DS Healthcare to Auditors: Ooops!

“My bad.” You don't want to hear it from your hairdresser or golf partner, but especially not from your accountant. And yet, that's exactly what's taking shape at DS Healthcare Corp. On March 23, 2016, the Florida corporation filed a current report on Form 8-K with the SEC disclosing that the audit committee of the board of directors concluded that the unaudited condensed consolidated financial statements of the company for the two fiscal quarters ended June 30, 2015 and September 30, 2015 should no longer be relied upon because of certain errors in such financial statements.


The error has put the company's announced acquisition in jeopardy, too.


Based on their review, to the knowledge of the audit committee of the board, the errors totaled approximately $900,000 in reduced revenues. These errors included approximately $300,000 and $600,000 of revenues recorded in the second quarter and third quarter of 2015, respectively, that did not meet revenue recognition criteria. As a result, estimated unaudited 2015 fiscal year revenues should be reduced by approximately 6% to $13.0 million.


In addition, 800,000 restricted shares of Company common stock were issued during the third quarter of 2015 as compensation under a contract with a purported foreign distributor which the Company believes lacks future economic value. As a result, the Company has elected to expense such shares in the third quarter of 2015. Another 350,000 shares of Company’s common stock were issued during the fourth quarter of 2015 to an investor relations firm for a one-year engagement which commenced in the third quarter of 2015. To the knowledge of management, no services have been provided by this investor relations firm to date. Accordingly, the entire amount of the equity award was recorded as an expense during the fourth quarter. For these as well as other reasons, it is the Company’s position that all or a substantial portion of these restricted shares should be returned to the Company for cancellation. The Company intends to vigorously pursue its rights to recoup and cancel such shares.



Mark Brockelman, chief financial officer, DS Healthcare stated, “All of the adjustments to the company’s consolidated financial statements will be recorded and reflected in our restatements of the unaudited financial statements for the two fiscal quarters ended June 30, 2015 and September 30, 2015 and in our 2015 financial statements included in our Form 10-K Annual Report.”


Commenting on these matters, Michael Pope, head of the audit committee of the board said, “Renee Barch-Niles, chief executive officer, Mark Brockelman, chief financial officer, and Manny Gonzalez, chief commercial officer of the company were all hired after the occurrence of the transactions that led to the restatement of the financials and the termination of Mr. Khesin. Although we certainly regret having to make these adjustments to our 2015 financial statements, we do not believe that the financial adjustments should have a material adverse effect on the future viability of the Company’s business. The audit committee and the Board will continue to work with our new management team.”


Renee Barch-Niles stated, “The company has stated in our past quarterly and annual filings that there were material weaknesses based on lack of proper financial controls. New management and our board of directors have taken the first steps in addressing these issues and we remain highly confident that we can quickly establish the necessary financial controls to insure stability and longevity for the company. Our goal has been and continues to be to insure that the right people are being placed into the right roles with the necessary skill sets and the proper controls are instituted without compromise. We intend to build a highly profitable global company with a comprehensive product portfolio of both medical devices and topical formulations which we believe will bring rapid revenue growth.”


Ms. Barch-Niles also stated, “With respect to our proposed acquisitions of Radiancy, Inc., a leading developer of consumer medical devices and the Neova dermatological products business from Photomedex, Inc., we have been in continuous communication with PHMD and its senior executive officers. Our management and the Board remain committed to consummating the transactions with PHMD. We believe that the acquisitions will be accretive to our shareholders, that the market price of the Company shares will ultimately reflect the positive results we believe will result from this business combination, and that the shareholders of our company, as well as PHMD, will ultimately realize a significant increase in the value of their investments. Accordingly, at this time we intend to continue with the process required to complete the transactions, including providing our shareholders and the PHMD shareholders with a joint proxy statement/ prospectus.”


Ms. Barch-Niles concluded by stating, “Although there are no assurances that we will be able to complete the acquisition transactions with PHMD, our efforts to close the deal remain a top priority. At the same time, we have not taken our focus off of our core objectives to grow via expansion through new distribution channels, creating efficiencies, improving gross margins and successfully executing our 2016 plans. We look forward to the continued support of our shareholders.”