DS Healthcare (DSKX) 10-Q/A 2015 Q1 Quarterly report (amended)

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q/A

(MARK ONE)

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

For the quarterly period endedMarch 31, 2015

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

For the transition period from _______ to _______.

Commission File No. 001-35763

DS HEALTHCARE GROUP, INC.

(Exact name of registrant as specified in its charter)

Florida	20-8380461
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
1601 Green Road, Deerfield Beach, Florida	33064
(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 þ 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¨ (Do not check if a smaller reporting company)

Smaller reporting companyþ

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

There were 32,320.981 shares of common stock outstanding as of October 14, 2016.

PART I – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

DS Healthcare Group, Inc. (dba DS Laboratories) and Subsidiaries

 Condensed Consolidated Balance Sheets

	March 31,			December 31,
	2015			2014
	(As Restated)			(As Restated)
ASSETS
Current Assets
Cash	$	652,093		$	1,128,556
Accounts receivable, net		1,555,444			1,678,411
Inventories, net		3,945,007			3,862,532
Prepaid expenses and other current assets		277,883			278,714
Total Current Assets		6,430,427			6,948,213
Furniture and Equipment, net		150,795			169,495
Intangible Assets, net		751,011			1,101,373
Other Assets		74,497			62,247
TOTAL ASSETS	$	7,406,730		$	8,281,328
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	1,252,978		$	1,486,758
Accrued expenses		968,983			1,017,112
Note payable		350,000			350,000
Other current liabilities		625,510			886,822
Total Current Liabilities		3,197,471			3,740,692
Long Term Debt, net of current portion		22,032			24,997
TOTAL LIABILITIES		3,219,503			3,765,689
COMMITMENTS AND CONTINGENCIES
Shareholders' Equity
Preferred stock, $0.001 par value, 30,000,000 shares authorized: 0 shares issued and outstanding at March 31, 2015 and December 31, 2014		—			—
Common stock, $0.001 par value, 300,000,000 shares authorized: 16,328,058 and 16,202,268 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively		16,328			16,202
Additional paid-in-capital		14,940,069			14,839,695
Stock subscription		217,500			(2,500	)
Accumulated deficit		(11,105,490	)		(10,235,944	)
Accumulated comprehensive income		157,250			(63,384	)
Total Shareholders' Equity		4,225,657			4,554,069
Non-Controlling Interest		(38,430	)		(38,430	)
Total Shareholders' Equity		4,187,227			4,515,639
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	7,406,730		$	8,281,328

See accompanying notes to condensed consolidated financial statements

1

DS Healthcare Group, Inc. (dba DS Laboratories) and Subsidiaries

 Condensed Consolidated Statements of Operations and Comprehensive Loss

 (Unaudited)

	For the Three Months Ended
	March 31,
	2015			2014
	(As restated)			(As restated)
Net Revenue	$	2,698,010		$	2,684,964
Cost of Goods Sold		1,214,215			1,391,547
Gross Profit		1,483,795			1,293,417
Operating Costs and Expenses:
Selling and marketing
Commissions and consulting		169,372			360,559
Other selling and marketing expenses		620,906			609,463
		790,278			970,022
General and administrative
Salary and personnel costs		512,451			584,683
Professional fees and consulting costs		377,399			591,896
Other general and administrative expenses		440,333			164,035
		1,330,183			1,340,614
Total operating costs and expenses		2,120,461			2,310,636
Operating Loss		(636,666	)		(1,017,219	)
Other Income (Expense)
Interest expense		(15,855	)		(27,545	)
Impairment of intangible asset		(337,500	)		-
Other		120,475			(1,088	)
Total other income (expense)		(232,880	)		(28,633	)
Net Loss		(869,546	)		(1,04,5852	)
Net Loss Attributable to Non-Controlling Interest		—			(4,371	)
Net Loss Attributable to Common Shareholders	$	(869,546	)	$	(1,041,481	)
Basic and Diluted Earnings per Share:
Weighted average shares outstanding		16,256,461			15,967,533
Net Loss per share	$	(0.05	)	$	(0.07	)
Other Comprehensive Loss:
Foreign currency translation adjustment	$	(14,893	)	$	25,546
Comprehensive loss	$	(884,439	)	$	(1,015,935	)

See accompanying notes to condensed consolidated financial statements

2

DS Healthcare Group, Inc. (dba DS Laboratories) and Subsidiaries

 Condensed Consolidated Statements of Cash Flows

 (Unaudited)

	For the Three Months Ended March 31,
	2015			2014
	(As Restated)			(As Restated)
Cash Flows from Operating Activities:
Net Loss	$	(869,546	)	$	(1,045,852	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		32,307			69,898
Loss on disposal of fixed assets		—			2,468
Impairment of intangible asset		337,500			---
Recovery of bad debts		(16,119	)		(152,875	)
Provision for obsolete inventory		1,087			25,018
Stock issued for services		100,500			91,254
Changes in operating assets and liabilities:
Accounts receivable, net		139,088			775,198
Inventories, net		(83,561	)		(535,012	)
Prepaid expenses and other current assets		830			102,914
Other assets		---			26,000
Accounts payable		(233,781	)		(545,568	)
Accrued expenses		(48,129	)		(257,994	)
Other current liabilities		(261,312	)		505,923
Net cash used in operating activities		(901,136	)		(938,628	)
Cash Flows from Investing Activities:
Purchase of furniture and equipment		526			(40,975	)
Purchase of injection molds		(14,250	)		—
Net cash used in investing activities		(13,724	)		(40,975	)
Cash Flows from Financing Activities:
Net repayments of credit facility		—			(105,326	)
Repayment of loans and notes		(2,965	)		(1,858	)
Proceeds from sale of stock subscription		220,000			—
Proceeds from sale of common stock		—			192,000
Less issuance cost		—			(10,000	)
Net cash provided by financing activities		217,035			74,816
Effect of exchange rate changes on cash		221,362			27,111
Decrease in cash		(476,463	)		(877,676	)
Cash, Beginning of Period		1,128,556			2,872,946
Cash, End of Period	$	652,093		$	1,995,270
Supplemental Information:
Cash paid for interest	$	—		$	27,545
Supplemental Noncash Investing and Financing Activities
Stock issued to satisfy accrual	$	—			5,000

See accompanying notes to condensed consolidated financial statements

3

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. – ORGANIZATION AND NATURE OF BUSINESS

Terms and Definitions

ASC	Accounting Standards Codification
ASU	Accounting Standards Update
FASB	Financial Accounting Standards Board
FIFO	First-in, First-out
US GAAP	Accounting principles generally accepted in the United States of America
SEC	Securities and Exchange Commission
2014-QTR	Three months ended March 31, 2014
2014-YTD	Year ended December 31, 2014
2015-QTR	Three months ended March 31, 2015
VIE	Variable Interest Entity

Organization and Nature of Business

DS Healthcare Group, Inc. (d/b/a DS Laboratories) (the “Company”, “DS Laboratories”, ”DSKX”, “we”, “us” or “our”) was organized under the laws of the State of Florida in January 2007. Through its predecessors, the Company has been developing and marketing hair care, skin care and personal care products for over fifteen years. The Company has grown steadily over the last few years with a network of top specialty retailers and distributors throughout North America, Europe, Asia and South America. The Company researches and develops its own products, which management believes keeps the Company at the forefront of innovation. The Company utilizes two innovative technologies in its products, (1) “Liposome Technology”, which acts as a carrier agent, and has been designed to enhance the action of the active ingredients in our products, and (2) “Nanosome Technology”, which acts as a delivery vehicle, and has been designed to infuse active compounds into targeted cells for increased efficiency of our products. We currently offer products within the following broad product categories:  Hair Care, Skin Care and Personal Care.

NOTE 2. – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Presentation

The condensed consolidated 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 US GAAP.

The condensed consolidated financial statements include the accounts of the Company and its operating subsidiaries DS Laboratories, Inc., Sigma Development and Holding Co., Inc., Polaris Labs, Inc., Polymer Research, Inc., and Divine Skin Laboratories, S.A. de CV (“DS Mexico”). Also included in the condensed consolidated financial statements are the operating activities of Velocity Storage and Packaging, LLC, which are accounted for as VIEs. All significant intercompany balances and transactions have been eliminated in consolidation.

On March 30, 2016, during the preparation of the Company’s 10-K, the company identified that certain transactions recorded in the company’s 10-K report for it consolidated financial statements for the years ended December 31, 2014 and the results of each quarterly 10-Q filings for the period ending September 30, 2015 became subject to an internal investigation.  The internal investigation resulted in the company’s inability to timely file it’s for 10-Q as required. 

The Company continued its review these transactions with its newly appointed independent accountants, the results of which have now been corrected and reflected in the restated unaudited consolidated financial statements for the three months ended March 31, 2015.   The corrective actions identified errors related to sales and customer returns and allowances, amounts with respect to the recognition of revenues and customer accounts receivable, and the recording of certain stock transactions.

4

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

The Audit Committee of the Board of Directors consulted with management and analyzed the adjustments with the intent to correct the 2014 and 2015 10-Q filings to reflect these errors.  However, because of the above mentioned errors, the Audit Committee has directed the Company to conduct a thorough review of the financial records for calendar years ended 2014 and 2015 along with its independent accountants and believes the restated financial statements for the three months ended March 31, 2015 and 2014 included herein to be fairly presented.

Interim Condensed Consolidated Financial Statements

The interim condensed consolidated 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 US GAAP have been condensed or omitted pursuant to such rules and regulations. The interim condensed consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements and related disclosures included in the Company’s Annual Report on Form 10-K, filed with the SEC on April 15, 2015. In the opinion of management, all adjustments (consisting only of those of a normal recurring nature) which are necessary to provide a fair presentation of financial position as of March 31, 2015 and the related operating results and cash flows for the interim periods presented have been made.  The results of operations for the periods presented are not necessarily indicative of the results to be expected for future periods or for the year ending December 31, 2015.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed 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. We believe our estimates and assumptions are reasonable; however, such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates. Significant estimates and assumptions underlying these condensed consolidated financial statements include:

· Estimates of allowances for uncollectable accounts receivable,

· Estimates of inventory obsolescence and overhead and labor cost allocations,

· Estimates assuming future earning capacity of our intangible assets,

· Estimates of value of equity transactions for services rendered,

· Estimates of returned or damaged product, and

· Estimates made in our deferred income tax calculations, for which there is a full valuation allowance.

Accounts Receivable

Accounts receivable are reported at their 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. The Company also provides for allowances against accounts receivables for product returns and cooperative advertising allowances. At March 31, 2015 and December 31, 2014, the allowance for uncollectable accounts was $251,825 and $268,329, respectively, $210,000 at both dates for defectives and product returns and $60,000 at both dates for advertising credits.

Inventories

Inventory is reported at the lower of cost or market on the 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.

5

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Revenue Recognition

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,

· Shipping terms are FOB shipping point,

· 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.  Shipping and handling costs are included in cost of goods sold.

Research and Development

The Company currently maintains a functional laboratory employing a full time chemist, a part time chemist/consultant and a lab technician that identify new technology, test product alternatives and improve existing formulations. In addition, our founder and CEO devotes a substantial portion of his time in identifying new technologies and formulations to develop new products and improve existing products with the newest technology available. Such activities are expensed in the year incurred. Such costs include laboratory supplies, salaries, materials and consultant fees. These costs are classified as product development, salaries, selling, general and administrative expenses in the condensed consolidated statements of operations, and amounted to $47,326 and $98,568 for 2015-QTR and 2014-QTR, respectively.

Earnings Per Share

Potentially dilutive securities are excluded from the computation of diluted net loss per share for all of the periods presented in the accompanying condensed consolidated statements of operations because the reported net loss in each of these periods results in their inclusion being antidilutive. Antidilutive securities, which consist of stock options and warrants that are not included in the diluted net loss per share calculation, consisted of an aggregate of 286,526 shares as of March 31, 2015 and 2014.

6

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 3. – LIQUIDITY and GOING CONCERN

We have sustained operational losses since our inception. At March 31, 2015, we had an accumulated deficit of $11,105,490. The Company cannot predict how long it will continue to incur further losses or whether it will ever become profitable as this is dependent upon the reduction of certain operating expenses, success of new and existing products and increase in overall revenue among other things. These conditions raise substantial doubt about the entity’s ability to continue as a going concern.

As of March 31, 2015, we had $652,093 in cash. While we have historically financed our operations and growth primarily through the successful issuance and sale of shares of our common stock, a line of credit and the issuance of promissory notes, the Company has started several new revenue initiatives creating additional revenue streams.  Some of these initiatives include: establishing an online store (Shop.DSLaboratories.com) which became operational in the third quarter of 2014, generating $131,107 2014-YTD and $85,636 2015-QTRin net revenue, respectively. The company also established a hair treatment clinic which opened in late November 2014 which has not yet generated appreciable sales. In the first quarter 2015, we have launched a range of new products. Although we cannot predict our success with these products or projects, all are currently under development and production and in various stages of completion. We have commenced implementing, and will continue to implement, various measures to address our financial condition, including but not limited to:

· Continuing to seek debt and equity financing. However, there can be no assurances that the Company will be able to raise additional capital on favorable terms, or at all.

· We completed an operational budget for 2015 that sets changes in our processes to focus on profitability.  We are also implementing a feedback process with improved interdepartmental communication.

Accordingly, the accompanying condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern.  The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and carrying amount or classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. We have commenced implementing, and will continue to implement, various measures to address our financial condition.

NOTE 4. – RECENT ACCOUNTING PRONOUNCEMENTS

Management continually evaluates the potential impact, if any, of all recent accounting pronouncements on our condensed consolidated financial statements or related disclosures and, if significant, makes the appropriate disclosures required by such new accounting pronouncements.

In April 2015, the FASB issued ASU No. 2015-03(ASU 2015-03),Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This standard amends the existing guidance to require that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. ASU 2015-03 is effective on a retrospective basis for annual and interim reporting periods beginning after December 15, 2015, but early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company's condensed consolidated financial position and results of operations.

NOTE 5. – RESTATEMENT OF FINANCIAL STATEMENTS

On September 28, 2016, during the preparation of the Company’s 10-K for the year ended December 31, 2015, the company identified certain transactions recorded in the company’s 10-K report for it consolidated financial statements for the years ended December 31, 2014 and the results of each quarterly 10-Q filings for the period ending March 31, 2015, June 30, 2015 and September 30, 2015, and determined these transactions did not reflect the proper matching of revenues and costs. The impact of these transactions on the Company’s financial statements for the year ended December 31, 2014, have been considered and have been disclosed and reported in the notes to the Company’s financial statements as reported in the annual 10-K report for the year ending December 31, 2014.

7

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5. – RESTATEMENT OF FINANCIAL STATEMENTS (Continued)

The results of the quarterly 10-Q filing during the three months ending March 31, 2015, as previously filed, also did not reflect the proper matching of revenues and costs. The impact of this restatement, although not material, on the Company’s financial statements for the three months ended March 31, 2015 and 2014, are reflected in the tables below:

Condensed Consolidated Balance Sheets:

	Previously Reported			Adjustment			Restated 2015
ASSETS
Current Assets
Cash	$	652,093		$	—		$	652,093
Accounts receivable, net		2,043,176			(487,732	)		1,555,444
Inventories, net		4,142,457			(197,450	)		3,945,007
Prepaid expenses and other current assets		277,884			(1	)		277,883
Total Current Assets		7,115,610			(685,183	)		6,430,427
Furniture and equipment, net		187,707			(36,912	)		150,795
Intangible assets, net		1,088,511			(337,500	)		751,011
Other assets		100,497			(26,000	)		74,497
TOTAL ASSETS	$	8,492,325		$	(1,085,595	)	$	7,406,730
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	996,084		$	256,894		$	1,252,978
Accrued expenses		904,495			64,488			968,983
Note payable		350,000			—			350,000
Other current liabilities		625,510			—			625,510
Total Current Liabilities		2,876,089			321,382			3,197,471
Long Term Debt, net of current portion		22,032			—			22,032
TOTAL LIABILITIES		2,898,121			321,382			3,219,503
COMITMENTS AND CONTINGENCIES
Shareholders' Equity
Common stock, $0.001 par value, 300 million shares authorized: 16,328,058 and 16,202,268 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively		16,328			—			16,328
Additional paid-in-capital		14,940,069			—			14,940,069
Stock subscription		217,500			—			217,500
Accumulated deficit		(9,698,513	)		(1,406,977	)		(11,105,490	)
Accumulated comprehensive income		157,250			—			157,250
Total Shareholders' Equity		5,632,634			(1,406,977	)		4,225,657
Non-Controlling Interest		(38,430	)		—			(38,430	)
Total Shareholders' Equity		5,594,204			(1,406,977	)		4,187,227
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	8,492,325		$	(1,085,595	)	$	7,406,730

8

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5. – RESTATEMENT OF FINANCIAL STATEMENTS (Continued)

	Previously Reported			Adjustment			Restated 2014
ASSETS
Current Assets
Cash	$	1,995,270		$	—		$	1,995,270
Accounts receivable, net		1,607,006			—			1,607,006
Inventories, net		3,357,602			(145,029	)		3,212,573
Prepaid expenses and other current assets		493,963			—			493,963
Total Current Assets		7,453,841			(145,029	)		7,308,812
Furniture and equipment, net		222,658			—			222,658
Intangible assets, net		1,297,733			—			1,297,733
Other assets		66,506			(26,000	)		40,506
TOTAL ASSETS	$	9,040,738		$	(171,029	)	$	8,869,709
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	1,660,485		$	24,670		$	1,685,155
Accrued expenses		588,395			—			588,395
Credit facility		477,058			—			477,058
Other current liabilities		792,205			—			792,205
Total Current Liabilities		3,518,143			24,670			3,542,813
Long Term Debt, net of current portion		34,567			—			34,567
TOTAL LIABILITIES		3,552,710			24,670			3,577,380
COMITMENTS AND CONTINGENCIES
Shareholders' Equity
Common stock, $0.001 par value, 300 million shares authorized: 16,328,058 and 16,067,775 shares issued and outstanding at March 31, 2015 and 2014, respectively		16,068			—			16,068
Additional paid-in-capital		14,651,175			—			14,651,175
Stock subscription		(2,500	)		—			(2,500	)
Accumulated deficit		(9,153,203	)		(195,699	)		(9,348,902	)
Accumulated comprehensive income		13,084			—			13,084
Total Shareholders' Equity		5,524,624			(195,699	)		5,328,925
Non-Controlling Interest		(36,596	)					(36,596	)
Total Shareholders' Equity		5,488,028			(195,699	)		5,292,329
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	9,040,738		$	(171,029	)	$	8,869,709

9

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5. – RESTATEMENT OF FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statements of Operations and Comprehensive Loss:

	Three Months Ended
	Previously Reported			Adjustment			Restated 2015
Net Revenue	$	2,803,920		$	(105,910	)	$	2,698,010
Cost of Goods sold		1,138,760			75,455			1,214,215
Gross Profit		1,665,160			(181,365	)		1,483,795
Operating Costs and Expenses:
Selling and marketing
Commissions and consulting		169,372			—			169,372
Other selling and marketing expenses		607,406			13,500			620,906
		776,778			13,500			790,278
General and administrative
Salary and personnel costs		512,451			—			512,451
Professional fees and consulting costs		376,411			988			377,399
Other general and administrative expenses		189,278			251,055			440,333
		1,078,140			252,043			1,330,183
Total operating costs and expenses		1,854,918			265,543			2,120,461
Operating Loss		(189,758	)		(446,908	)		(636,666	)
Other Income (Expense)
Interest expense		(15,855	)		—			(15,855	)
Impairment of intangible asset		—			(337,500	)		(337,500	)
Other		120,475			—			120,475
Total other income (expense)		104,620			(337,500	)		(232,880	)
Net Loss		(85,138	)		(784,408	)		(869,546	)
Net Loss Attributable to Non-Controlling Interest		—			—			—
Net Loss Attributable to Common Shareholders	$	(85,138	)	$	(784,408	)	$	(869,546	)
Basic and Diluted Earnings per Share:
Weighted average shares outstanding		16,256,461			—			16,256,461
Net Loss per share	$	(0.01	)	$	(0.04	)	$	(0.05	)
Other Comprehensive Loss:
Foreign currency translation adjustment	$	(14,893	)	$	—		$	(14,893	)
Comprehensive loss	$	(100,031	)	$	(784,408	)	$	(884,439	)

10

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5. – RESTATEMENT OF FINANCIAL STATEMENTS (Continued)

	Three Months Ended
	Previously Reported			Adjustment			Restated 2014
Net Revenue	$	2,684,964		$	2,684,964		$	2,684,964
Cost of Goods sold		1,202,518			189,029			1,391,547
Gross Profit		1,482,446			(189,029	)		1,293,417
Operating Costs and Expenses:
Selling and marketing
Commissions and consulting		360,559			—			360,559
Other selling and marketing expenses		609,463			—			609,463
		970,022			—			970,022
General and administrative
Salary and personnel costs		584,683			—			584,683
Professional fees and consulting costs		585,226			6,670			591,896
Other general and administrative expenses		164,035			—			164,035
		1,333,944			6,670			1,340,614
Total operating costs and expenses		2,303,966			6,670			2,310,636
Operating Loss		(821,520	)		(195,699	)		(1,017,219	)
Other Income (Expense)
Interest expense		(27,545	)		—			(27,545	)
Impairment of intangible asset		—			—			—
Other		(1,088	)		—			(1,088	)
Total other income (expense)		(28,633	)		—			(28,633	)
Net Loss		(850,153	)		(195,699	)		(1,045,852	)
Net Loss Attributable to Non-Controlling Interest		4,371			—			4,371
Net Loss Attributable to Common Shareholders	$	(845,782	)	$	(195,699	)	$	(1,041,481	)
Basic and Diluted Earnings per Share:
Weighted average shares outstanding		15,967,533			—			15,967,533
Net Loss per share	$	(0.05	)	$	(0.02	)	$	(0.07	)
Other Comprehensive Loss:
Foreign currency translation adjustment	$	25,546			—		$	25,546
Comprehensive loss	$	(820,236	)	$	(195,699	)	$	(1,015,935	)

11

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5. – RESTATEMENT OF FINANCIAL STATEMENTS (Continued)

Condensed Consolidated Statements of Cash Flows:

	For the Three Months Ended
	Previously Reported			Adjustment			Restated 2015
Cash Flows from Operating Activities:
Net loss	$	(85,138	)	$	(784,408	)	$	(869,546	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		32,307			—			32,307
Impairment of intangible asset		—			337,500			337,500
Provision (Recovery) of bad debts		(16,504	)		385			(16,119	)
Provision for obsolete inventory		1,087			—			1,087
Stock issued for services		100,500			—			100,500
Changes in operating assets and liabilities:
Accounts receivable, net		(217,494	)		356,582			139,088
Inventories, net		(159,016	)		75,455			(83,561	)
Prepaid expenses and other current assets		830			—			830
Accounts payable		(233,780	)		(1	)		(233,781	)
Accrued expenses		(62,617	)		14,488			(48,129	)
Other current liabilities		(261,311	)		(1	)		(261,312	)
Net cash used in operating activities		(901,136	)		—			(901,136	)
Cash Flows from Operating Activities:
Proceeds from furniture and equipment		526			—			526
Purchases of injection molds		(14,250	)		—			(14,250	)
Net cash used in investing activities		(13,724	)		—			(13,724	)
Cash Flows from Financing Activities:
Proceeds from loans and notes		(2,965	)		—			(2,965	)
Proceeds from stock subscriptions		220,000			—			220,000
Net cash provided by financing activities		217,035			—			217,035
Effect of exchange rate changes on cash		221,362			—			221,362
Decrease in cash		(476,463	)		—			(476,463	)
Cash, Beginning of Period		1,128,556			—			1,128,556
Cash, End of Period	$	652,093		$	—		$	652,093

12

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 5. – RESTATEMENT OF FINANCIAL STATEMENTS (Continued)

	For the Three Months Ended
	Previously Reported			Adjustment				Restated 2014
Cash Flows from Operating Activities:
Net loss	$	(850,153	)	$	(195,699	)		$	(1,045,852	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		69,898			—				69,898
Loss on disposal of fixed asset		2,468			—				2,468
Recovery of bad debts		(152,875	)		—		��		(152,875	)
Provision for obsolete inventory		25,018			—				25,018
Stock issued for services		91,254			—				91,254
Changes in operating assets and liabilities:
Accounts receivable, net		775,198			—				775,198
Inventories, net		(680,041	)		145,029				(535,012	)
Prepaid expenses and other current assets		102,914			—				102,914
Other assets		—			26,000				26,000
Accounts payable		(570,238	)		24,670				(545,568	)
Accrued expenses		(257,994	)		—				(257,994	)
Other current liabilities		505,923			—				505,923
Net cash used in operating activities		(938,628	)		—				(938,628	)
Cash Flows from Operating Activities:
Purchase of furniture and equipment		(40,975	)		—				(40,975	)
Net cash used in investing activities		(40,975	)		—				(40,975	)
Cash Flows from Financing Activities:
Repayments of credit facility		(105,326	)		—				(105,326	)
Repayment of loans and notes		(1,858	)		—				(1,858	)
Proceeds from sales of common stock		192,000			—				192,000
Less issuance cost		(10,000	)		—				(10,000	)
Net cash provided by financing activities		74,816			—				74,816
Effect of exchange rate changes on cash		27,111			—				27,111
Decrease in cash		(877,676	)		—				(877,676	)
Cash, Beginning of Period		2,872,946			—				2,872,946
Cash, End of Period	$	1,995,270		$	—			$	1,995,270

13

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 6. – INVENTORIES

Significant components of inventory at March 31, 2015 and December 31, 2014 consist primarily of:

	2015			2014
Bulk product and raw materials	$	2,416,001		$	2,502,402
Work in process		274,790			213,832
Merchandise inventory		1,496,189			1,301,933
Inventory in transit		146,372			231,623
Less: Allowance		(388,345	)		(387,258	)
	$	3,945,007		$	3,862,532

NOTE 7. – INTANGIBLE ASSETS

Significant components of intangible assets at March 31, 2015 and December 31, 2014 consist of:

	2015			2014
Distribution rights in Brazil	$	750,000		$	750,000
Less: Accumulated amortization		(750,000	)		(393,750	)
Net distribution rights		---			356,250
DS Mexico customer list		932,000			932,000
Less: Accumulated amortization		(217,274	)		(223,162	)
Net customer list		714,726			708,838
Goodwill		36,285			36,285
	$	751,011		$	1,101,373

The following table represents the amortized cost of the various assets over the remaining years; the weighted average remaining period is 6.13 years.

	2015		2016		2017		2018		Beyond		Total
Asset:
Mexican Customer list		77,625		103,500		103,500		103,500		326,601		714,726
	$	77,625	$	103,500	$	103,500	$	103,500	$	326,601	$	714,726

14

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 8. – ACCRUED EXPENSES

Accrued expenses at March 31, 2015 and December 31, 2014 consist of:

	2015		2014
Advertising and marketing	$	—	$	35,000
Commissions		315,729		367,063
Director services		1,510		15,000
Facilities		16,480		10,300
Fees / interest		10,500		7,000
Investor relations		301,652		265,024
Production materials		109,320		102,958
Stock awards		50,988		50,000
Personnel		121,321		108,819
Warehouse		41,483		55,948
	$	968,983	$	1,017,112

Investor relations – The reported amount is related to various agreements, dating back to August 2013, to perform investor relations services.  The services are payable in shares of our common stock, valued based on the day the services were deemed completed and the right to receive shares were earned.  The obligation at March 31, 2015 and December 31, 2014 could have been settled in cash or with the issuance of 357,154 shares of our common stock, at the Company’s discretion.

NOTE 9. – OTHER CURRENT LIABILITIES

Other current liabilities at March 31, 2015 and December 31, 2014 consist of:

	2015		2014
Customer deposits	$	178,371	$	141,998
Credit cards		198,815		190,803
Marketing and promotional programs		102,772		227,681
VAT taxes payable		77,795		173,567
Current portion of long-term debt		11,599		11,429
Loan from shareholder		10,000		—
Vendor financing		25,174		25,174
Advance from employee		—		26,360
Promotional gift cards		4,645		—
Payroll taxes		16,139		—
Other current liabilities		200		89,810
	$	625,510	$	886,822

NOTE 10. – DEBT FINANCING

Note Payable – The Company is party to a note for $350,000 which is secured by finished goods and bears interest at 1% per month.  The note originally matured on March 28, 2015 and was extended to May 28, 2015.

Long Term Debt – On December 10, 2012, the Company entered into a loan agreement for $53,900 to purchase certain warehouse equipment. The loan provides for monthly principal and interest payments of $1,041 for 60 months at 5.95% interest. Payments began on February 18, 2013.

Principal payout over the life of the loan is as follows:

	2015		2016		2017		Total
Current Portion of Long Term Debt	$	8,635	$	2,964	$	—	$	11,599
Long Term Debt		—		9,163		12,869		22,032
Total	$	8,635	$	12,127	$	12,869	$	33,631

15

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 11. – COMMITMENTS AND CONTINGENCIES

During the three months ended March 31, 2015, the Company operated under several material agreements as listed below:

Lease for office and production facilities –

· The Company is party to a lease for a total of 1,875 square feet in sales facilities located in Ashville, North Carolina. The leases provide for monthly rent of $4,725 throughout the lease term which both expire on December 31, 2015.  Effective September 30, 2014 the Company has relocated this office to its Florida headquarters and as of March 31, 2015 is still in negotiations with the landlord to formalize the lease termination.

· The Company was party to a lease for 50,000 square feet in warehouse and corporate office space located in Deerfield Beach, Florida, which expired in July 2014. On June 25, 2014, commencing August 1, 2014, the Company completed negotiations for a new lease for the same Deerfield Beach location. The terms of the new lease provide for $6.00 per square foot or $24,720 per month base rent plus $10,918 monthly in operating expenses and terminates on July 31, 2019. The lease provides for annual increases in the monthly base rent of $0.24- $0.27 per square foot.

The Company’s Mexican facility leases 246 square feet of office space and 1,230 square feet of warehouse Mexico City, Mexico, which expires in July 2015.  The leases provide for monthly rent of $1,408.

The Company accounts for its facility leases using the straight-line method and incurred $106,914 and $99,884 in total rent expense in the three months ended March 31, 2015 and 2014, respectively.

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

	2015		2016		2017		2018		2019		Total
Facility Leases
Deerfield, FL (HQ/Production)	$	325,686	$	444,672	$	457,238	$	470,298	$	278,882	$	1,976,776
Mexico City, Mexico (Sales)		5,786		—		—		—		—		5,786
	$	331,472	$	444,672	$	457,238	$	470,298	$	278,882	$	1,982,562

Pending and threatened litigation –

On June 13, 2011, we filed an action in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida for the rescission of an investor relations and consulting agreement entered into on or about October 15, 2010 whereby we paid a third party approximately $20,000 and 23,000 shares of restricted common stock in consideration of investor relations and consulting services. We have demanded return of the 23,000 shares of restricted stock and recovery of costs and other damages. The third party has filed a counter claim for breach of the agreement. We intend to continue vigorously defend this claim.

During 2011, we filed an action in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida for the rescission of an agreement entered into on or about May 18, 2010 whereby we paid a third party approximately $500 and 20,000 shares of restricted common stock in consideration of consulting services. We had demanded return of the 20,000 shares of restricted stock and recovery of costs and other damages. The claim was dismissed for lack of jurisdiction and we re-filed the action in the Supreme Court, New York County, New York on or about January 11, 2012, seeking rescission of said agreement and the return of $500 and 20,000 shares of restricted common stock.  During March 2014, the matter was settled and each party released the other from all claims related to the action.  Under a settlement matter and general release, the defendant agreed to return to Company treasury 10,000 shares common stock subject to the dispute, and of the remaining 10,000 shares, the defendant agreed to a one year lock up agreement covering 60% of the shares for a period of one year from the settlement date. As of March 31, 2015, the agreed shares have not been returned to treasury.

16

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 11. – COMMITMENTS AND CONTINGENCIES (Continued)

From time to time, the Company may be involved in various claims and legal actions arising from the ordinary course of business.  In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s condensed consolidated financial position or results of operations.

Purchase commitments

In order to secure an adequate supply of raw materials, the Company executes purchase orders to its suppliers as evidence of its intent to purchase materials. Purchase orders outstanding at March 31, 2015 totaled $496,994.

Contract contingencies

Our distribution agreement with Gamma Investors, a shareholder of the Company, provides that in the event we terminate the agreement without cause, we are required to repurchase all products held in Gamma’s inventory and pay Gamma a fee equal to the greater of the prior 12 month product purchased by Gamma or $2 million. Transactions with Gamma have been de minimus to date.

NOTE 12 – EQUITY

Common Stock

During the first quarter of 2015, the Company issued 32,500 shares of common stock to distributors for achieving sales goals valued at $27,000. We also issued 57,000 shares of common stock in aggregate to two investor relations (“IR”) firms for services valued at $43,500 in total. We also issued an aggregate of 36,290 shares of common stock to three employees for services rendered, at a value of $30,000 in total. We also received $220,000 from an investor for a subscription to purchase 440,000 shares, which was accepted on April 1, 2015. (See Note 16).

NOTE 13. – SIGNIFICANT CUSTOMERS

Our product revenues represent primarily sales of Revita and Revita Cor which individually exceed 10% of total sales and collectively represent 46% of net revenue. Spectral DNC-N represents 10% of net revenue and Spectral DNC-s V1 and DNC-5% each represent 6% of net revenue. The Company sells its products to several types of customer, which primarily include distributors and salons, several of which represent individually in excess of 10% of total net revenue during 2015-QTR and 2014-QTR. During 2015-QTR and 2014-QTR, our top ten customers generated 72% and 45% of our net revenue, respectively.

Sales to customers individually in excess of 10% of net revenue during 2015-QTR and their accounts receivable at March 31, 2015 were:

Customer	Sales Amount	Percent	Accounts Receivable	Percent
H	$304,949	13%	$366,835	14%
F	$261,086	11%	$207,631	8%

Sales to customers individually in excess of 10% of net revenue during 2014-QTR and their accounts receivable at March 31, 2014 were:

Customer	Sales Amount	Percent	Accounts Receivable	Percent
H	$378,310	13%	$249,413	12%

17

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 14. – SIGNIFICANT VENDORS  

The Company purchases its raw materials from various foreign and domestic suppliers several of which represent individually in excess of 10% of total purchases. Purchases of raw materials consist primarily of basic chemicals and packaging materials. The Company believes that it enjoys cordial relationships with all its suppliers but should the need arise; the Company believes that it could transition to alternate suppliers with minimal adverse impact. It does not have any formal long term purchase agreements with its suppliers. The Company does issue purchase orders based on its production plan, which may be modified or cancelled should its production plan change.

Purchases from significant vendors during 2015-QTR and their accounts payable at March 31, 2015 were:

Vendor	Purchase Amount	Percent	Accounts Payable	Percent
A	$191,713	22%	$29,419	4%
C	$171,149	20%	$56,824	8%

Purchases from significant vendors during 2014-QTR and their accounts payable at March 31, 2014 were:

Vendor	Purchase Amount	Percent	Accounts Payable	Percent
C	$325,731	28%	$98,029	6%

NOTE 15. – GEOGRAPHIC REVENUE REPORTING

The Company is organized based on one business segment although it does distribute its products on a world-wide basis. Several of its largest distributors are based in North America who in turn sell their products in Europe or Asia. We consider these customers as based in North America. However our sales to international distributors who distribute our product outside North America have been consistent.

Information about the Company’s geographic operations for both 2015-QTR and 2014-QTR as follows:  

	2015		2014
Net Revenue:
North America	$	1,098,100	$	1,033,997
International		1,599,910		1,650,967
	$	2,698,010	$	2,684,964

Furniture and Equipment, Net:
North America	$	101,649	$	119,530
International		49,146		103,128
	$	150,795	$	222,658

18

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 16. – RELATED PARTY TRANSACTIONS

For the three months ended March 31, 2015 and 2014, the Company was a party to the following related party transactions not disclosed elsewhere in these financial statements:

·

the Company paid $25,808 (2015) and $25,808 (2014) as compensation to the father of our Chief Executive Officer for consulting on various projects,

·

the Company had receivables from a consultant of $40,625 (2015) and $11,170 (2014) and payables of $2,730 (2015) and $11,571 (2014). In addition, the Company paid the consultant who is a shareholder and performs outsourced COO services and was reimbursed the following:

–

$47,500 (2015) and $0 (2014) for outsourced COO services.

–

$8,839 (2015) and $6,875 (2014) for the purchase of materials needed for the assembly and manufacture of products for export,

–

$20,000 (2015) and $0 (2014) in cash and stock for IR related expenses and services.

NOTE 17. – SUBSEQUENT EVENTS

Management has evaluated subsequent events or transactions occurring through the date the financial statements were issued.

On April 1, 2015, we accepted a subscription to purchase 440,000 shares for cash proceeds of $220,000, which was received and deposited in 2015 QTR.

On April 20, 2015, we received a secured loan for $250,000 from one of our shareholders. This loan bears interest of 1% per month and is due on April 20, 2016. This loan is secured by the Company’s accounts receivable. As part of the terms, the Company has issue 30,000 warrants with an exercise price of $0.85 per share, with an expiration date of April 20, 2017.

During the second quarter of 2015, the company issued 345,000 shares for services in aggregate valued at $1.64 or $565,800.

On October 7,2016, the company issued an 8-K to inform the investors that previously submitted filings should not be relied upon for investing decisions. The company will be filing amended 10-Q’s for the periods ending March 31, 2015, June 30, 2015 and September 30, 2015. These amended financial statements will include adjustments to the comparable financial statements for 2014. The company became aware of the need to issue amended financial reports on or about September 25^th as part of the audit of its financials by its independent auditor, BF Borges CPA PC. The total impact of the adjustments for the nine months ending September 30, 2015 amount to an increased net loss of $1,125,792. The primary adjustments are between periods within 2015 and the company deemed that the adjustments required the filing of adjusted quarterly financial reports.

19

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 20 – SUBSEQUENT EVENTS (Continued)

Throughout the year ended 2014 and 2015, Daniel Khesin, the Company's former chief executive officer and former chief financial officer, received in addition to base compensation, reimbursement and payroll advances of expenses of approximately $76,000 and $40,000 respectively, which were for non-business related goods and services. Pursuant to his executive employment agreement $50,000 in shares were to be payable in shares of the Company's common stock at fiscal year-end. While Mr. Khesin believed that these payments were received as satisfaction of certain bonus or other perquisites earned by him on a monthly basis under his employment agreement, such payments, if any, required approval of our compensation committee, which approval was not received until subsequent to 2014 and 2015. Section 402 of the Sarbanes Oxley Act of 2002 prohibits advances or loans to a director or executive officer of a public company. While our audit committee has concluded that the payments made to Mr. Khesin prior to board approval may be in violation of Section 402 of the Sarbanes Oxley Act of 2002, in the event it is determined any such payments were a violation of the Sarbanes Oxley Act, such violation could have a material adverse effect on our Company, including, but not limited to criminal, civil or administrative sanctions, penalties, or investigations, in addition to potential securities litigation. As a consequence of these activities, the company received notice from its independent auditor of potential illegal acts concerning payments of personal expenses by the Company. The Company’s Audit Committee has agreed with the findings. On September 29^th, 2016. The company, in accordance with Section 10A of the Securities and Exchange Act of 1934, informed the Commission in a letter also dated September 29^th, 2016. See "Controls and Procedures" and "Executive Compensation" below.

During 2013, in addition to base compensation paid to Abner Silva, a consultant deemed to be an officer by our independent auditor for accounting purposes, our company advanced approximately $11,500, to Mr. Silva. While Mr. Silva, believed that these payments were received as satisfaction of certain moneys owed to him or his affiliate companies, such payments, if any, required prior approval of our compensation committee, which approval was not received. As a consequence of these activities, the company received notice from its independent auditor of potential illegal acts concerning payments of personal expenses by the company on September 29^th, 2016. The company, in accordance with Section 10A of the Securities and Exchange Act of 1934, informed the Commission in a letter also dated September 29^th, 2016.

In December 2015, the Company, under former management entered into an agreement with a barter trading company to sell slow moving, finished goods in exchange for prepaid credits. During 2015 and through April 2016, the Company sold merchandise worth $956,176 and $4,566,717 to this barter trading company. However, these credits proved to have no economic value and accordingly revenue did not meet the criteria as defined in Accounting Standards Codification 605 (“ASC”). The Company has reversed the sales to this barter trading company that did not meet the revenue standards.

In January 2016, the company entered into a Stock Purchase Agreement with a private party in the amount of $1,996,500 for 605,000 shares of the company’s stock. To date, the purchase agreement has only partially settled. The Company’s has offset subscription receivable against the additional paid in capital of $1,196,500. The Board of Directors has decided to negotiate a revision to the original Stock Purchase Agreement to reach an appropriate resolution to the matter. The company has no way of knowing what the financial impact will be.

On May 2, 2016, the company received a letter from an attorney representing its former CEO, Renee Barch-Niles requesting certain payments she believes are due arising from her employment contract. This includes salary demands, equity demands and commission demands on the above barter transaction. The total claims made by Ms. Barch-Niles are $2,500,000 worth of shares of the company’s stock, $123,000 in commissions from the barter trading arrangement, and $300,000 in severance payments. The company maintains that Ms. Barch-Niles is not due any payments subsequent to her separation from the company and will take all appropriate action to defend against the claims.

20

DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 20 – SUBSEQUENT EVENTS (Continued)

On September 27, 2016, pursuant to the Company’s By-Laws, the current Board of Directors approved and ratified all shares to the former management through date of termination. It is the Company’s position that due to circumstances surrounding the terminations, no further shares or compensation are owned and will vehemently defend its position.

On April 20, 2016 the company was notified by Nasdaq that the Company did not comply with Nasdaq’s filing requirements set forth in Listing Rule 5250(c)(1) because it had not filed its Form 10-K for the period ended December 31, 2015.

On June 7, 2016 and August 19th, 2016, the company was notified by Nasdaq that the Company did not comply with Nasdaq’s filing requirements set forth in Listing Rule 5250(c)(1) because it had not filed its Forms 10-Q for the periods ended March 31 and June 30, 2016, respectively.

On September 26, 2016, the company received Nasdaq’s staff determination letter, informing the company of Nasdaq’s intention to deny the company’s request for continued listing due to the delinquent reports. Separately, Nasdaq informed the company of its determination of additional basis for delisting due to public interest concerns under listing Rule 5101 raised by 1. The company’s failure to promptly initiate and conduct an independent investigation, recommended by its previous independent auditors, into concerns identified by its former board of directors, including concerns regarding revenue recognition and stock issuances, among other matters; and 2. The Company’s inability to produce minutes evidencing meetings of the Company’s board of directors for calendar year 2015 and for the first four months of calendar year 2016. Further, and also as a separate basis for delisting, Nasdaq informed the company of its belief the Company had made misleading statements and/or omitted material facts in its communications with Staff, in violation of Listing Rule 5250(a)(1). Pursuant to Nasdaq listing Rule 5800 series the Company appealed the staff’s determination to a Hearings Panel and requested an oral hearing to appeal the staff determination. In addition, the Company requested a stay of the suspension and delisting action pending the issuance of a written decision by the Hearings Panel. In the request, the company stated that the delinquent reports would be filed prior to the October 11th due date, informed Nasdaq that an independent investigation had been initiated by the company with an expected completion date of approximately October 11th, 2016, informed Nasdaq of its efforts to retrieve the missing minutes via a diligent search of its email archives and attempts to contact prior board members for their records, and its disagreement with the staff’s belief that any misleading statement had been made. The company received from Nasdaq, on September 26th, 2016, a letter informing them that the requested hearing will take place on November 10th.

On March 29, 2016, DS Healthcare, Mr. Khesin, and certain former members of the Board of Directors were sued in a class action styled, Prasant Shah v. DS Healthcare Group, Inc., et. al., Case No. 16-60661, which is pending in the United States District Court for the Southern District of Florida.  A later-filed class action has been consolidated.  The class action arises from the Company’s March 23, 2016 and March 28, 2016 8-K filings, which stated, in pertinent part, that the audit committee had concluded that the unaudited condensed consolidated financial statements of the Company for the two fiscal quarters ended June 30, 2015 and September 30, 2015 (the “June and September 2015 Quarters”), should no longer be relied upon because of certain errors in such financial statements, and that Daniel Khesin had been terminated for cause and removed as Chairman and a member of the Board of Directors.  Plaintiffs have until November 2, 2016 to file an Amended Complaint, which DS Healthcare must respond to no later than December 19, 2016.   The Company also received the first of three related shareholder derivative demands on March 29, 2016.  A mediation concerning the class action and the derivative demands is scheduled for October 17, 2016, in Miami, Florida.

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DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 20 – SUBSEQUENT EVENTS (Continued)

On May 27, 2016, PhotoMedex, Inc., Radiancy, Inc., and PhotoMedex Technology, Inc. (collectively, “PhotoMedex”)  filed a civil action for damages and declaratory relief against DS Healthcare in the United States District Court for the Southern District of New York.  The lawsuit is styled PhotoMedex, Inc. v. DS Healthcare Group, Inc., Case No. 1:16-cv-03981.  The lawsuit arises from two merger agreements: (i) an Agreement and Plan of Merger and Reorganization among DS Healthcare Group, Inc., PHMD P Acquisition Corp., PhotoMedex, Inc. and Radiancy, Inc. dated February 19, 2016; and (ii) an Agreement and Plan of Merger and Reorganization by and among DS Healthcare Group, Inc., PHMD Professional Acquisition Corp., PhotoMedex Technology, Inc. and PhotoMedex, Inc. dated February 19, 2016.  PhotoMedex alleges that DS Healthcare breached both agreements by failing to meet its pre-closing obligations and not completing the transactions contemplated by the agreements.  PhotoMedex seeks a declaratory judgment that their terminations of the two agreements were proper, and requests an award of damages specified by the agreements, including a “break-up fee” of USD $3 million.  DS Healthcare disputes the claims asserted by PhotoMedex, including that PhotoMedex is entitled to the “break-up fee” under the agreements.  DS Healthcare has also asserted a counterclaims for damages against PhotoMedex for their breaches of the two agreements.  An initial case management conference is scheduled for October 13, 2016.  

On December 28, 2015, Microcap Headlines, Inc. (“Microcap”), an investor awareness business located in North Babylon, New York, filed a civil action against DS Healthcare, Daniel Khesin and former DS Healthcare employee Abner Silva in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida.  The lawsuit is styled Microcap Headlines Inc. v. DS Healthcare Group, Inc. et al., Case No. 2015-030046-CA-01.  Plaintiff Microcap asserts claims for breach of contract, negligent misrepresentation, fraud (solely against defendant Silva), violation of the Florida Securities and Investor Protection Act, and quantum meruit, all of which arise from an October 15, 2014 contract between Microcap and DS Healthcare pursuant to which Microcap promised to provide certain investor awareness services in exchange for compensation in the form of cash and warrants to purchase DS Healthcare stock.  Microcap seeks damages in an unspecified amount.  DS Healthcare disputes the claims asserted by Microcap in the lawsuit.  Court-ordered mediation is scheduled for November 22, 2016, and the case is scheduled for trial to commence sometime during the three-week trial period beginning on January 17, 2017.

On April 12, 2016, the SEC issued a “Formal Order” directing a private non-public formal investigation to determine whether violations of the federal securities law may have been committed, directly or indirectly, by the Company, its officers, directors, employees, partners, subsidiaries and/or affiliates, and/or other persons or entities.  The possible violations set forth in the Formal Order include Section 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), 13(k), 14(a), and 14(f) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, 13b2-1, 13b2-2(a), 14a3, 14a-9, and 14f-1.   The relevant time period specified in the Formal Order is between January 1, 2010 and the present date. On April 15, 2016, the SEC issued a subpoena duces tecum to Mr. Khesin. On May 4, 2016, the SEC issued a subpoena duces tecum to the Company.  The company is complying with all requests to the SEC and the review and production process is ongoing in nature. On or about July 27, 2016, the SEC issued a second subpoena duces tecum to the Company seeking a current copy of its QuickBooks file with a user name and password.  The Company has complied with the second subpoena duces tecum. The company has no way of determining what the outcome of this investigation will be and cannot predict any financial impact.

Significant Changes to the Board of Directors and Executive Management:

On April 2, 2016, Michael Pope, Diane Rosenfeld, Renee Barch-Niles and Carl Sweis were terminated as Directors of the company. Additionally, Renee Barch-Niles was removed as Chief Executive Officer. Daniel Khesin was appointed sole Director, Chief Executive Officer and Chief Financial Officer.

Mr. Myron Lewis joined the Board of Directors on April 22, 2016.His role includes chairing the Compensation Committee. Subsequently, on September 12, 2016, Mr. Lewis was appointed Executive Director and tasked with supervising the company’s operations with a goal of facilitating profitability and compliance.

Mr. Yasuhiro Fujiwara joined the Board of Directors on April 22, 2016. Subsequently, on September 12, 2016, Mr. Fujiwara was appointed Chairman of the Board of Directors.

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DS HEALTHCARE GROUP, INC. (dba DS LABORATORIES) and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 20 – SUBSEQUENT EVENTS (Continued)

Ms. Elina Yuabov joined the Board of Directors on April 22, 2016

Ms. Estella Ng joined the Board of Directors on May 6, 2016. Her role includes chairing the Audit Committee.

Mr. John Power joined the company on September 12, 2016 as Chief Financial Officer and Chief Administrative Officer.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

This filing contains forward-looking statements, including statements regarding, among other things, our projected sales and profitability, our Company’s growth strategies, our Company’s future financing plans and 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. 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 discussion is intended to supplement and highlight information contained in, and should be read in conjunction with, our condensed consolidated financial statements and related notes and the selected financial data presented elsewhere in this report.

Significant Accounting Policies

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 2 to condensed consolidated financial statements describes the significant accounting policies used in the preparation of the condensed consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the presentation of our condensed consolidated financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the condensed consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our condensed consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our condensed consolidated financial statements:

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. The Company also has been experiencing significant growth which puts serious strains on its cash availability requirements. If the Company is unsuccessful in securing adequate liquidity, its plans may be curtailed. Adverse changes in these areas could negatively impact the Company’s financial position, results of operations and cash flows.

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Accounts Receivable– Accounts receivable are reported at their 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.

Inventory – Inventory is reported at the lower 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.

Revenue Recognition – 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. Shipping and handling costs are included in cost of goods sold.

Research and Development – The Company incurs formulation costs that include salaries, materials and consultant fees. These costs are classified as product development, selling and general and administrative expenses in the condensed consolidated statements of operations.

Results of Operations

Three Months Ended March 31, 2015 as Compared to the Three Months Ended March 31, 2014

Revenues, net – Total net revenues increased $13,046 or 0.5%, from $2,684,964 for the three months ended March 31, 2014 to $2,698,010 for the three months ended March 31, 2015. Our product revenues represent primarily sales of Revita and Revita Cor, which individually exceeded 10% of total sales and collectively represented approximately 46% of total sales for the period. In addition, Spectral DNC-N represents approximately 10% of total sales for each period along with Spectral DNC-S V1 and Spectral DNC 5% which represents 6% each of net revenue.

Net revenue from our Mexican subsidiary increased 5.1%in 2015-QTR compared to 2014-QTR, accounting for $664,183 (25%) and $631,975 (23.5%) of consolidated net sales for the three months ended March 31, 2015 and 2014 respectively. The increase in net revenue from our Mexican subsidiary as a result of increased marketing efforts, continues to consistently contribute to the overall increase in net revenue. Sales generated from US operations have increased as well, as a result of no longer delaying sales due to backorders. The issue of backorders has improved dramatically. We continue our marketing and sales efforts to expand our customer base, with our primary focus on expanding our distributor base, both domestic and foreign. We conduct a significant portion of business with various distributors under exclusive distribution agreements. Revenues from our top ten customers accounted for approximately 70% and 45% of our total revenues during the three months ended March 31, 2015 and March 31, 2014, respectively.

Cost of Goods Sold – Total cost of goods sold decreased $177,332 or 12.7%, from $1,391,547 (2014-QTR) to $1,214,215 (2015-QTR). We continued additional cost cutting efforts during the quarter ending March 31, 2015 that included improved sales mix, reformulations, and improved manufacturing efficiencies.

Consequently, the gross margin has improved from 48.2% (2014-QTR) to 55.0% (2015-QTR), with US operations accounting for $931,516 or 72% (2014-QTR) and $1,099,581 or 74% (2015-QTR) of the gross margin dollars and with DS Mexico accounting for $361,901 or 28% (2014-QTR) and $384,214 or 26% (2015-QTR) of gross margin dollars, offset by the stronger dollar compared to the Mexican peso.

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Selling and Marketing Costs – Selling and marketing costs decreased $179,744 or 18.5% from $970,022 (2014-QTR) to $790,278 (2015-QTR). The decrease was due to the following:

– Decreases of:

· $191,187 for consulting and commissions, as a result of decreased sales incentives and improved efficiencies in the sales force, and

· $51,242 for product development, as a result of completion of new product development in Q4 2014.

– Partially offset by increases of:

· $22,261 for travel and entertainment costs, as a result of increased educational and training of support staff during the quarter, and

· $11,947 for Internet and Web Hosting costs, as a result of increased activity through the online store and technical support needed.

General and Administrative Costs – General and administrative costs decreased $10,431 or 0.8%, from $1,340,614 (2014-QTR) to $1,330,183 (2015-QTR). The decrease is due to the following:

– Decreases of:
· $214,497 for professional fees primarily associated with a reduced need for consultants, specifically receiving common stock compensation, and
· $72,232 for personnel costs, as a result of reductions in redundancies and overall staff needs, and
· $23,302 for depreciation and amortization primarily associated with reduced amortization as a result of fully amortizing the Pure Guild brand and other intangibles associated with our Mexico operations during 2014, and
· $26,015 for licenses and permits as a result of a decreased filings of regulatory permits in the U.S. and abroad, specifically with our Mexico subsidiary.
· $23,364 for bank charges as a result of improved internal policies within A/P for wire and bank analysis costs, as well as overall fees for transactions.
· $58,866 for other general and administrative costs, as a result of improved overall efficiencies.

– Partially offset by increases of:
· $158,391 for bad debt, as a result of a one-time reversal during 2014-QTR.

Other Income and Expenses – Other income and expense increased $204,247 from $28,633 expense (2014-QTR) to $232,880 expense (2015-QTR). The increase is due to invoicing a one-time fee of $120,000 for terminating our existing agreement with a major consumer products company so that a new agreement could be structured, which the Company realized no revenue from the terminated agreement, partially offset by a charge for the impairment of an intangible brand rights agreement totaling $337,500.

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Liquidity and Capital Resources

We had cash of $652,093 and working capital of $3,232,955 at March 31, 2015. 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. Since inception, our losses from operations and working capital required to grow our business were satisfied primarily through the private sales of our common stock and by credit financing.

Despite our losses since inception, we believe that by increasing our sales and gross profit margins while maintaining and better optimizing our current operational structure and administrative expenses, we can minimize the cash needed to support our operations. Our largest consumption of cash is the working capital necessary to support expanding sales. The sale of additional equity or convertible debt securities will result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and may also result in covenants that would restrict our operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

We have commenced implementing, and will continue to implement, various measures to address our financial condition, including methods to increase gross profit margins and reducing and streamlining our operational costs and overhead. We have historically satisfied our working capital requirements through the sale of common stock, advances from related parties and third parties and through our credit facility. We are continuing to seek debt and equity financing; however, there can be no assurances that the Company will be able to raise additional capital on favorable terms, or at all.

Cash Flows for the Three Months Ended March 31, 2015

Cash Flows from Operating Activities

Operating activities used net cash for the three months ended March 31, 2015 of $901,136. In addition, changes in operating assets and liabilities used cash of $486,865 as follows:

· $139,088 provided by a decrease in gross accounts receivable not including the non-cash effect of changes in the allowance for doubtful accounts,

· $83,561 used by an increase in inventory component levels resulting from implementing a purchasing strategy to continue eliminating backorders and improve customer satisfaction,

· $233,781 used by a decrease in accounts payable resulting from efforts to reduce outstanding vendor balances and restore normalized vendor relations,

· $42,129 used by a decrease in accrued expenses as a result of a decrease in certain accrued expenses, and

· $260,482 provided by net changes in other current assets and liabilities primarily as a result of increased liabilities associated with the expansion of our Mexican operations.

Cash Flows used in Investing Activities

Our investing activities used $13,724 in net cash during the three months ended March 31, 2015. Net cash used is primarily the result of injection mold purchases for production in the US and sales operations in Mexico.

Cash Flows from Financing Activities

Our financing activities contributed $217,035 in net cash during the three months ended March 31, 2015, primarily as a result of the $220,000 contributed for purchase of subscriptions, and use of $2,965 in repayment of loans and notes.

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Financial Position

Total Assets – Our total assets decreased $874,599 or 10.6% from $8,281,328 as of December 31, 2014 to $7,406,730 as of March 31, 2015, primarily as a result of the cash used to repay creditors and increase inventory components. The decrease in total assets was also the result of a decrease of $350,362 in intangible assets, an impairment charge of $337,500 on the brand rights agreement for Brazil offset by amortization, as well as a decrease in equipment, net of depreciation, of $18,699 which was partially offset by an increase of $12,250 in other assets.  Current assets decreased by $517,787 the components of which are discussed further below.

Current Assets – The net decrease in current assets of $517,787 was primarily associated with a decrease in cash of $476,463, primarily to support operations. These decreases were partially offset by a $82,474 decrease in inventory levels and a $122,967 increase in accounts receivable. These net changes are primarily driven by changes in sales and other factors more specifically discussed below:

Inventory – Inventory levels increased 2.1% from December 31, 2014 to March 31, 2015, as a result of continued efforts to replenish inventory in key raw material components in anticipation of higher sales in the latter half of 2015. Inventory levels increased as a result of increased number of SKU’s in our portfolio of products. Backlog and back orders have effectively been reduced to zero and perceived sales in the later part of 2015 should use the inventory on hand.

Average inventory represents approximately 89.2% of COGS or over an elevenmonth supply based on the sell through rate achieved for the three months ended March 31, 2015, resulting in an inventory turnover rate of 1.37 times. This inventory turn rate should improve as we ramp up sales volume that can now be met with smoother production timing.

Accounts Receivable, net – Accounts receivable decreased $122,967, primarily as a result of an improvement in collections during Q1 2015. The receivables are in line with historical averages for previous quarters and these levels of sales.

Prepaid Expenses and other current assets – Prepaid expenses marginally increased and was flat when compared to 2014-QTR.

Material Commitments

None.

Off Balance Sheet Arrangements

None.

Recent Accounting Pronouncements  

Management continually evaluates the potential impact, if any, of all recent accounting pronouncements on our financial statements or related disclosures and, if significant, makes the appropriate disclosures required by such new accounting pronouncements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to smaller reporting companies.

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ITEM 4.

CONTROLS AND PROCEDURES

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d–15(e) under the Exchange Act) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the forms and rules of the SEC and that such information is accumulated and communicated to management, including the CEO and CFO, in a manner to allow timely decisions regarding required disclosures.

In connection with the preparation of this Form 10–Q, our management, including the CEO and CFO, updated its December 31, 2014 evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March, 2015. As described below, management has identified material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure controls and procedures. As a result of those material weaknesses, our management has concluded that, as of March 31, 2015, our disclosure controls and procedures were not effective, as a result of certain material weaknesses.

The specific material weaknesses that management identified in our internal controls as of March 31, 2015 that persist are as follows:  

· We did not have adequate staffing resources to provide appropriate review and supervision for all necessary areas and our general staff do not have the necessary training to perform appropriate analytical or review procedures.

· We did not have a sufficient number of adequately trained technical accounting and external reporting personnel to support standalone external financial reporting under SEC requirements.

· We did not have personnel with sufficient experience with United States generally accepted accounting principles to address complex transactions.

· We did not obtain adequate documentation to support all credit card transactions.

Plans for Remediation of Material Weaknesses

We have begun implementing changes to strengthen our internal controls and will continue to implement remediation plans for the identified material weaknesses and expect the work on the plan will continue throughout 2015, as financial resources permit. The Company plans to hire a full-time Chief Financial Officer. The Company continues to formalizing its policies and procedures in writing and to improve the integration of its financial consolidation and reporting system into non- accounting departments. Where appropriate, the Company is receiving advice and assistance from third-party experts as it implements and refines its remediation plan.

Additional measures may be necessary, and the measures we expect to take to improve our internal controls may not be sufficient to address the issues identified, to ensure that our internal controls are effective or to ensure that such material weakness or other material weaknesses would not result in a material misstatement of our annual or interim financial statements. In addition, other material weaknesses or significant deficiencies may be identified in the future. If we are unable to correct deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and generally materially and adversely impact our business and financial condition.

Changes in Internal Control over Financial Reporting

Except as otherwise stated above, there were no changes in our internal control over financial reporting or in other factors during the quarter ended March 31, 2015, that have materially affected, or were reasonably likely to materially affect, our internal control 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 companies.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In addition to the equity securities previously disclosed on SEC reports by the Company, during the period covered by this report the Company issued the unregistered shares of common stock as disclosed below. The shares were issued under the exemption from registration provided by Section 4(a)(2) of the Securities Act. The certificates representing the shares contain legends restricting their transferability absent registration or exemption.

During the first quarter of 2015, the Company issued 32,500 shares of common stock to distributors for achieving sales goals valued at $27,000. We also issued 57,000 shares of common stock in aggregate to two investor relations (“IR”) firms for services valued at $43,500 in total. We also issued an aggregate of 36,290 shares of common stock to three employees for services rendered, at a value of $30,000 in total.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibit Number	Description
31.1	Certification pursuant to Rule 13a-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)
101	XBRL Interactive Data File

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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: October 14, 2016	DS HEALTHCARE GROUP, INC.
	By:	/s/ Daniel Khesin
		Daniel Khesin
		President/Chief Executive Officer
	By:	/s/ John Power
		John Power
		Chief Financial Officer/
		Principal Accounting Officer

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