assets and liabilities may be recognized.

Until today, said effect has not been calculated.

NOTE 6. STOCKHOLDERS’ EQUITY

a) The fixed capital stock without right to withdrawal is represented by 100 equity stocks, which represents the sum of fifty thousand pesos 00/100 Mexican pesos. Completely subscribed and paid.

The authorized variable corporate assets are unlimited.

b) Restrictions to the availability of the stockholders’ equity:

As of January 1st, 1999, according to the tax regulations, the distribution of profits and other reserves are subject to the payment of income tax, except for the event they come from the account of net tax profit, and all the dividends paid to individuals or entities living abroad are subject to tax withholding according to the calculations set forth by law.

NOTE 7. FOREIGN EXCLUSION.

According the above Note 2 Incorporation and purpose, the company has the Foreigner exclusion clause. So in case a foreigner investor have the intention to invest in the corporation, the bylaws should need to be amended, providing the corresponding notice to the Ministry of Foreign Affairs, thirty business days subsequent to such amendment.

The amendment will consist on elaborating an Extraordinary Assembly to change the clause, that way they will avoid any problem in the future.

NOTE 8. INVENTORY.

According to the review that we practiced to the Inventory, we determined that the impact of recognizing the difference between the real cost of the Inventory and the undervalued cost of the same as an expense, will result as an important observation to the Financial information of the company, because to recognize the difference as an expense and affect directly to the determination of the profit of the year and therefore to the calculation of the Income tax, will result contradictory according to the Financial Reporting Standards of the fiscal year of the Financial Statements, where is established that the costs and the expenses will need to correspond to the same period of the income that generate them, consequently the difference in the valuation will result a deferred Income tax, that will not be recognize in the Financial Statements of the company.

The cost of the merchandise that is imported is subject to several taxes on the total amount of the invoice, so as the product is undervalued, the contributions that are paid for the importation are less than the ones that are supposed to be paid, so we considered important to mention because the consequences can be the determination of fiscal credits from part of the tax authorities.

The Inventory Revaluation that we practiced was for the amount of $ 1,255,271.07. The difference between the Undervalued Inventory and the Real cost was registered to the expenses in the month of September 2012.

This adjustment affect directly to the determination of the profit of the year and therefore to the calculation of the Income tax.

In the Financial Statements as of 2010, September 2011 and December 2011, the revaluation is not reflected, although the revaluation is not reflected, the statements perfectly display all the relevant aspects of the Financial situation of the company.

NOTE 9. CONVERSION USGAAP

According to the United States Generally Accepted Accounting Principles (USGAAP).

ASC 830 (before FAS 52) “Foreign Currency Translation”

All items of Financial Statements are translated from functional currency to reporting entity using a current exchange rate.

Mexico is a Non‐Inflationary Environment, as of that to convert the Financial Statements from the Functional Currency to the Report Currency; we will have to consider the exchange rate of the closing day of the year or the closing day of the Report according to the Official Federal Daily.

Closing exchange rate of December 31, 2010 – 12.3496

Closing exchange rate of September 30, 2011‐ 13.7994

Closing exchange rate of December 31, 2011 – 13.9476

Closing exchange rate of September 30, 2012‐ 12.8695

It`s important to mention that for the conversion of the Financial Statements it may result an effect, that will be reflected in the last line of the Capital in the Balance Sheet.

NOTE 10. LEGAL RESERVE.

The article 20 of the general law of corporations and partnerships establish that from the net profits of all companies, five percent must be separated annually, as a minimum, in order to form the reserve fund, until it totals the fifth part of the corporate capital.

The reserve fund must be reconstituted in the same way, when it is diminished for any reason.

The legal reserve relating to 5% of capital stock was not determined until such reserve reaches to at least an amount equal to 20% of capital stock.

In 2012 the company created the legal reserve that will correspond to the amount of 156,110.00 pesos, which will be reflected in the Financial Statements of 2012.

NOTE 11. DIVIDENDS.

In 2012 the company distributed dividends to the shareholders as a result of the utilities in 2011.

The distribution corresponds to the amount of $ 267,011.00 pesos which are reflected in the Financial Statements of September 2012.

NOTE 12. EXTRA.

At the date of the emission of this Report, we examined the Fiscal file of the company in the tax authority website, where we confirmed that the Fiscal status of Divine Skin Laboratories S.A. de C.V., is ACTIVE, without any penalty; consequently we can conclude that the company is up to date in this matter.

Also we have checked that the company is up to date in the International Commerce with the corresponding authorities.

C.P.C. Germán Godoy Luna

(Certified Public Accountant in Mexico)

Despacho Godoy Novoa y Asociados, S.C.

DS HEALTHCARE GROUP, INC. - FORM 8-K - EX-99.1 - FINANCIAL STATEMENTS - January 15, 2013

Attached files

DS HEALTHCARE GROUP, INC. Reports