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WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Pacific Sands, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 88-0322882
State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1509 Rapids Drive, Racine, WI 53404
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(Address of principal executive offices)
(262)619-3261
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(Issuer's telephone number)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 X No
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As of November 14, 2005, the Company had 30,238,927 shares of its $.001 par
value common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet at September 30, 2005 (unaudited) 4
Condensed Statements of Operations for the Three Months Ended
September 30, 2005 and 2004 (unaudited) 5
Condensed Statements of Cash Flows for the Three
Months Ended September 30, 2005 and 2004
(unaudited) 6
Notes to Condensed Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis or Plan of Operation 14
Item 3. Controls and Procedures 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
Frank L. Sassetti & Co.
Certified Public Accountants
The Board of Directors
Pacific Sands, Inc. dba Natural Water Technologies
We have reviewed the balance sheet of PACIFIC SANDS, INC. DBA NATURAL
WATER TECHNOLOGIES as of September 30, 2005 and the related statements of
s, stockholders' equity and cash flows for the three months ended
September 30, 2005 and 2004. These interim financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquires of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews we are not aware of any material modifications
that should be made to the financial statements referred to above for them to be
in conformity with accounting principles generally accepted in the United
States.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has a significant accumulated deficit which
raises substantial doubt about the Company's ability to continue as a going
concern. Management's s in regard to these matters are also described in
Note 12. The financial statements do not include any adjustments that might
result from the outcome of this uncertainly.
We have previously audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the balance sheet of
PACIFIC SANDS, INC. DBA NATURAL WATER TECHNOLOGIES as of June 30, 2005 and the
related statements of operations, stockholders' equity and cash flows for the
year then ended (not presented herein); and in our report dated September 17,
2005, we expressed an unqualified opinion on these financial statements. In our
opinion, the information set forth in the accompanying balance sheet as of June
30, 2005 is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
/s/ Frank L. Sassetti & Co.
November 8, 2005
Oak Park, Illinois
6611 W. North Avenue * Oak Park, Illinois 60302
Phone (708) 386-1433 * Fax (708) 386-0139
3
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
BALANCE SHEETS
SEPTEMBER 30, 2005 AND JUNE 30, 2005
ASSETS
------
September 30,
2005 June 30,
(A Review) 2005
------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 2,301 $ 541
Trade receivables 57,553 60,699
Inventories 48,955 31,295
Prepaid expenses 12,700 15,210
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Total Current Assets 121,509 107,745
------------- ------------
PROPERTY AND EQUIPMENT
Furniture and fixtures & office equipment 8,618 8,618
Manufacturing equipment 9,500 12,653
Leasehold improvements 3,035 3,035
Software costs 13,777 12,560
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34,930 36,866
Less accumulated depreciation 3,596 2,712
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Property and Equipment, net 31,334 34,154
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OTHER ASSETS
Accounts receivable - other (net of allowance for 59,496 59,496
doubtful accounts of $176,223)
Security deposits 816 816
------------- ------------
Total Other Assets 60,312 60,312
------------- ------------
Total Assets $ 213,155 $ 202,211
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 70,075 $ 45,544
Current maturities of long-term debt 5,015 4,751
Accrued expenses 97,640 72,568
Deferred compensation 123,335 121,385
Notes payable - other 57,500 32,500
------------- ------------
Total Current Liabilities 353,565 276,748
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LONG TERM LIABILITIES
Installment notes payable 19,192 19,121
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Common stock 37,249 36,844
Additional paid in capital 2,922,833 2,879,170
Treasury stock, at cost (151,030) (151,030)
Accumulated deficit (2,968,654) (2,858,642)
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Total Stockholders' Equity (159,602) (93,658)
------------- ------------
Total Liabilities and Stockholders' Equity $ 213,155 $ 202,211
============= ============
The accompanying notes are an integral part
of the financial statements.
4
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(A Review)
2005 2004
------------ ------------
NET SALES $ 71,234 $ 16,959
COST OF SALES 22,578 10,542
------------ ------------
GROSS PROFIT 48,656 6,417
SELLING AND ADMINISTRATIVE EXPENSES 154,857 120,914
------------ ------------
LOSS FROM OPERATIONS (106,201) (114,497)
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OTHER INCOME (EXPENSES)
Interest expense (1,142) (3,000)
Loss on Disposal of Assets (2,680)
Miscellaneous income 11 2,874
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Total Other Income(Expenses) (3,811) (126)
------------ ------------
LOSS BEFORE INCOME TAXES (110,012) (114,623)
------------ ------------
INCOME TAXES
NET LOSS $ (110,012) $ (114,623)
============ =============
BASIC AND DILUTED NET LOSS
PER SHARE $ (0.004) $ (0.004)
============ ============
BASIC AND DILUTED WEIGHTED
AVERAGE SHARES 29,497,231 30,478,221
============ ============
The accompanying notes are an integral part
of the financial statements.
5
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(A Review)
2005 2004
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CASH FLOWS FROM OPERATIONG ACTIVITIES
Net loss $(110,012) $(114,623)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities -
Depreciation 1,357 421
Loss on disposal of equipment 2,680
Deferred compensation 1,950
Common shares and rights issued for
services and compensation 28,096 66,700
Changes in assets and liabilities -
Trade accounts receivable 3,146 (4,886)
Inventories (17,660) (726)
Prepaid expenses 2,510 925
Accounts payable and other current liabilities 49,603 25,356
---------- ----------
Net Cash Used in Operating Activities (38,330) (26,833)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital acquisitions -- (5,255)
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 15,972 10,000
Proceeds from notes payable 25,000
Repayment of note payable (882) (500)
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Net Cash Provided by Financing Activities 40,090 9,500
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,760 (22,588)
CASH AND CASH EQUIVALENTS
Beginning of period 541 44,098
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End of period $ 2,301 $ 21,510
========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the three months for
Interest $ 1,142 $
========== ==========
Income taxes $ $
SUPPLEMENTAL INFORMATION FROM ========== ==========
NONCASH FINANCING ACTIVITIES
Capital lease obligations $ 1,217 $
========== ==========
The accompanying notes are an integral part
of the financial statements.
6
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 AND JUNE 30, 2005
(A Review)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Business - Pacific Sands, Inc. doing 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.
Interim Financial Statements - The balance sheet as of September 30, 2005 and
the statements of operations, stockholders' equity and cash flows for the
three months ended September 30, 2005 and 2004, are unaudited. In the opinion
of management, such financial statements reflect all adjustments, which were
of a normal and recurring nature, necessary for a fair presentation of
financial position as of September 30, 2005 and the results of operations and
cash flows for the three months ended September 30, 2005 and 2004.
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 $1,356
and $421 during the three months ended September 30, 2005 and 2004,
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 the three months ended September 30, 2005 and
2004, advertising and promotion costs totaled $24,774 and $1,179,
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.
7
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 AND JUNE 30, 2005
(A Review)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES - CONTINUED
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 September 30, 2005 and June 30, 2005 consisted of the
following.
September 30, 2005 June 30, 2005
------------------ -------------
Raw materials $32,164 $25,118
Finished goods 16,791 6,177
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$48,955 $31,295
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8
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 AND JUNE 30,2005
(A Review)
3. INSTALLMENT NOTES PAYABLE
Installment note payable consists of a four year lease agreement for software
dated June 20, 2005 with an imputed interest rate of 14.45%. Monthly
installment payments are $691, with a bargain purchase option at the end of
the lease of $1. The transaction has been accounted for as a purchase in
accordance with generally accepted accounting principles.
The scheduled maturities over the next four years are as follows:
June 30, 2006 $ 5,015
2007 5,904
2008 6,816
2009 6,472
4. NOTES PAYABLE
Notes payable consist of various small unsecured notes to
stockholders/officers at rates fluctuating up to 8%. Management intends to
restructure its debt. To date, $3,000 in interest has been converted to
equity.
5. STOCK-BASED COMPENSATION
The Company accounts 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 three months ended September 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, "Accounting for Stock-Based
Compensation," to stock-based employee compensation for the respective years:
9
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 AND JUNE 30,2005
(A Review)
5. STOCK-BASED COMPENSATION - CONTINUED
2005 2004
---------- ----------
Net losses, as reported $(110,012) $(114,623)
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 (502,000)
---------- ----------
Pro forma net losses $(110,012) $(549,923)
========== ==========
Basic and diluted loss per share:
As reported $ (0.004) $ (0.004)
Pro forma (0.004) (0.016)
Employee stock options are as follows:
Price per share
---------------
Weighted
Shares Range Average
------ ----- -------
Balance, June 30, 2005 3,166,667 .03 - .10 0.052
Granted
Exercised
Cancelled (166,667) 0.03 0.03
---------
Balance, September 30, 2005 3,000,000 .03 - .10 0.052
=========
6,100,000 options were issued during the twelve months ended June 30, 2004.
6. LEASE COMMITMENT
The Company entered into a one year lease expiring December 31, 2005 for
11,000 square feet of office and warehouse space for $1,174 per month. The
Company is responsible for insuring the premises. Rent expense was
approximately $ 5,124 and $ 800 for the three months ended September 30, 2005
and 2004, respectively.
10
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 AND JUNE 30,2005
(A Review)
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 September 30, 2005. There were 4,100,000 options outstanding at September
30, 2004.
Three Months Ended September 30,
---------------------------------
2005 2004
------------- -------------
Basic and diluted loss per share:
Numerator:
Net loss $ (110,012) $ (114,623)
------------- -------------
Denominator:
Basic and diluted weighted average
number of common shares
outstanding during the period 29,497,231 30,478,221
------------ -------------
Basic and diluted loss per share $ (0.004) $ (0.004)
============ =============
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 September 30, 2005 are as
follows:
Deferred tax asset
Net operating loss carryforwards $ 813,925
Valuation allowance (813,925)
----------
Net deferred tax asset $ -
==========
At September 30, 2005, the Company has net operating loss carryforwards
for Federal tax purposes of approximately $2,123,000 which, if unused to
offset future taxable income, will expire in years beginning in 2018.
11
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 AND JUNE 30,2005
(A Review)
9. RELATED PARTY TRANSACTIONS AND FORGIVENESS OF DEBT
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
discussed below.
Stan and Rita agreed to waive all unpaid compensation from the Company
except for $100,000, which shall be paid in full within two 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
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.
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 intends to
vigorously pursue the outstanding receivable. Since counsel suggests that
this amount cannot be collected without incurring some legal costs and that
there is the potential that a settlement could ultimately be reached, an
allowance for bad debts of $176,223 exists. No bad debt expense was recorded
in the statement of operations for the three months ended September 30, 2005
12
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004 AND JUNE 30,2005
(A Review)
11. CONCENTRATIONS
The Company distributes water treatment and nontoxic cleaning products to
the entire U.S. market. For the three months ended September 30, 2005, three
customers accounted for approximately 12.5%, 14%, and 13.5%, respectively, of
the Company's sales. For the three months ended September 30, 2004, there
were no single customer accounts for greater than ten percent (10%) of the
Company's sales.
12. 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 September 30, 2005, the
Company had incurred cumulative losses of $2,968,654. 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.
13
Item 2. Management's Discussion and Analysis
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY
UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING
FUTURE EVENTS OR FUTURE PERFORMANCE OF THE COMPANY. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH ARE ONLY
PREDICTIONS AND SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS
USUALLY CONTAIN THE WORDS "ESTIMATE," "ANTICIPATE," "BELIEVE," "EXPECT," OR
SIMILAR EXPRESSIONS, AND ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY REVIEW VARIOUS RISKS AND UNCERTAINTIES IDENTIFIED BELOW, AS WELL AS
THE MATTERS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON 10-KSB FOR THE YEAR
ENDED JUNE 30, 2005 AND ITS OTHER SEC FILINGS. THESE RISKS AND UNCERTAINTIES
COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
INDICATED IN THE FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO
OBLIGATION TO UPDATE OR PUBLICLY ANNOUNCE REVISIONS TO ANY FORWARD-LOOKING
STATEMENTS TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
Pacific Sands, Inc. (the "Company" or "Pacific Sands") was incorporated in the
State of Nevada on July 7, 1994. The Company's fiscal year ends June 30. The
Company is a C-Corporation for federal income tax purposes. The Company does not
have subsidiaries or affiliated entities. The Company also does business as
"Natural Water Technologies."
The Company develops, manufactures, markets and sells a range of non-toxic,
environment friendly cleaning and water-treatment products based on proprietary
blended botanical and nontoxic chemical technologies. The company's products
have applications ranging from water installation maintenance (spas, swimming
pools, fountains, decorative ponds) to cleaning (non-toxic household and
industrial) and pet care.
The Company has a mature, actively marketed product line known as the ecoONE(R)
Spa Treatment system as well as ecoONE(R) Pool conditioner and the Pacific Sands
All-Purpose Hose Filter. Pacific Sands is also the master distributor for Rain
Forest Blue, an EPA Registered chlorine and bromine free, non irritating, odor
free, bactericide / algaecide alternative for the treatment of pool water.
Currently the Company markets and sells its product lines over the Internet and
through numerous retail outlets in the US, Canada and Europe. The products are
also sold via Pacific Sands distributors, manufacturer's representatives and
internationally established pool and spa industry distribution networks.
Management intends to continue the aggressive marketing and sale of its products
through direct retail and a widening base of retail outlets, distribution
centers and OEM arrangements in order to achieve its goals.
The Company's ability to achieve its objectives is dependent on its ability to
sustain and enhance its revenue stream and to continue to raise funds through
loans, credit and the private placement of restricted securities until such time
as the company achieves sustained fiscal profitability.
To date, the Company has funded operations through a combination of revenues
from the sale of its products, established credit with vendors, loans from
management, and the sale of rule 144 stock through private placement. The
company's failure to continue to raise adequate financing to fund operations may
jeopardize its existence.
(See "Liquidity and Capital Resources")
Management knows of no additional trends or uncertainties beyond those discussed
that are reasonably likely to have a material impact on the company's short or
long-term liquidity.
14
RESULTS OF OPERATIONS
Results for the three months ending September 30, 2005 compared to the three
months ending September 30, 2004.
For the three months ending September 30, 2005 net sales were $71,234, compared
to $16,959 in sales booked for the same period in 2005. The increase in sales is
attributable to a number of factors including a significantly higher number of
retail outlets carrying the ecoONE(R) spa treatment products and increased
direct Internet retail sales.
Cost of Goods Sold was $22,578 for the three months ending September 30, 2005
compared to $10,542 for the same period the previous fiscal year.
Gross profits for the three months ending September 30, 2005 were $48,656
compared to $6,417 for the same period the previous fiscal year.
For the three months ending September 30, 2005, selling and general
administrative expenses were $154,857 compared to $120,914 for the three months
ending September 30, 2004. The increase is due to expanded operations space and
the addition of one full time employee.
Loss from operations for the three months ending September 30, 2005 was $106,201
compared to $114,497 for the same period the previous fiscal year.
Net loss for the three months ending September 30, 2005 was $110,012 or .004 per
share compared to $114,623 or .004 loss per share for the same period the
previous fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $2,301 on September 30, 2005 compared to
$21,510 on September 30, 2004.
Net cash used in operations was $38,330 for the three months ending September
30, 2005 compared to $26,833 for the same period of the previous fiscal year.
Net cash provided by financing activities was $40,090 for the three month period
ending September 30, 2005, compared to $9,500 for the same period the previous
fiscal year.
The company's ability to achieve its objectives is dependent on its ability to
sustain and enhance its revenue stream and to continue to raise funds through
loans, credit and the private placement of restricted securities until such time
as the company achieves profitability. To date, management has been successful
in raising cash on an as-needed basis through the sale of restricted securities
in private placements to individual investors. There is no guarantee that
management will be able to continue to raise needed cash in this fashion.
The company has no material commitments for capital expenditures at this time.
The company has no "off balance sheet" source of liquidity arrangements.
15
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures designed to ensure that financial
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed,
summarized, and reported within the required time periods, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding disclosure.
In connection with the completion of its audit of, and issuance of its report
on, our financial statements for the year ended June 30, 2005, Frank L. Sassetti
& Co. ("Sassetti") considered our internal controls in order to determine their
auditing procedures for the purpose of expressing their opinion on the financial
statements and not to provide assurance on our internal controls. Sassetti
identified deficiencies that existed in the design or operation of our internal
controls over financial reporting that it considered to be "significant
deficiencies" or "material weaknesses." The Public Company Accounting Oversight
Board ("PCAOB") has defined "significant deficiency" as a control deficiency, or
a combination of control deficiencies, that adversely affects the company's
ability to initiate, authorize, record, process, or report external financial
data reliably in accordance with generally accepted accounting principles such
that there is more than a remote likelihood that the misstatement of the
company's annual or interim financial statements that is more than
inconsequential will not be detected. The PCAOB has defined a "material
weakness" as a "significant deficiency or combination of significant
deficiencies that results in more than a remote likelihood that a material
misstatement of the annual or interim financial will not be prevented or
detected."
During the first quarter ended September 3, 2005, we hired an outside accounting
firm to assist in the timely reconciliation of general ledger accounts, and
controls over property and equipment and debt documentation. However,
significant deficiencies or material weaknesses in our internal controls related
to segregation of incompatible duties and controls over inventory and equity
transactions still exist. We have disclosed those significant deficiencies and
material weaknesses to our Board of Directors. Additional effort will continue
to work with our management and outside advisors with the goal to implement
internal controls over financial reporting that are adequate and effective.
Because of inherent limitations of internal control, errors or fraud may
nevertheless occur and not be detected. Also, projection of any evaluation of
the internal control to future periods is subject to the risk that internal
control may become inadequate because of changes in conditions or that the
degree of compliance may deteriorate. Sassetti noted the following reportable
conditions that they believe to be material weaknesses: (i) Improve segregation
of incompatible accounting department duties, (ii) Improve maintenance of
accounting records by implementing the use of an accounting software system and
(iii) Implement a Corporate Code of Conduct.
Based upon the above evaluation of Management, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are not yet effective, but the procedures are as
effective as possible, considering the fact that there is a lack of segregation
of duties which will continue until such time as the Company can support
additional executive personnel to enhance segregation of duties.
(b) Changes in internal controls and procedures
There has been no change in our internal control over financial reporting during
the second quarter ended December 31, 2005, that has materially affected, or is
reasonably likely to material affect, our internal control over financial
reporting.
16
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal proceedings against the Company and the Company is
unaware of proceedings contemplated against it.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the security holders for a vote during this
quarter.
Item 5. Other Information
There is no other information deemed material by management for disclosure
herein.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K
Inapplicable
17
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.
PACIFIC SANDS, INC.
By: /s/ Michael Michie
------------------
Michael Michie
Chief Financial Officer
Dated: November 15, 2006
18
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