EXHIBIT C DALLDQCS\a^?34^6240427.10 356412-3 FINANCIAL STATEMENTS FACES COSMETICS USA, INC. FINANCIAL STATEMENTS The Financial Statements as of December January 31, 30062008 have been prepared without an audit. Prospective franchisees or sellers of franchises should be advised that no independent Certified Public Accountant has audited these figures or expressed an opinion with regard to their content or form. DALLDOC S\3444?JU24043S.l 356412-3 5:37 PM Faces Cosmetics USA 02/13/08 Balance Sheet Accrual Basis As of January 31, 2008 Jan 31, 08 ASSETS Current Assets Chequing/Savings 11120 TD Bank US$ 320.36 11130 Bank of America 6,947.69 Total Chequing/Savings 7,268.05 Accounts Receivable 11210 Accounts receivable 271,364.40 Total Accounts Receivable 271,364,40 Other Current Assets 11400 Prepaid Expenses 47,617.62 22123 Due from Faces Cos PLC 210,198 79 Total Other Current Assets 257,816.41 Total Current Assets 536,448.86 Fixed Assets 12300 Computer Equipment 3,091.01 12301 Accumulated Amortization -1.251.86 Total Fixed Assets 1,839.15 TOTAL ASSETS 538,288.01 LIABILITIES & EQUITY Liabilities Current Liabilities Accounts Payable Accounts Payable 902.12 Accrued Payables 7.080.7G Total Accounts Payable 7,982.88 Other Current Liabilities 22122 Due To Faces Cosmetics 1,064,332.51 Total Other Current Liabilities 1,064.332.51 Total Current Liabilities 1,072,315.39 Long Term Liabilities 22115 Faces Holdings Inc -80.027.58 22119 Due to/from Faces Canada -1,000 00 Total Long Term Liabilities -81,027.58 Total Liabilities 991.287.81 Equity 29999 Retained Earnings -248,926.51 Net Income -204.073.29 Total Equity • -452,999.80 TOTAL LIABILITIES & EQUITY 538,288.01 5:37 PM Faces Cosmetics USA Profit 02/13/08 & Loss Accrual Basis August 2007 through January 2008 Aug *07 - Jan 08 Ordinary Income/Expense Expense 42100 Advertisement 1,845.00 0 Show Exponscs 2,423.50 42140 Bank Charges 42325 166.65 Consulting Fees 42370 Rent -4.000.00 Expense 42383 Travel 3,210.18 Expenses 42386 Travel USD 7.963.50 42400 Salaries and Wages 14,954.37 44153 Commission 75,291.30 5,000.00 Total Expense 106,854.50 Net Ordinary Incomo Other Income/Expense Other -106,854.50 Expense 0 Audit Expenses 42327 Franchise Expense 10,000.00 42329 Legal expenses 69,677.83 17,540.96 Total Other Expense Net Other 97.218.79 Income -97.216.79 Net Income -204,073.29 M R P R GROUP c P A s & A d v i s o r s FACES COSMETICS USA. INC. FINANCIAL STATEMENTS FOR THE YEARS ENDED JULY 31, 2007, 2006 AND 2005 AND INDEPENDENT AUDITORS' REPORT One Northwestern Plaza. 3841 I Northwestern Highway. Suile 800, South field, Ml 48Q34-553B (348) 357-9000 Fan (148) 357-9001 www.mrpr com INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Faces Cosmetics USA, Inc. Etobicoke, Ontario . We have audited the balance sheets of Faces Cosmetics USA, Inc. (a Nevada corporation) as of July 31, 2007 and 2006, and the related statements of operations, changes in shareholders' equity (deficit) and cash flows for each of the years in the three year period ended July 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Faces Cosmetics USA, Inc. as of July 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three year period ended July 31, 2007 in conformity with accounting principles generally accepted in the United States of America. Southfield, Michigan January 8, 2008 PIL- ARIS " M R P R GROUP c P A s & A d v i s o r s TABLE OF CONTENTS FINANCIAL STATEMENTS: Balance Sheets, July 31, 2007 and 2006 Statements of Operations, For the Years Ended July 31, 2007, 2006 and 2005 Statements of Changes in Shareholders' Equity (Deficit), For the Years Ended July 31, 2007, 2006 and 2005 Statements of Cash Flows, For the Years Ended July 31, 2007, 2006 and 2005 Notes to Financial Statements FACES COSMETICS USA, INC. BALANCE SHEETS JULY 31,2007 AND 2006 ASSETS 2007 2006 CURRENT ASSETS: Cash and cash equivalents Accounts $ 1,322 receivable - Notes 2 and 3 Prepaid expenses - 136,364 Note 2 Due from related parties - Note 4 42,618 290.226 Total current assets 470,530 PROPERTY AND EQUIPMENT - Note 1 : Computer equipment Less: Accumulated depreciation 3,091 f 1.252) Net property and equipment 1,839 OTHER ASSETS: Accounts receivable - Notes 2 and 3 135.000 Total other assets $ 607,369 $ TOTAL 344 51,538 18,610 290.226 360,718 3,091 (464) 2.627 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable $ 16,678 Due to related parties - Note 4 839.618 1 Total current liabilities 856,296 11.662 SHAREHOLDERS' EQUITY (DEFICIT): 11.663 S Common stock, $.01 par value - authorized unlimited number of shares; issued and outstanding, 100 shares Retained earnings (deficit) 1 363.345 Shareholders' equity (deficit) (248.928) TOTAL (248.927) S 607.369 $ 351.682 351,682 See notes to financial statements. -7- FACES COSMETICS USA, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JULY 31. 2007. 2006 AND 2005 2007 2006 2005 REVENUES: Initial franchise fees - Note 3 $ 339,000 Franchise royalty 16,076 Other Total revenues 355,076 $ 25,000 1,538 6,700" 33,238 $ 153,750 153,750 31 ADMINISTRATIVE AND OPERATING EXPENSES: Advertisements 196 Audit expenses 10,000 Bank charges 485 74 Commissions 13,669 Consulting fees 54,460 Depreciation 788 Franchise expenses 22,538 464 169,146 Insurance 16,576 Legal expenses 65,203 1,596 Management fees Meals and entertainment 8,561 Office supplies 6,728 Postage and stationary 930 Public relations 28,443 Recruitment expenses 30,000 Rent expense 34,715 Salaries and wages 220,757 Show expenses 21,392 Telephone 2,953 4,015 Travel expenses 77.272 Total administrative and operating expenses 615.666 170.773 S NET INCOME (LOSS) f 17.023) 4.553 $26^85 See notes to financial statements. -8- FACES COSMETICS USA, INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED JULY 31, 2007, 2006 AND 2005 11,663 Shares Amount 100 $1 (260590) $ BALANCE, JULY 31,2004 Ï248.927Ï Net loss for the year ended July 31,2005 BALANCE, JULY 31,2005 100 Net income for the year ended July 31, 2006 BALANCE, JULY 31,2006 100 Net loss for the year ended July 31, 2007 BALANCE, JULY 31,2007 100 $1 Retain ed Earnin gs (Deficit ) $ ( 17.023) ( 17,023) 28.6 85 11,6 62 (260.590) Total $ 1 ( 17.023) ■( 17,022) 28.6 85 See notes to financial statements. -9- FACES COSMETICS USA, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 31. 2007. 2006 AND 2005 2007 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(260,590) $ 28,657 $ ( 17,023) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation 788 464 Changes in operating assets and liabilities: Accounts receivable (219,826) ( 1,538) ( 50,000) Prepaid expenses ( 24,008) 40,993 ( 44,754) Accounts payable 16.678 __ _____________ Net cash (used in) provided by operating activities (486.958) 68.576 (111.777) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of computer equipment ______________________________________ ( 3.091) _____________ Net cash used in investing activities ______________________________ f 3.091) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in advances (to) from related parties 487.936 (73.709) 120.344 Net cash provided by (used in) financing activities 487.936 (73.709) 120,344 978 ■ ( 8,224) 8,567 344 8.568 1 INCREASE (DECREASE) IN CASH 1.322 $ 344 $ 8.568 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR See notes to financial statements. -10- FACES COSMETICS USA, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 - Nature of Business Faces Cosmetics USA, tnc.'s ("the Company") principal activities are the sale of franchises in the United States of America and internationally under both master and individual franchise agreements. The Company is located in Canada along with its parent company Faces Cosmetics, pic (FHP) and related companies Faces Holdings, Inc. (FHI) and Faces Cosmetics, Inc. (FCI). FCl provides management and financial services to the group and has invested significant funds into the development of the USA market. The Company has a presence in the USA in 2006 with a store in Arlington, Texas and in 2007 has sold franchise rights to several other franchisees in Virginia, Maryland and California. In that connection, the Company has undertaken additional market research and invested in additional executive management and consultants and incurred significant other start-up costs which are to be reimbursed to the Company by its parent company and a related company (Note 4). NOTE 2 - Summary of Significant Accounting Policies Basis of presentation - The financial statements is prepared and presented in U.S. dollars in accordance with accounting principles generally accepted in the United States of America. Cash and cash equivalents - Cash on short-term deposits in bank accounts and other short-term investments is considered as cash and cash equivalents. Accounts receivable - At July 31, 2007 and 2006, accounts receivable consists of franchise fees due in connection'with initial franchise sales which are payable upon the opening of various stores from fiscal 2007 to 2011. At July 31, 2007, receivables also include royalty fees of approximately $15,000 due from the Texas franchisee (see Note 3). Management expects to collect the franchise fees as the stores open; and have determined that no allowance for doubtful accounts is necessary. Prepaid expenses - At July 31, 2007 and 2006, prepaid expenses consists of costs related to anticipated future franchise sales and will be amortized over future periods. Property and equipment - The computer equipment is recorded at cost and depreciation is computed on an accelerated method. Costs of maintenance and repairs are charged to expense when incurred. Asset impairment - The Company records impairment losses on long-lived assets when events and circumstances indicate that the assets may be impaired and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying amounts. If the future undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are adjusted to their fair values. NOTES TO FINANCIAL STATEMENTS (CONTINUED) _________________________ NOTE 2 - Summary of Significant Accounting Policies - (Continued) Franchise Arrangements - Individual franchise arrangements consist of a license which provides for payment of initial fees as well as services to the Company based on a percent of sales. Franchisees pay related occupancy costs including rent, property taxes, insurance, and maintenance. Franchise fee revenue recognition - The Company recognizes initial franchise fee revenue from sales of individual franchises when substantially all significant services to be provided by the Company have been performed. In management's opinion, substantially all significant costs of servicing the initial franchise agreements has been incurred relating to initial franchise fees recognized as income in the accompanying statements of operations. Continuing fees and royalties are recognized in the period earned. Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from such estimates and assumptions. NOTE 3 - Initial Franchise Fee Revenue and Related Receivables A summary of initial franchise fees revenue for fiscal 2007 is as follows: Area franchises: Maryland - initial franchise fee store plus stores 2-7 through 6/30/2011 $ 117,500 Virginia - initial franchise fee store plus stores 2-5 through 6/27/2010 87,500 California - initial franchise fee store plus stores 2-5 through 6/27/2010 87,500 Other initial and royalty fees 62.576 Total Less Franchise fee revenue collected during the fiscal year Balance receivable at July 31 Current Long-term portion $ 135.000 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - Initial Franchise Fee Revenue and Related Receivables - (Continued) During fiscal 2007, the Company entered into a franchise agreement with a franchise located in the state of Maryland. In Maryland the revenue from the sale of the area rights to a franchise is not collectable until a franchise location commences business; nevertheless, it is managements opinion that the revenue has been earned in the year the contract was signed considering all material costs related to obtain the contract sale have been incurred. NOTE 4 - Related Party Transactions At July 31, 2007 and 2006, amounts due from (to) related parties is as follows: 2007 2006 Due from related parties: Faces Cosmetics pic $ 210,199 $210,199 Faces Holdings, Inc. 80.027 80.027 Total $ 290.226 S 290.226 Amounts due from FHP and FHI consists of all reimbursable start-up costs, including market research, legal, salary and other costs incurred from the start of the Company's business until approximately July 31, 2006. Costs of this nature since that date, are included in administrative an operating expenses in the accompanying statements of operations for fiscal 2007. FACES COSMETICS USA, INC. Due to related parties: Faces Cosmetics, Inc. $ (835,618) $ 351,682 Faces Canada, Inc. ( 4.000) _______________ Total S f 839.618) $351.682 Amounts due to FCI relate to the payments by FCI of almost all of the Company costs referred to above and also for a significant portion of other general operating costs and management fees.