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Letter from Founder of DS Healthcare Group (DSKX) - Revised Tender Offer Terms, Shareholder Update, and Support for Transaction

Pompano Beach, May 15, 2018 (GLOBE NEWSWIRE) -- MIAMI, May 15, 2018 (GLOBE NEWSWIRE) - A shareholder action group along with founder of DS Healthcare Group (DSKX), today issued the following letter to shareholders. 

Dear Fellow Shareholder,

In a recent press release, Medilogistics Corp. announced a tender offer to purchase all outstanding shares of DS Healthcare common stock. Following this announcement, Medilogistics made arrangements to improve the terms of the offer in order to insure a substantial recovery for DS Healthcare shareholders. 

Subsequent to DS Healthcare’s delisting from the NASDAQ, Khesin has taken steps to protect shareholders and recover losses sustained in the events following a series of false press releases set in motion by former legal counsel. This included some of the following: 1) In an effort to revitalize the company and restore shareholder confidence, Khesin retained Yasuhiro Fujiwara as the new Chief Executive Officer (formerly the President of Merrill Lynch Asia) and transitioned himself into the role of Founder and Innovator so that he could commit his time on brand architecture and product development while Fujiwara would be responsible for everything related to legal and finance. 2) Khesin structured a transaction with Evercare ProHealth Technologies to inject the company with $2 million in capital (and a commitment from Evercare to invest up to $20 million to grow the brand in Asia) in order to aggressively grow the business operations and presence in Asia and 3) Initiated a lawsuit against defendants Fox Rothschild, LLP, CKR Law, and Szaferman Lakind Blumenstein & Blader PC in order to recover losses due to their legal malpractice and the ensuing damages that resulted from their actions. The company has calculated that the actual damages resulting directly from the actions of the defendants are between $69 million and $103 million, before punitive damages. 

For reasons unknown, Fujiwara resigned after only 2 months and the Board has remained in control of the company while leaving the company without a CEO or any leadership (despite many frantic calls from shareholders). Whats more is that the Board and any remaining executives at the company are all, without exception, former clients or employees of the the owner/principle of Evercare (Carl Kalithasan Sevasamy, when he was yet a broker at Aegis Capital). This has created a particularly unusual conflict of interest wherein the Board that is at DS Healthcare is really just representing Evercare and acting on their behalf while making it appear as though they are acting on behalf of DS Healthcare and its shareholders. While this alone is a problem, it is particularly grievous considering the result after nearly two years at the helm of this company. Shareholders should consider what has this Board and management achieved and what benefit have they attained for us shareholders while managing a turnaround? All that remains is that any remaining business operations have come to a grinding halt and the stock price is exactly zero and has remained so for months (except for the small increase in the last few days when the tender offer was announced, unrelated to the current Board). 

Despite these catastrophic results for us shareholders, the Board and management have achieved a total of zero value creation in any other area. Here are just a few examples:

• In a December 21, 2016 8K filing the company has indicated: “After due deliberation, the Board of Directors of the Company decided not to appeal the Nasdaq Hearing Panel Delisting decision received December 21,2016. Notwithstanding the foregoing, the Board determined to seek the Company’s common stock to be listed on either the OTCQX or the OTCQB markets. In addition, the Board has authorized management to seek other listing venues for the Company’s securities.” Now almost a year and a half later, the company is not even trading on the Pink Sheets. Shareholders continue to have no trading market whatsoever for our shares. 

• As soon as Evercare planted their Board members and executives so that they could control the company, Evercare only made a $500k payment to DS Healthcare but never paid the remaining $1.5 million as required by the agreements that were signed while Khesin was still CEO. Yet the Board has allowed Evercare to retain exclusive rights in major markets even though Evercare is entirely in breach of the agreement and has never fulfilled their promise to invest $20 million to develop the Asian market. 

• The Board is selling or giving away assets that belong to DS Healthcare shareholders to Evercare at prices dictated by Evercare instead of selling at auction or some other venue to obtain fair market value. In addition, all of the laboratory equipment was just given to Evercare which they are using in their building in Boca Raton, FL to this day. 

• Even in the latest 8K filed on May 4, 2018, in which the Board presents a plan of no value to shareholders, the Board slipped in a shocking an announcement how they simply gave away the E-Commerce business to Evercare (Evercare would receive half of the profit). The DS online store is the highest margin business since products are sold at full retail prices. 

• The company has not only failed to grow the business but has failed to maintain existing operations. Shareholders are aghast that all major distribution accounts (including Costco) are gone simply because the company won't produce and supply inventory even for the high-margin DS online store. 

• Numerous shareholders have asked the Board and management why they are not supplying existing distributors and the answer given is that the company does not have capital. However, numerous shareholders who are part of shareholder action group personally offered capital (as have other shareholders) on numerous occasions in writing and the company and/or the Board rejected all offers or did not respond. Meanwhile the company has accumulated a list of angry customers and burned relationships with distributors.

• The company went completely dark and does not update shareholders with any announcements as is required of a public company. Shareholders are left to wonder on their own as they watch the business decline and the stock remain at zero. In addition, the company is no longer publishing audited financial statements. 

• The Board has placed the company in default of all major agreements with the risk that the company can be forced into Chapter 7 bankruptcy by its suppliers at any time. 

The above is just a small summary of issues that plaque the company. No value was created in any area. As just one shocking example of incompetence, the company's main website which consumers around the world rely on for product information, at the time of this writing only displays "Expired Account" and has been down for the last 30 days. Indeed the current management team and Board is unable to insure that the main DS Laboratories brand website is operating.  

The only conclusion as to the actions of the Board is that they are creating conditions that would lead to “shareholder fatigue” so that the Board can further their plan as to whatever they ultimately plan to do for the benefit of Evercare, but certainly there is nothing on the horizon for us, DS shareholders. It is time for shareholders to take a sobering look at these results and to consider that at best the current Board and management team has demonstrated a complete inability to maintain the company’s business or create value, (much less grow it) and at worst they are engaged in intentional misconduct, self dealing, and gross negligence - either way, the situation is really bad. It may also simply be the case that the company cannot realistically achieve a turn-around after the damages that were caused by the defendants in the above mentioned lawsuit. 

Unfortunately shareholders are left with few options. One remaining pathway to recover shareholder losses is the ongoing lawsuit against the defendants described above. Khesin has been spearheading this lawsuit and believes that we can expect a large recovery given the spectacular legal malpractice committed by these law firms. Since whatever was left of the business has been decimated by the current Board, we believe that the best hope to recover losses for shareholders is to insure that money obtained in the lawsuit against former council is distributed to shareholders rather than permitted to go to the company’s completely failed operations.

In order to facilitate this, the new offer from Medilogistics now includes 80% of all funds recovered in the lawsuit (which would be automatically distributed to current shareholders) in addition to a payment of $0.07. This is the best course of action and Khesin supports this transaction. The alternative would result in shareholders getting nothing for our shares.

The tender offer with the new terms is a logical step for shareholders. Khesin will continue the successful conclusion to our lawsuit to see shareholders recover losses. Shareholders have had enough frustration and disappointment and its time to close this chapter and move on.  

If you have any questions or comments, please call 347-276-2598 to speak to a group representative.  

Daniel Khesin
DS Healthcare Group

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