x
ANNUAL REPORT UNDER SECTION 10 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the fiscal year ended: June 30, 2006
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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ACT
OF 1934
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Commission
file # 000-29483
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Pacific
Sands, Inc
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(Exact
name of registrant)
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Nevada
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88-0322882
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(State
of Incorporation)
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(I.R.S.
Employer Id. No.)
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1509
Rapids Drive, Racine, WI
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53404
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(Address
of principal executive offices)
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(Zip
Code)
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TABLE
OF CONTENTS
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Page
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PART
I
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Item
1. Description of the Business
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*
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Item
2. Description of Property
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*
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Item
3. Legal Proceedings
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*
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Item
4. Submission of Matters to a Vote of Security
Holders
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*
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PART
II
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Item
5. Market for Common Equity and Related Stockholder
Matters
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*
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Item
6. Management’s Discussion and Plan of Operation
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*
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Item
7. Financial Statements
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F1-F17
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Item
8. Changes in and Disagreements With Accountants on
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Accounting
and Financial Disclosure
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*
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8A.
Controls and Procedures
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PART
III
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Item
9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act
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*
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Item
10. Executive Compensation
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*
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Item
11. Security Ownership of Certain Beneficial Owners
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and
Management
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*
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Item
12. Certain Relationships and Related
Transactions
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*
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Item
13 Exhibits
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*
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Item
14. Principal Accountant Fees and Services
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*
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Signatures
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*
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Exhibits
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Quarter
End
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High
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Low
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March
31, 2002
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0.150
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0.070
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June
30, 2002
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0.120
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0.050
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September
30, 2002
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0.090
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0.040
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December
31, 2002
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0.110
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0.040
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||
March
31, 2003
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0.080
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0.040
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||
June
30, 2003
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0.110
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0.040
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||
September
30, 2003
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0.090
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0.040
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||
December
31, 2003
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0.050
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0.030
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||
March
31, 2004
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0.050
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0.020
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||
June
30, 2004
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0.050
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0.020
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September
30, 2004
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0.120
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0.030
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December
31, 2004
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0.110
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0.060
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March
31, 2005
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0.280
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0.070
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June
30, 2005
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0.270
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0.160
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September
30, 2005
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0.18
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0.082
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December
31, 2005
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0.016.5
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0.063
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March
31, 2006
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0.265
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0.08
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June
30, 2006
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0.28
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0.11
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PACIFIC
SANDS, INC.
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INDEX
TO FINANCIAL STATEMENTS
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YEARS
ENDED JUNE 30, 2006 AND 2005
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Page
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REPORT
OF INDEPENDENT REGISTERED PUBLIC
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ACCOUNTING
FIRM
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F-2
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FINANCIAL
STATEMENTS
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Balance
Sheet
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F-3
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Statements
of Operations
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F-4
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Statement
of Stockholders' Equity
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F-5
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Statements
of Cash Flows
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F-6
- F-7
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Notes
to Financial Statements
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F-8
- F-17
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Frank
L. Sassetti & Co.
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Certified
Public Accountants
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The
Board of Directors
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Pacific
Sands, Inc.
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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We
have audited the accompanying balance sheet of Pacific
Sands, Inc. as of June 30, 2006, and the related statements of
operations,
stockholders' equity and cash flows for each of the two years in
the
period ended June 30, 2006. 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.
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We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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.
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In
our opinion, the financial statements referred to above present
fairly, in
all material respects, the financial position of Pacific Sands,
Inc. as of
June 30, 2006, and the results of its operations and its cash flows
for
each of the two years in the period ended June 30, 2006, in conformity
with accounting principles generally accepted in the United
States.
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The
accompanying financial statements have been prepared assuming that
the
Company will continue as a going concern. As discussed in Note
15
to
the financial statements, the Company has a significant accumulated
deficit which raises substantial doubt about the Company's abilty
to
continue as a going concern. Management's plans in regard to these
matters
are also described in Note 15.
The financial statements do not include any adjustments that might
result
from the outcome of this uncertainly.
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/s/
Frank L. Sassetti & Co.
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September
12, 2006
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Oak
Park, Illinois
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6611
W. North Avenue * Oak Park, Illinois 60302 * Phone (708) 386-1433
* Fax
(708) 386-0139
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PACIFIC
SANDS, INC.
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||||||||
BALANCE
SHEET
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||||||||
JUNE
30, 2006
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||||||||
ASSETS
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||||||||
CURRENT
ASSETS
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||||||||
Cash
and cash equivalents
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$
4,977
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|||||||
Trade
receivables, net of allowances for doubtful accounts
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112,587
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|||||||
Inventories
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77,069
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|||||||
Prepaid
expenses
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7,212
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|||||||
Total
Current Assets
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201,845
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|||||||
PROPERTY
AND EQUIPMENT
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||||||||
Furniture
and fixtures & office equipment
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10,238
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|||||||
Manufacturing
equipment
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12,204
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|||||||
Leasehold
improvements
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3,035
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Deposit
on software costs
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20,269
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|||||||
45,746
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||||||||
Less
accumulated depreciation
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6,940
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|||||||
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||||||||
Property
and Equipment, net
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38,806
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OTHER
ASSETS
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||||||||
Accounts
receivable - other, (net of allowance for doubtful
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||||||||
accounts
of $ 235,718)
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-
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|||||||
Security
deposits
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841
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|||||||
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||||||||
Total
Other Assets
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841
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|||||||
Total
Assets
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$
241,492
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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||||||||
CURRENT
LIABILITIES
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||||||||
Accounts
payable
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$
99,795
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|||||||
Current
maturities of long-term obligations
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9,877
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|||||||
Accrued
expenses
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59,691
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Deferred
compensation
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227,934
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Notes
payable - other
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61,177
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|||||||
Total
Current Liabilities
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458,474
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|||||||
LONG
TERM LIABILITIES
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||||||||
Capital
leases, less current portion
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22,609
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|||||||
Total
Long Term Liabilities
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22,609
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STOCKHOLDERS'
EQUITY
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||||||||
Common
stock (50,000,000 shares authorized, 38,344,780
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||||||||
shares
issued and 30,785,593 shares outstanding)
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38,345
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|||||||
Additional
paid in capital
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3,041,947
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|||||||
Treasury
stock, at cost
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(151,030)
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|||||||
Accumulated
deficit
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(3,168,853)
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|||||||
Total
Stockholders' Equity
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(239,591)
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|||||||
Total
Liabilities and Stockholders' Equity
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$
241,492
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STATEMENTS
OF OPERATIONS
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||||||
YEARS
ENDED JUNE 30, 2006 AND 2005
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||||||
2006
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2005
|
|||||
NET
SALES
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$
433,918
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$
219,573
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||||
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||||||
COST
OF SALES
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183,181
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102,048
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||||
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||||||
GROSS
PROFIT
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250,737
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117,525
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||||
SELLING
AND
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||||||
ADMINISTRATIVE
EXPENSES
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582,123
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431,024
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||||
LOSS
FROM OPERATIONS
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(331,386)
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(313,499)
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||||
OTHER
INCOME (EXPENSES)
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||||||
Interest
expense
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(9,119)
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(3,433)
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||||
Gain
(loss)
on
restructuring of related party debt
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(7,810)
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15,791
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||||
Disputed
payables written off
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39,915
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|||||
Gain
(loss) on disposal of assets
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(1,843)
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Miscellaneous
income
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32
|
710
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Total
Other Income (Expense)
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21,175
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13,068
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||||
LOSS
BEFORE INCOME TAXES
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(310,211)
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(300,430)
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INCOME
TAXES
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||||
NET
LOSS
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$
(310,211)
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$
(300,430)
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||||
BASIC
AND DILUTED NET LOSS
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|
|||||
PER
SHARE
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$
(0.010)
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$
(0.010)
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||||
BASIC
AND DILUTED WEIGHTED AVERAGE
|
||||||
SHARES
OUTSTANDING
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30,195,813
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30,607,798
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||||
PACIFIC
SANDS, INC.
|
|||||||||||||||||
STATEMENT
OF STOCKHOLDERS' EQUITY
|
|||||||||||||||||
YEARS
ENDED JUNE 30, 2006 AND 2005
|
|||||||||||||||||
Common
Stock
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Treasury
Stock
|
||||||||||||||||
Number
of
|
Additional
Paid
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Number
of
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Accumulated
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Shareholder
|
|||||||||||||
Shares
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Amount
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In
Capital
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Shares
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Amount
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Deficit
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Receivable
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Total
|
||||||||||
Balance
at June 30, 2004
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$30,298,872
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|
30,299
|
|
2,560,602
|
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(9,000)
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(5,514)
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(2,558,212)
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(121,480)
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(94,305)
|
||
Issuance
of Common Stock:
|
|||||||||||||||||
For
cash
|
2,644,611
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2,644
|
181,981
|
9,000
|
5,514
|
190,139
|
|||||||||||
For
options exercised
|
2,933,333
|
2,933
|
18,367
|
21,300
|
|||||||||||||
For
cancellation of debt
|
347,481
|
348
|
20,805
|
21,153
|
|||||||||||||
For
professional services
|
620,000
|
620
|
30,715
|
31,335
|
|||||||||||||
Retirement
of common stock:
|
|||||||||||||||||
For
cash
|
(2,700,000)
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(29,550)
|
(29,550)
|
||||||||||||||
In
lieu of receivable
|
(4,859,187)
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(121,480)
|
121,480
|
||||||||||||||
Below
market rate stock
|
|||||||||||||||||
options
granted
|
66,700
|
66,700
|
|||||||||||||||
Net
loss
|
|
|
|
|
|
(300,430)
|
|
(300,430)
|
|||||||||
Balance
at June 30, 2005
|
36,844,298
|
36,844
|
2,879,170
|
(7,559,187)
|
(151,030)
|
(2,858,642)
|
(93,658)
|
||||||||||
Issuance
of common stock:
|
|||||||||||||||||
For
cash
|
720,912
|
|
721
|
|
83,251
|
|
|
|
|
|
|
|
|
|
83,972
|
||
For
cancellation of debt
|
63,478
|
|
64
|
|
13,526
|
|
|
|
|
|
|
|
|
|
13,590
|
||
For
salaries
|
70,000
|
|
70
|
|
5,719
|
|
|
|
|
|
|
|
|
|
5,789
|
||
For
professional services
|
646,072
|
|
646
|
|
60,281
|
|
|
|
|
|
|
|
|
|
60,927
|
||
Net
loss
|
|
|
|
|
|
(310,211)
|
|
|
|
(310,211)
|
|||||||
Balance
at June 30, 2006
|
$38,344,760
|
|
$
38,345
|
|
$
3,041,947
|
|
$(7,559,187)
|
|
$(151,030)
|
|
$(3,168,853)
|
|
$
-
|
|
$(239,591)
|
||
PACIFIC
SANDS, INC.
|
|||||||||||
STATEMENTS
OF CASH FLOWS
|
|||||||||||
YEARS
ENDED JUNE 30, 2006 AND 2005
|
|||||||||||
2006
|
2005
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||||||
Net
loss
|
$
(310,211)
|
$
(300,430)
|
|||||||||
Adjustments
to reconcile net loss to net
|
|||||||||||
cash
used in operating activities -
|
|||||||||||
Depreciation
|
6,089
|
2,712
|
|||||||||
Loss
from disposal of equipment
|
1,843
|
||||||||||
Deferred
compensation
|
98,739
|
21,385
|
|||||||||
Compensation
of below market stock
|
|||||||||||
options
granted
|
|
66,700
|
|||||||||
Common
shares and rights issued for
|
|||||||||||
services
and compensation
|
66,716
|
31,335
|
|||||||||
Disputed
payables written off
|
(39,915)
|
||||||||||
(Gain)
loss
from restructuring of related
|
|||||||||||
party
debt
|
|
7,810
|
(15,791)
|
||||||||
Changes
in assets and liabilities -
|
|||||||||||
Trade
accounts receivable
|
(51,888)
|
(56,894)
|
|||||||||
Inventories
|
(45,774)
|
(25,697)
|
|||||||||
Prepaid
expenses
|
7,998
|
(14,285)
|
|||||||||
Other
assets
|
59,496
|
||||||||||
Accounts
payable and other current liabilities
|
102,694
|
63,830
|
|||||||||
Net
Cash Used in Operating Activities
|
(96,403)
|
(227,135)
|
|||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||||||
Purchases
of equipment
|
(2,704)
|
(36,866)
|
|||||||||
Proceeds
from sale of equipment
|
1,300
|
|
|||||||||
Increase
in security deposits
|
(25)
|
(816)
|
|||||||||
Net
Cash Used in Investing Activities
|
(1,429)
|
(37,682)
|
|||||||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||||||
Issuance
of notes payable
|
84,141
|
43,872
|
|||||||||
Repayment
of note payable and long term obligation
|
(65,845)
|
(2,501)
|
|||||||||
Issuance
of common stock
|
83,972
|
190,139
|
|||||||||
Issuance
of common stock - exercise of options
|
|
19,300
|
|||||||||
Purchase
of treasury stock
|
|
|
(29,550)
|
||||||||
Net
Cash Provided by Financing Activities
|
102,268
|
221,260
|
|||||||||
NET
INCREASE (DECREASE) IN CASH AND
|
|||||||||||
CASH
EQUIVALENTS
|
4,436
|
|
(43,557)
|
||||||||
CASH
AND CASH EQUIVALENTS
|
|||||||||||
Beginning
of year
|
541
|
|
44,098
|
||||||||
|
|
|
|
|
|
|
|
|
|
||
End
of year
|
$
4,977
|
$
541
|
PACIFIC
SANDS, INC.
|
|||||||||
STATEMENTS
OF CASH FLOWS
|
|||||||||
YEARS
ENDED JUNE 30, 2006 AND 2005
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|||||||||||
2006
|
2005
|
||||||||||
Cash
paid during the year for:
|
|||||||||||
Interest
|
$
7,889
|
|
$
433
|
||||||||
Income
taxes
|
$
-
|
|
$
-
|
||||||||
SUPPLEMENTAL
INFORMATION FROM NONCASH FINANCING
|
|||||||||||
ACTIVITIES
|
|||||||||||
Conversion
of trade payable to shareholder debt
|
$
15,814
|
|
$
|
||||||||
Conversion
of shareholder receivable to treasury stock
|
$
|
$
121,480
|
|||||||||
Conversion
of debt to equity
|
$
13,590
|
|
$
21,153
|
||||||||
Conversion
of debt to equity - options exercised
|
|
$
2,000
|
|||||||||
Capital
lease obligations
|
$
11,181
|
$
|
|||||||||
NOTES
TO FINANCIAL STATEMENTS
|
|||||||||||
|
|||||||||||
JUNE
30, 2006 AND 2005
|
|||||||||||
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
|
|||||||||||
ACCOUNTING
POLICIES
|
|||||||||||
Nature
of Business
-
Pacific Sands, Inc. with the right to do business as Natural Water
Technologies (the "Company") was incorporated in Nevada on July
7, 1994
with an original authorized capital stock of 25,000 shares of $0.001
par
value which was increased to 20,000,000 shares in 1997 with the
same par
value. On May 6, 2002, the authorized capital stock was increased
to
50,000,000 shares.
|
|||||||||||
The
Company manufactures and distributes nontoxic cleaning and water
treatment
products with applications ranging from home spas and swimming
pools to
cleaning and pet care.
|
|||||||||||
Inventories
-
Inventories are stated at the lower of cost or market on the first-in,
first-out (FIFO) basis.
|
|||||||||||
Depreciation
-
For financial reporting purposes, depreciation of property and
equipment
has been computed over estimated useful lives of two to seven years
primarily using the straight-line method. Depreciation charges
totaled
$6,089 and $2,712 during the years ended June 30, 2006 and 2005,
respectively.
|
|||||||||||
Revenue
Recognition
-
Revenue from sales to distributors and resellers is recognized
when the
related products are shipped.
|
|||||||||||
Advertising
and Promotional Costs
-
Advertising and promotion costs are expensed as incurred. During
fiscal
years ended June 30, 2006 and 2005, advertising and promotion costs
totaled $33,767 and $34,362, respectively.
|
|||||||||||
Income
Taxes
-
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) 109. Under the asset and liability
method of
SFAS 109, deferred income taxes are recognized for the tax consequences
of
temporary differences by applying enacted statutory rates applicable
to
future years to the difference between the financial statement
carrying
amounts and the tax basis of existing assets and
liabilities.
|
|||||||||||
PACIFIC
SANDS, INC.
|
||||||||||
NOTES
TO FINANCIAL STATEMENTS
|
||||||||||
|
||||||||||
JUNE
30, 2006 AND 2005
|
||||||||||
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
|
||||||||||
ACCOUNTING
POLICIES - CONTINUED
|
||||||||||
Accounts
Receivable
-
The Company makes judgments as to the collectibility of trade and
other
accounts receivable based on historic trends and future expectations.
Management estimates an allowance for doubtful receivables, which
reflects
its current assessment of the collectibility of the receivables.
Management believes that the current specific and general receivable
reserves aggregating $240,058 is adequate as of June 30,
2006.
|
||||||||||
Basic
and Diluted Net Loss Per Share
-
Net loss per share is calculated in accordance with Statement of
Financial
Accounting Standards 128, Earnings Per Share ("SFAS 128"). Basic
net loss
per share is based upon the weighted average number of common shares
outstanding. Diluted net loss per share is based on the assumption
that
all dilutive convertible shares and stock options were converted
or
exercised. Dilution is computed by applying the treasury stock
method.
Under this method, options and warrants are assumed to be exercised
at the
beginning of the period (or at the time of issuance, if later),
and as if
funds obtained thereby were used to purchase common stock at the
average
market price during the period.
|
||||||||||
Use
of Accounting Estimates
-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and
assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of
the
financial statements and reported amounts of revenues and expenses
during
the reporting period. Actual results could differ from these
estimates.
|
||||||||||
Statement
of Cash Flows
-
For purposes of the statements of cash flows, the Company considers
all
highly liquid debt instruments purchased with an initial maturity
of three
months or less to be cash equivalents.
|
||||||||||
2
.
|
INVENTORIES
|
|||||||||
Inventories
as of June, 30, 2006 and 2005 consisted of the
following.
|
||||||||||
2006
|
2005
|
|||||||||
Raw
materials
|
$
49,364
|
$
25,118
|
||||||||
Finished
goods
|
27,705
|
6,177
|
||||||||
$
77,069
|
$
31,295
|
|||||||||
PACIFIC
SANDS, INC.
|
|||||||||||
NOTES
TO FINANCIAL STATEMENTS
|
|||||||||||
|
|||||||||||
JUNE
30, 2006 AND 2005
|
|||||||||||
3.
|
LONG
TERM OBLIGATIONS
|
||||||||||
Long
term obligations consists of a four year capital lease agreement
for
software dated June 20, 2005 with an imputed interest rate of 14.45%,
a
two year capital lease agreement for computer hardware with an
imputed
interest rate of 22.94% placed in service in December, 2005, a
three year
capital lease for computer hardware with an imputed interest rate
of
21.62%, placed in service in January, 2006 and a three and a half
year
capital lease agreement for software with an imputed interest rate
of
12.64%, placed in service in January, 2006. Monthly installment
payments
are $691, $67, $93 and $312, respectively with a bargain purchase
option
at the end of each lease of $1. The transactions have been accounted
for
as capital leases in accordance with generally accepted accounting
principles.
|
|||||||||||
The
scheduled maturities are as follows for the years ending June
30,
|
|||||||||||
2007
|
$
9,877
|
||||||||||
2008
|
11,057
|
||||||||||
2009
|
11,230
|
||||||||||
2010
|
322
|
||||||||||
4.
|
NOTES
PAYABLE - OTHER
|
||||||||||
Notes
payable - other consist of various small unsecured notes to
stockholders/officers at rates fluctuating up to 10%. Management
intends
to restructure its debt. To date, $3,000 in interest has been converted
to
equity.
|
|||||||||||
5.
|
STOCK-BASED
COMPENSATION
|
||||||||||
Prior
to December 31, 2005, the Company accounted for its stock-based
compensation plans under the recognition and measurement principles
of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock
Issued to Employees," and related interpretations. As such, stock-based
employee compensation cost of $66,700 is reflected in the net losses
for
the twelve months ended June 30, 2005 for options granted under
those
plans where the exercise price is below market value and no cost
is
reflected in net losses for options granted under those plans where
they
had an exercise price equal to or greater than the market value
of the
underlying common stock on the date of grant. The following table
summarizes the effect on net losses and losses per share if the
Company
had applied the fair value recognition provision of Statement of
Financial
Accounting Standard ("SFAS") No. 123(R), "Accounting for Stock-Based
Compensation," to stock-based employee compensation for the year
ended
June 30, 2005. There is no impact for the year ended June 30,
2006.
|
PACIFIC
SANDS, INC.
|
|||||||||||
NOTES
TO FINANCIAL STATEMENTS
|
|||||||||||
|
|||||||||||
JUNE
30, 2006 AND 2005
|
|||||||||||
5.
|
STOCK-BASED
COMPENSATION - CONTINUED
|
||||||||||
The
proforma information for the fiscal year ended June 30, 2005 is
as
follows:
|
|||||||||||
Net
loss, as reported
|
$
(300,430)
|
||||||||||
Add:
stock-based employee compensation
|
|||||||||||
expense
determined under fair value based
|
|||||||||||
method
for all awards, net of related tax effects.
|
66,700
|
||||||||||
Deduct:
total stock based employee compensation
|
|||||||||||
expense
determined under fair value based
|
|||||||||||
method
for all awards, net of related tax
|
|||||||||||
effects.
|
(70,000)
|
||||||||||
|
|||||||||||
Pro
forma net losses
|
$
(303,730)
|
||||||||||
Basic
and diluted loss per share:
|
|||||||||||
As
reported
|
$
(0.010)
|
||||||||||
Pro
forma
|
(0.010)
|
||||||||||
Effective
January 1, 2006 the Company adopted the revision to SFAS 123 ("SFAS
123R"), "Share-Based Payment", that focuses primarily on accounting
for
transactions in which an entity obtains employee services in share-based
payment transactions utilizing the modified perspective method.
This
statement replaces SFAS 123, "Accounting for Stock-Based Compensation",
and supersedes APB Opinion No. 25, "Accounting for Stock Issued
to
Employees". SFAS 123R requires companies to expense the fair value
of
employee stock options and similar awards. There were no options
issued
during the year ended June 30, 2006 and therefore, the adoption
of the new
standard had no impact.
|
|||||||||||
A
summary of stock option activity is as follows:
|
|||||||||||
Price
per share
|
|||||||||||
Shares
|
Range
|
Average
|
|||||||||
Balance,
June 30, 2005
|
3,166,667
|
$
|
.03
- .10
|
$
|
0.052
|
||||||
Granted
|
|||||||||||
Exercised
|
|||||||||||
Expired
|
166,667
|
0.03
|
0.03
|
||||||||
Balance,
June 30, 2006
|
3,000,000
|
.03
- .10
|
0.053
|
||||||||
6,100,000
options were issued and 2,633,333 options were exercised during
the year
ended June
30, 2005.
|
NOTES
TO FINANCIAL STATEMENTS
|
||||||||||
|
||||||||||
JUNE
30, 2006 AND 2005
|
||||||||||
6.
|
LEASE
COMMITMENT
|
|||||||||
The
Company entered into a one and a half year lease expiring July
31, 2007
for 11,000 square feet of office and warehouse space for $1,987
per month.
The Company is responsible for insuring the premises. Rent expense
was
approximately $23,000 and $10,000 for the years ended June 30,
2006 and
2005, respectively.
|
||||||||||
7.
|
BASIC
AND DILUTED LOSS PER SHARE
|
|||||||||
The
following table illustrates the reconciliation of the numerators
and
denominators of the basic loss per share computations. The Company
has
3,000,000 shares of exercisable potentially dilutive options outstanding
as of June 30, 2006. There were 3,166,667 options outstanding at
June 30,
2005.
|
||||||||||
Year
Ended June 30,
|
||||||||||
2006
|
2005
|
|||||||||
Basic
and diluted loss per share:
|
||||||||||
Numerator:
|
||||||||||
Net
loss
|
$
(310,211)
|
|
$
(300,430)
|
|||||||
Denominator:
|
||||||||||
Basic
and diluted weighted average number of
|
||||||||||
common
shares outstanding during
|
||||||||||
the
period
|
30,195,813
|
|
30,607,798
|
|||||||
Basic
and diluted loss per share
|
$
(0.010)
|
|
$
(0.010)
|
|||||||
Since
the Company has incurred losses from all periods presented, the
dilutive
per share calculation is the same as the basic
calculation.
|
||||||||||
8.
|
INCOME
TAXES
|
|||||||||
The
Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting and tax bases of its
assets
and liabilities. Deferred assets are reduced by a valuation allowance
when
deemed appropriate.
|
||||||||||
The
tax effects of existing temporary differences that give rise to
significant portions of deferred tax assets at June 30, 2006 are
as
follows:
|
||||||||||
Deferred
tax asset
|
||||||||||
Net
operating loss carryforwards
|
$
750,000
|
|||||||||
Valuation
allowance
|
(750,000)
|
|||||||||
Net
deferred tax asset
|
$
-
|
|||||||||
At
June 30, 2006, the Company has net operating loss carryforwards
for
Federal tax purposes of approximately $2,136,500 which, if unused
to
offset future taxable income, will expire in years beginning in
2018.
|
||||||||||
NOTES
TO FINANCIAL STATEMENTS
|
||||||||||||
|
||||||||||||
JUNE
30, 2006 AND 2005
|
||||||||||||
|
||||||||||||
9.
|
RELATED
PARTY TRANSACTIONS
|
|||||||||||
On
June 15, 2004, Stan and Rita Paulus resigned as officers and board
members
of the Company and were replaced by a new management team. As part
of the
transition in management, several transactions occurred which are
all
recorded below.
|
||||||||||||
Stan
and Rita agreed to waive all unpaid compensation from the Company
except
for $100,000, which shall be paid in full within three years of
the
transition date.
|
||||||||||||
The
Paulus' purchased from the Company the inventory known as "technical
books" for the sum of $150,000 in exchange for 4,859,187 shares
of Pacific
Sands, Inc. common stock. Based on the average market value of
the
Company's stock, which valued these shares at $121,480, there was
an
additional write down of the inventory of $28,500. This amount
was
recorded as a reduction to additional paid in capital based on
the related
party nature of the transaction. Since the shares were still being
held in
escrow by legal counsel at June 30, 2004, the transaction was recorded
as
due from shareholder. As of June 30, 2005, the shares had been
returned to
treasury.
|
||||||||||||
In
addition, management has negotiated the restructuring of debt due
to the
Paulus'. This restructuring reduced the debt balance due the Paulus'
by
$15,791 and extended the due date to June, 2006. This reduction
has been
recorded as a gain from restructuring of debt in the statement
of
operations.
|
||||||||||||
On
June 14, 2006, one day prior to the due date of the unpaid compensation
to
the Paulus' of $100,000, the Company and the Paulus' agreed to
extend the
payment until January, 2007 with monthly payments of $25,000 beginning
in
October, 2006. In addition, there was a $5,000 note payable rolled
into
the monthly payment plan due January, 2007. In July, 2006 100,000
shares
of restricted stock was issued in exchange for extending the payment.
This
restructuring increased the note amount due the Paulus' by
$7,810.
|
||||||||||||
Finally,
two of the current officers of the Company have agreed to defer
a
substantial portion of their salaries until such time as it may
be paid.
As of June 30, 2006, the deferred compensation for these two officers
was
$120,124. Prior to accepting the position as an officer of the
Company,
one of the current officers agreed to defer $11,500 of his professional
consulting services which is still unpaid as of June 30, 2006.
The
deferred compensation charged to operations for fiscal year June
30, 2006
and 2005 was $101,988 and $21,385,
respectively.
|
PACIFIC
SANDS, INC.
|
|
NOTES
TO FINANCIAL STATEMENTS
|
|
JUNE
30, 2006 AND 2005
|
|
10.
|
CONTINGENCIES
|
Accounts
receivable from a major former customer, Mariani Raisin Company
in the
amount of $235,718 invoiced on October 25, 2001 and January 17,
2002 are
being contested for compliance requirements. The customer maintained
that
the equipment did not work properly, but management felt that this
equipment was built to customer specifications. Accordingly, management
continues to vigorously pursue the outstanding receivable. Since
counsel
suggests that this amount cannot be collected without incurring
some legal
costs, management has reserved the entire balance as an allowance.
Bad
debt expense in the amount of $63,891 and $1,848 was recorded in
the
statement of operations for the years ended June 30, 2006 and 2005,
respectively.
|
|
11.
|
RECENT
PRONOUNCEMENTS
|
In
June 2006, the FASB released FASB Interpretation No. 48, "Accounting
for
Uncertainty in Income Taxes," an interpretation of FASB Statement
No. 109
("FIN 48"). FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement
of a tax
position taken or expected to be taken in a tax return. A Company
must
determine whether it is "more-likely-than-not" that a tax position
will be
sustained upon examination, including resolution of any related
appeals or
litigation procedures, based on the technical merits of the position.
Once
it is determined that a position meets the more-likely-than-not
recognition threshold, the position is measured to determine the
amount of
benefit to recognize in the financial statements. This interpretation
is
effective for fiscal years beginning after December 15, 2006. Earlier
application of the provisions of this interpretation is interim
financial
statements, in the period this interpretation is adopted. The provisions
of FIN 48 are not expected to have a material affect on the Company's
consolidated financial statements.
|
|
In
March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
of
Financial Assets," which provides an approach to simplify efforts
to
obtain hedge-like (offset) accounting. This Statement amends FASB
SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets
and
Extinguishments of Liabilities," with respect to the accounting
for
separately recognized servicing assets and servicing liabilities.
The
Statement (1) requires an entity to recognize a servicing asset
or
servicing liability each time it undertakes an obligation to service
a
financial asset by entering into a servicing contract in certain
situations; (2) requires that a separately recognized servicing
asset or
servicing liability be initially measured at fair value, if practicable;
(3) permits an entity to choose either the amortization method
or the fair
value method for subsequent measurement for each class of separately
recognized servicing assets or servicing liabilities;
|
|
PACIFIC
SANDS, INC.
|
|
NOTES
TO FINANCIAL STATEMENTS
|
|
JUNE
30, 2006 AND 2005
|
|
11.
|
RECENT
PRONOUNCEMENTS - CONTINUED
|
(4)
permits at initial adoption a one-time reclassification of
available-for-sale securities to trading securities by an entity
with
recognized servicing rights, provided the securities reclassified
offset
the entity's exposure to changes in the fair value of the servicing
assets
or liabilities; (5) requires separate presentation of servicing
assets and
servicing liabilities subsequently measured at fair value in the
balance
sheet and additional disclosures for all separately recognized
servicing
assets and servicing liabilities. SFAS No. 156 is effective for
all
separately recognized servicing assets and liabilities as of the
beginning
of an entity's fiscal year that begins after September 15, 2006,
with
earlier adoption permitted in certain circumstances. The Statements
also
describes the manner in which it should be initially applied. The
provisions of SFAS No. 156 are not expected to affect the Company's
financial statements.
|
|
In
November 2004, the FASB issued SFAS No. 151, Inventory
Costs. The
new Statement amends ARB No. 43, Chapter 4, Inventory
Pricing, to
clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material. This Statement requires
that
those items be recognized as current period charges and requires
that
allocation of fixed production overhead to the cost of conversion
be based
on the normal capacity of the production facilities. This Statement
is
effective for fiscal years beginning after June 15, 2005. The adoption
of
this statement did not have a material impact on the Company's
financial
position or results of operations.
|
|
12.
|
DISPUTED
PAYABLES WRITTEN OFF
|
During
the fiscal year ended June 30, 2004, the Company incurred professional
fees for services that were reflected in the statement of operations.
During the fiscal year ended June 30, 2005, the Company threatened
to sue
the vendor for dispute of services performed if they pursued this
debt and
after sending repeated letters to resolve the matter and not having
any
response for over two years, management has decided to write off
the
disputed amount and has reflected this in the June 30, 2006 statement
of
operations.
|
|
13.
|
SUBSEQUENT
EVENTS
|
3,000,000
options which were to expire in July 2006 were extended for one
year. Due
to the extension of the terms of the options, they would have to
be
re-valued. The estimated fair value of the renewed options as of
June 30,
2006, had the options been renewed on that date, was $272,000.
The amount
of additional compensation that will be booked in the first quarter
of
2007 is approximately $205,000.
|
|
|
||||||||||||
NOTES
TO FINANCIAL STATEMENTS
|
||||||||||||
|
||||||||||||
JUNE
30, 2006 AND 2005
|
||||||||||||
14.
|
CONCENTRATIONS
|
|||||||||||
The
Company distributes water treatment and nontoxic cleaning products
to the
entire U.S. market. For the year ended June 30, 2006, one customer
accounted for approximately 24.4% of the Company's sales and 61.7%
of the
company's trade receivables. For the year ended June 30, 2005,
three
customers accounted for approximately 14.0%, 10.0% and 10.5%, respectively
of the Company's sales and 20.3%, 0.8% and 20.6%, respectively
of the
company's trade receivables.
|
||||||||||||
15.
|
GOING
CONCERN
|
|||||||||||
The
accompanying financial statements have been presented assuming
that the
Company will continue as a going concern. This basis of accounting
contemplates the recovery of the Company's assets and the satisfaction
of
its liabilities in the normal course of business. Through June
30, 2006,
the Company had incurred cumulative losses of $
3,168,853.
The company's successful transition to attaining profitable operations
is
dependent upon obtaining financing adequate to fulfill its development,
marketing and sales activities and achieving a level of revenues
adequate
to support the Company's cost structure. Management's plan of operations
anticipates that the cash requirements of the Company for the next
twelve
months will be met by obtaining capital contributions through the
sale of
common stock and from current operations. However, there is no
assurance
that the company will be able to fully implement its plan in order
to
generate the funds needed on a going concern basis.
|
||||||||||||
PACIFIC
SANDS, INC.
|
||||||||||||
NOTES
TO FINANCIAL STATEMENTS
|
||||||||||||
|
||||||||||||
JUNE
30, 2006 AND 2005
|
||||||||||||
16.
|
SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|||||||||||
The
following is a summary of the quarterly results of operations for
the
years ended June 30, 2006 and 2005:
|
||||||||||||
Quarter
ended
|
||||||||||||
September
30,
|
December
31,
|
March
31,
|
June
30,
|
|||||||||
2005
|
2005
|
2006
|
2006
|
|||||||||
Net
sales
|
$
71,234
|
|
$
59,348
|
|
$
136,805
|
|
$
166,531
|
|||||
Gross
profit
|
48,656
|
|
21,926
|
|
78,199
|
|
101,956
|
|||||
Disputed
payables written off
|
39,915
|
|||||||||||
Net
earnings (loss)
|
(110,012)
|
|
(127,184)
|
|
(111,448)
|
|
38,463
|
|||||
Net
earnings (loss) per
|
||||||||||||
share-
basic and diluted
|
(0.004)
|
|
(0.004)
|
|
(0.004)
|
|
0.001
|
|||||
Weighted
average basic
|
||||||||||||
and
diluted shares
|
29,497,231
|
|
29,986,666
|
|
30,537,094
|
|
30,730,382
|
|||||
Quarter
ended
|
||||||||||||
September
30,
|
December
31,
|
March
31,
|
June
30,
|
|||||||||
2004
|
2004
|
2005
|
2005
|
|||||||||
Net
sales
|
$
16,959
|
|
$
20,019
|
|
$
56,528
|
|
$
126,067
|
|||||
Gross
profit
|
6,417
|
|
15,116
|
|
25,732
|
|
70,260
|
|||||
Net
earnings (loss)
|
(114,623)
|
|
(66,160)
|
|
(68,061)
|
|
(51,586)
|
|||||
Net
earnings (loss) per
|
||||||||||||
share-
basic and diluted
|
(0.004)
|
|
(0.002)
|
|
(0.002)
|
|
(0.002)
|
|||||
Weighted
average basic
|
||||||||||||
and
diluted shares
|
30,478,221
|
|
32,618,523
|
|
30,163,975
|
|
28,742,395
|
|||||
Name
|
Age
|
Title
|
Michael
L. Wynhoff
|
41
|
Director
|
Michael
D. Michie
|
45
|
Director
|
Mark
R. Rauscher
|
43
|
Director
|
Dr
John Hagarty
|
66
|
Director
|
Name
|
Age
|
Title
|
Michael
L. Wynhoff
|
41
|
President/CEO
|
Michael
D. Michie
|
45
|
CFO/Treasurer
|
Mark
R. Rauscher
|
43
|
Secretary
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
Name
Position
|
Year
|
Salary
|
Bonus
|
Other
|
Restricted
Stock
Awards
|
Options
|
LTIP
Payouts
|
All
Other
|
Michael
Wynhoff
CEO
Stanley
|
2006
2005
2004
2004
|
$18,003
$40,350
$2,400
$-0-
|
-0-
-0-
-0-
-0-
|
$67,488
Deferred
$21,384
Deferred
-0-
-0-
|
-0-
-0-
-0-
-0-
|
-0-
2,000,000
@
0.03
-0-
-0-
|
-0-
-0-
-0-
-0-
|
-0-
-0-
-0-
-0-
|
Paulus
|
||||||||
President
|
||||||||
Michael
Michie
CFO
|
2006
2005
2004
|
$46,232
$59,988
$2,780
|
-0-
-0-
-0-
|
$34,500
Deferred
-0-
-0-
|
-0-
-0-
-0-
|
-0-
500,000
@
0.10
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
Rita
|
2004
|
$-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Paulus
|
||||||||
Treasurer
Mark
Rauscher
Secretary
John
Hagarty
Director
|
2006
2005
2004
2006
|
$-0-
$-0-
$-0-
$-0-
|
-0-
-0-
-0-
-0-
|
-0-
-0-
-0-
-0-
|
-0-
-0-
-0-
-0-
|
-0-
500,000
@
0.10
-0-
-0-
|
-0-
-0-
-0-
-0-
|
-0-
-0-
-0-
-0-
|
Name
and Address of
|
Amount
of
|
Percent
of
|
Beneficial
Owner
|
Beneficial
Ownership
|
Class
|
Mark
Rauscher
|
1,333,333
shares
|
4.2%
|
1509
Rapids Drive
|
||
Racine,
WI 53404
|
||
Michael
Wynhoff
|
4,035,018
shares
|
12.9%
|
1509
Rapids Drive
|
||
Racine,
WI 53404
|
||
Michael
Michie
|
1,429,500
shares
|
4.6%
|
1509
Rapids Drive
|
||
Racine,
WI 53404
|
||
John
Hagarty
|
152,455
shares
|
0.4%
|
1509
Rapids Drive
|
||
Racine,
WI 53404
|
||
EXHIBIT
NUMBER
|
NAME
|
PAGE
NUMBER
|
(31)
|
Certification
|
**
|
(32)
|
Certification-Rule
§1350
|
**
|