UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-KSB
x ANNUAL REPORT
UNDER SECTION 10 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended: June 30, 2008
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
Commission
file #
000-29483
Pacific Sands,
Inc.
(Exact
name of registrant)
|
Nevada
|
88-0322882
|
|
(State
of Incorporation)
|
(I.R.S.
Employer Id. No.)
|
|
|
|
|
1509 Rapids Drive,
Racine, WI
|
53404
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Issuer’s
telephone number, including area code (262)
619-3261
Securities
registered under Section 12(b) of the Exchange Act: Common Stock
Check whether the issuer is not required to file reports pursuant to
the Section 13 or 15(d) of the Exchange Act o
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act 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 [X] Yes [ ] No
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporation by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes o
No x
State
issuer’s revenues for fiscal year 2008: $976,356
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) As of October 13, 2008, the aggregate market value
of common equity held by non-affiliates was $1,653,683.
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date. As of October 13, 2008 there were
40,116,182 shares
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Transitional Small Business Disclosure
Format (Check one): Yes o; No x
Forward-Looking
Statements.
This
Report contains forward-looking statements. 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 in this
Report, including the matters set forth under the captions "Risk Factors" and in
the Company's 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.
Although
forward-looking statements in this Annual Report on Form 10-KSB reflect the good
faith judgment of our management, such statements can only be based on facts and
factors currently known by us. Consequently, forward-looking statements are
inherently subject to risks and uncertainties, and actual results and outcomes
may differ materially from the results and outcomes discussed in or anticipated
by the forward-looking statements. Factors that could cause or contribute to
such differences in results and outcomes include, without limitation, those
specifically addressed under the heading "Risks Factors" below, as well as those
discussed elsewhere in this Annual Report on Form 10-KSB. Readers are urged not
to place undue reliance on these forward-looking statements, which speak only as
of the date of this Annual Report on Form 10-KSB. We file reports with the
Securities and Exchange Commission ("SEC"). We make available on our website at
www.pacificsands.biz
free of charge, our annual reports on Form 10-KSB, quarterly reports on Form
10-QSB, current reports on Form 8-K and amendments to those reports as soon as
reasonably practicable after we electronically file such materials with or
furnish them to the SEC. Our website address is www.pacificsands.biz. You can
also read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain
additional information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet
site (www.sec.gov) that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC,
including us.
We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
Annual Report on Form 10-KSB. Readers are urged to review and consider carefully
the various disclosures made throughout the entirety of this annual report,
which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations and
prospects.
The
Company:
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," “ecoone.biz” and Natural Choices.
In
mid-June of 2004 the Company completely reorganized its management and
leadership team. Since that time the Company has reported 16 consecutive
quarters of sustained quarter over same quarter growth. Pacific
Sands develops, manufactures, markets and sells a range of nontoxic,
environmentally friendly cleaning and water-treatment products based on
proprietary blended botanical, nontoxic and natural chemical technologies. The
Company’s products have applications ranging from water maintenance (spas,
swimming pools, fountains, decorative ponds) to cleaning (nontoxic household and
industrial) and pet care.
In mid
February of 2008, The Company acquired Natural Choices Home Safe Products, LLC
("Natural Choices"), a developer and manufacturer of environmentally friendly
cleaning and laundry products. The acquisition added dozens of new products to
the Pacific Sands portfolio of earth, health, pet and kid-friendly offerings,
including Oxy-Boost™ an oxygen-bleach based, chlorine-free bleach alternative.
The Company believes that it now has the largest selection of oxygen bleach
based formulations available anywhere both for retail distribution under its
ecoone®, e-2 elemental earth® and Natural Choices™ brands as well as for
contract manufacturing and re-label.
The
Company achieves the bulk of its sales and revenues through three primary routes
to market:
Pacific
Sands Branded Products:
Pacific
Sands has three primary brands that are sold through retail distribution in
numerous outlets in the U.S., Canada and Europe: ecoone®, e-2 elemental earth®
and Natural Choices™.
Contract
Manufacturing and Private Label:
With the
acquisition of Natural Choices, Pacific Sands now has one of the largest
portfolios of consumer cleaning, laundry and pool and spa water management
products available for private label of any U.S. manufacturer. We are
particularly dedicated to the development of brand extensions helping the
manufacturers of existing consumer brands to quickly introduce new products to
market, complementary to their existing portfolio in order to expand their
revenue base and capitalize on their existing brand capital and self
space.
Direct
& Internet Retail:
While
direct retail is primarily used by the Company as a tool to educate consumers
and provide ready access to information about the products the company offers,
our direct sales represent a significant portion of the revenue stream of the
Company at this time.
At its
heart, Pacific Sands, Inc. is an environmental products Company. Our core
product philosophy revolves around the development, manufacture and sale of
industry-unique, nontoxic and/or 'less-toxic' solutions for consumer and
commercial use. Our primary focal points in product development stress the
reduction and/or elimination of hazards to the user and overall safety for the
environment, pets and people with particular emphasis on
child-safety.
It is the
mission of Pacific Sands to provide earth-friendly solutions to everyday
cleaning and water management problems, while continuously seeking a sustainable
balance between the health of the planet and the needs of its
people.
Brands,
Products and Product Lines:
Natural
Choices:
Natural
Choices™ is a brand consisting of quality household cleaning and laundry
products which are environmentally safe, superior in performance and economical
to use. Natural Choices™ products are nontoxic upon decomposition and based on
naturally derived raw materials when possible. Natural Choices™ products do not
contain fillers and customer satisfaction is guaranteed 100%.
Natural
Choices™ Background: The Natural Choices brand was founded in 1995 by Catherine
Myers. She began to market her own environmentally friendly cleaning and laundry
products as alternatives to the harsh and toxic products available on store
shelves as well a replacement for the ineffective "safe" products she was
finding. Her 10 years of R&D laboratory, formulating and technical testing
experience, combined with her husband Marion's chemistry background, enabled her
to offer a broad variety of products.
The
Natural Choices™ product line now offers the most complete line of quality
oxygen bleach-based cleaners available anywhere. The Natural Choices™ line also
features an extensive line of soy-based products and products specifically
developed for people with allergies and chemical sensitivities.
Of the
dozens of available Natural Choices™ products, the most well known flagship
product is Oxy-Boost. Oxy-Boost is a safe and effective alternative to chlorine
based products and it can be used in many applications in and around the
home. It is based on sodium percarbonate which uses oxygen for
de-staining and deodorizing. Oxy-Boost is safe to use at all
temperatures, on most washable fabrics, and all colors, in hard or soft water,
and is compatible with other household cleaners. Also, it produces no
harmful by-products which negatively affect the environment. Unlike
chlorine bleach, which can merely cover up a stain and can harm fabric,
Oxy-Boost attacks and breaks down organic stains to totally remove them from the
garment. Oxy-Boost has hundreds of cleaning uses around the house and is the
core formulation for all of our oxygen-bleach based technologies.
Ecoone®
Pool and Spa Water Management Systems:
Pacific
Sands’ ecoone® pool and spa care and water management products completely
rethink conventional water care tactics to provide what we believe are the
safest, easiest to use and most environmentally friendly products available
today.
In 2008,
the ecoone® Spa Treatment system was cited by the pool and spa industry’s Aqua
Magazine as a ‘greener’ alternative to conventional spa water care. The
industry’s leading professional publication, “Pool and Spa News” also picked our
ONESHock product as one of the top 50 products for 2008.
ecoone®
Spa Treatment System:
The
ecoone® Spa Treatment System consists of a full complement of products designed
to simplify spa maintenance, enhance user satisfaction and reduce the overall
chemical load of consumer hot tubs and spas. The system is compatible with most
conventional sanitizers and is particularly effective with the Company's
ONEShock™ sanitizing product.
ecoone®
SPA monthly is the safe, nontoxic core of the ecoone® system that naturally
solves most spa water treatment problems naturally. A little goes a long way. To
sustain a spa that is so soft and safe your Grandma can use it is as easy as one
bottle of SPA monthly every 30 to 45 days. It’s that easy!
ONEShock
completes the ecoone® Spa Treatment System by providing a safer to use, proven
sanitizer / shock combo in convenient to use, single dose dissolving packets.
ONEShock delivers powerful water sanitation to spas without the risk and dangers
of exposure to powdered or liquid sanitizers. Distribution of the ONEShock
product began on a state by state basis in fiscal 2008.
JetONE is
a fast-acting whirlpool and hot tub / spa plumbing cleanser that quickly clears
internal plumbing and equipment of buildup of chemical and biofilm deposits.
FilterONE is an economical, fast-acting, pool and spa cartridge filter cleanser.
These products are unique to the industry as they are the only ones of their
kind known that do not cause foaming and leave no harmful chemical residue
either in waste water or pool and spa water.
ecoone®
Pool Conditioner: ecoone® Pool Conditioner is a nontoxic additive that reduces
pool maintenance by helping to maintain water clarity, pH and alkalinity using
natural ingredients. ecoone® Pool Conditioner is compatible with most
conventional sanitizer systems. The Company generally markets the product in
conjunction with Rain Forest Blue(TM) Bactericide / Algaecide.
Pacific
Sands All-Purpose Hose Filter: The Pacific Sands All-Purpose Hose Filter easily
attaches to either end of a garden hose to provide fresh, pure, clean water for
outdoor water needs. The filter removes or greatly reduces thousands of common
water contaminants and hazards including chlorine, lead, arsenic, mercury, DDT
(and other pesticides), hydrogen sulfide (rotten egg smell), VOC’s & organic
contaminants, dissolved metals and scale causing minerals.
Pacific
Sands also acts as a master distributor for Rain Forest Blue Bactericide /
Algaecide for Pools. This unique, halogen (chlorine/bromine)-free product is one
of the only EPA registered bactericide / algaecide combination products
available on the market.
ecoone®
is a registered trademark of Pacific Sands, Inc.
e-2
elemental earth®:
Our
e2-elemental earth® branded cleaning product line, originally developed by
Pacific Sands board member and former SC Johnson and Son lead research chemist
Dr. Jack Hagarty, are specifically designed to reduce chemical exposure to
children and pets. These innovative home cleaning products are Earth-friendly
while still delivering the same expected efficacy of a typical consumer
product. All of our cleaning product lines are all chlorine and
ammonia free. Many of the products in the e-2 elemental earth® line,
particularly the e-2® Baby’s Nursery Spray are not only safe to use around
children, but designed to be used by children over the age of three (with
supervision) to help their parents with light household cleaning
chores.
e-2
elemental earth® is a registered trademark of Pacific Sands, Inc.
Product
and Practice Information:
Many of
Pacific Sands' cleaning and water treatment products utilize a proprietary,
nontoxic product formula that serves as a base for a broad range of consumer and
commercial applications. Citing the versatility of the Company's core formula
and referring to it as a '...hinge pin technology,' Wal-Mart's Innovation
Network awarded the product the highest "Success Likelihood Score" ever granted
in that program's 22 year history.
All of
Pacific Sands Products are animal cruelty free. Pacific Sands does not test its
products on animals nor does it support animal testing. Pacific Sands does not
buy raw materials from manufacturers who engage in animal testing.
All of
Pacific Sands products are made in the USA. Pacific Sands supports fair trade
practices and, whenever possible, purchases its raw materials from American
companies or from nations that also support fair labor and trade
practices.
Management
believes that the Company's product offerings have a strong competitive edge in
the pool and spa marketplace as well as the rapidly expanding environment and
health-friendly products mark. Our product lines satisfy the environment and
health conscious consumer's primary needs in that they combine a high level of
efficacy with earth and health safety considerations.
Industries
and Markets:
Pool and
Spa Products:
According
to industry publications, in excess of $10 billion dollars are spent annually in
the U.S. alone on pool and spa chemicals and maintenance. There are more than 10
million existing spas in the US and approximately 12% of all American households
own a pool. The overall industry has grown at a rate of between 4 and 6% for the
last several years and is expected to continue to grow at a similar
pace.
Nontoxic
and environmentally-friendly Cleaning Products:
The
market demand for cleaning and household products that are safer for the
environment and health, particularly the health of children is on the rise.
Pacific Sands household cleaning products fill an important niche in the overall
household cleaning products marketplace and are designed specifically to be a
safer cleaning alternative in households with children and pets.
Marketing
and Sales:
The Company markets and sells its
product lines directly, over the Internet and through pool, spa, hardware,
specialty and other retail outlets in the US, Canada and Europe. The products
are also sold via Pacific Sands distributors, manufacturers’ representatives and
internationally established pool and spa industry distribution networks. Our
products are also sold through numerous popular pool and spa websites including
www.poolandspa.com
and www.waterwarehouse.com.
The
Company’s Natural Choices branded product are sold in numerous retail outlets
around the country and in Europe as well as dozens of the top
environmentally-oriented websites.
Representative
Sales Venues:
Direct and Internet Channels:
Despite the rapid expansion of the Company’s customer and dealer base for the
ecoone® pool and spa products, much of the Company’s potential customer base in
the U.S. still does not have direct access to 'brick and mortar' retail outlets
carrying the products. Consequently, the Company sells direct to consumers via
phone sales and internet orders through its numerous websites including www.pacificsands.biz, www.oxyboost.com, www.ecoone.biz and www.ecogeeks.com.
Direct sales have not only helped to add to the Company’s customer base but have
led to the establishment of numerous dealers and distributors through a
combination of customer recommendations and broad internet presence.
Additionally, the ability to sell directly adds to the Company's gross profits,
facilitating a pricing structure that is very attractive to dealers and
distributors.
Pool and Spa Retail Stores:
Pacific Sands pool and spa products are sold through numerous pool and spa
retail stores throughout the U.S., Canada and overseas. These stores are
generally smaller, privately held businesses run by pool and spa professionals
who are educated in water chemistry and chemical sales. Retail stores either buy
their ecoone products directly, through www.ecoone.biz
or through one of our many distribution outlets.
Distribution: Pacific Sands
ecoone pool and spa products are now distributed by major US and overseas
distributors including SCP Pool Corp, Hawkeye Manufacturing, California
Specialty Distributors, and Baystate Pool Supply among others. California
Specialty Distributors also acts as one of the Company's European distribution
centers.
Contract
Manufacturing, Custom Formulation and Private Label:
Pacific
Sands has OEM and sales / distribution agreements with two major US Spa
Manufacturers and two smaller specialty spa manufacturers. Hawkeye
Manufacturing, makers of the Hawkeye and Barefoot lines of portable hot tub
spas, also acts as a European distributor for the spa product line providing
convenient and inexpensive overseas shipping for the Company.
A custom
version of our ecoone® Spa Treatment System is also sold through an OEM private
label arrangement with another major US Spa manufacturer. The Company has a
standing, recurring order for products which ship approximately every 20
days.
Private
Label and Contract Manufacturing:
Pacific
Sands’ Natural Choices products offer one of the largest portfolios of nontoxic,
earth, health pet and kid-friendly available for private label anywhere. The
Company also offers custom formulation and product consultation.
Our
products are currently privately labeled by dozens of companies ranging from
small fundraising entities to nationally recognized brands using single product
extensions.
The
Company is able to offer complete ‘cradle to customer’ product development
including formulation, manufacturing, labeling, marketing and shipping and can
generally turn a product around from ‘concept to customer’ in 30 days or
less.
Marketing
Strategy:
The
Company primarily uses a “demand side” product differentiation marketing
strategy to create markets and introduce new customers to its
products.
The
Company also utilizes internet advertising and direct consumer advertising
through internet, newspapers and magazines to attract customers. We market to
dealers through post card campaigns, internet advertising, advertising in
industry trade magazines and cross-branded advertising with our manufacturing
partners and through our other products.
Industry
trade shows also play an important role in the marketing of our pool and spa
lines, private label and branded cleaning products to new dealers, distributors
and manufacturers.
Intellectual
Property
ecoone®
is a registered trademark of Pacific Sands Inc.
e-3
elemental earth® is a registered trademark of Pacific Sands, Inc.
The
Company manufactures a broad range of earth, health and kid-friendly pool and
spa and household cleaning products. Generally, these types of products are
difficult, if not impossible to patent. The products that the Company develops
and manufactures are protected by in-house trade secret practices which include
non-compete and non-disclosure contracts with employees and
vendors.
Competition:
Pacific
Sands is one of many companies that manufacture, market and sell pool, spa,
cleaning and water filtration products. The Company’s products account for a
small percentage of any of those markets. Management believes that through
continued aggressive marketing, the Company’s products can compete in these
markets as evidenced by the rapid growth of our pool and spa product
lines.
Research
and Development:
Pacific
Sands formulations were and are developed in-house and use proprietary blends of
natural and safely synthesized compounds. Pacific Sands has two research
chemists on staff, who oversee and conduct new product research and
development.
The
Company has an in-house chemistry lab where new products are developed and
manufacturing QA and QC is overseen.
Manufacturing:
Pacific
Sands formulates, manufactures and fills the majority of its liquid and powder
products in the Company's manufacturing and warehousing facility in Racine, WI.
The facility is sufficient to meet current and anticipated demand for products
for the foreseeable future.
The
Company utilizes a modular liquid filling line that can be expanded at
relatively moderate cost if needed to meet demand. Additional temporary labor is
sometimes used to meet spikes in demand. The Company also has preemptive
arrangements with regional liquid and powder bottling facilities in the event
that demand for our products far exceeds the Company's manufacturing
capacity.
Since
establishing its liquid filling line, the Company has not had any substantial
delay in production, resulting in delayed product delivery. The Company uses
outside vendors and manufacturers for its filtration products, EPA regulated and
promotional materials and has, on occasion experienced delays only as a result
of vendor delays.
The
Company also has a six head semi-automated overflow liquid filler which can be
used for filling longer production runs and is easily adapted to a fully
automated production filler.
In July
of 2008, the Company installed a semi-automated powder product mixing and
filling facility which is used to manufacture all of its powdered laundry and
cleaning products.
As of
June 30, 2008, the Company had 8 full time (two of whom are
officers of the Company) and 3 part time employees and numerous
consultants and sales representatives who are not considered to be employees of
the Company.
Risk
Factors
In
addition to the other information contained on this Form 10-KSB report, the
following risk factors should be considered carefully.
An
investment in the common stock of the Company involves a high degree of risk. In
addition to the other information in this report, the following risk factors
should be considered carefully in evaluating the Company and its business. This
Report contains forward-looking statements. 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,"
"plan," "expect," or similar expressions, and are subject to numerous known and
unknown risks and uncertainties. In evaluating such statements, prospective
investors should review carefully various risks and uncertainties identified in
this report, including the matters set below and in the Company's 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.
THE
COMPANY HAS EXPERIENCED LOSSES FROM OPERATIONS SINCE COMMENCING
OPERATIONS:
With the
exception of 4th quarter, 2007 and 4th quarter
of fiscal year 2006, the Company, since commencing operations, has not been
profitable on an annual or quarterly basis. The Company may not, in the future,
generate sufficient revenues to achieve sustainable profitability.
POSSIBLE
DIFFICULTY FINANCING PLANNED GROWTH:
The
Company's present plans require an amount of expenditure and working capital. In
the future the Company will likely require financing in addition to the cash
generated from operations to fund planned growth. If additional resources are
unavailable, the Company may be unable to grow according to its present
plan.
GOING
CONCERN:
Our
independent auditors have added an explanatory paragraph to their audit opinion
issued in connection with the financial statements for the year ended June 30,
2008, relating to our ability to continue as a going concern. We cannot assure
investors that our business plans will be successful in addressing these issues.
If we cannot successfully continue as a going concern, our shareholders may lose
their entire investment in our common shares.
Our
ability to achieve sustained profitability will depend on a number of factors,
including, but not limited to the following:
- price,
volume and fiscal placement of sales.
-
fluctuating margins, which may be affected by the sales mix between
distribution, wholesale and retail sales.
-
regulatory approvals for sale of products that contain claims or ingredients
regulated by the EPA or other federal or state agencies
- ability
to acquire or develop additional products, technology or companies
MANAGEMENT'S
ASSUMPTIONS REGARDING THE FUTURE MARKET MAY BE FAULTY:
Management
assumes there will be a continuing and increased desirability in the retail
market for nontoxic, environment and health friendly products for cleaning and
water treatment use. Should management's assumptions as to this increased
desirability be faulty, the Company may have difficulty achieving its planned
growth.
THE LOSS
OF KEY PERSONNEL COULD ADVERSELY AFFECT THE COMPANY:
The
Company is run by a small number of key personnel. Should the Company experience
a loss of these key people due to their inability or unwillingness to continue
in their present positions, the Company's business and financial results could
be adversely affected.
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.
RISKS
RELATING TO OWNERSHIP OF COMMON STOCK.
There may
not be sufficient liquidity in the market for our securities in order for
investors to sell their securities.
There is
currently only a limited public market for the Company’s common stock, which is
listed on the OTC Bulletin Board, and there can be no assurance that a trading
market will develop further or be maintained in the future.
The
Company leases approximately 12,000 square feet of office and warehouse
facilities under an operating lease expiring March 31, 2010.
The
Company is involved in no legal proceedings at this time.
On
January 24, 2008 Pacific Sands, Inc. (“Company”) and its former CEO, Stanley
Paulus, entered into a settlement agreement resolving all legal actions between
them, each party being responsible for its own legal expenses. Proceedings
had been pending in the US District Court, Eastern District of
California. The proceedings involved certain compensation and note
claims alleged by Mr. Paulus, as well as certain allegations by the Company
relating to compensation and performance deficiencies during Mr. Paulus’ tenure
as CEO. The Company will pay Mr. Paulus $100,000 over a two and a
half year period beginning in February 2008. Mr. Paulus extended an option
to the Company for a pre-payment discount. Once final payment is made, Mr.
Paulus shall file a dismissal with prejudice within two weeks
thereafter.
No matter
was submitted to a vote of the Security Holders during the fiscal year ended
June 30, 2008.
PART
II
Market
Information
The
Company's common stock trades on the National Association of Securities Dealers
Electronic Bulletin Board under the symbol PFSD.
The
following range of the high and low reported closing sales prices for the
Company’s common stock for each quarter in fiscal 2008 and fiscal 2007, all as
reported on the NASDAQ OTC Bulletin Board.
|
|
High
|
Low
|
|
Fiscal
Year Ended June 30, 2007
|
|
|
|
First
Quarter
|
0.28
|
0.10
|
|
Second
Quarter
|
0.16
|
0.11
|
|
Third
Quarter
|
0.14
|
0.10
|
|
Fourth
Quarter
|
0.125
|
0.075
|
|
|
|
|
|
Fiscal
Year Ended June 30, 2008
|
|
|
|
First
Quarter
|
0.14
|
0.078
|
|
Second
Quarter
|
0.132
|
0.08
|
|
Third
Quarter
|
0.105
|
0.079
|
|
Fourth
Quarter
|
0.092
|
0.065
|
|
|
|
|
As of
June 30, 2008, there were approximately 758
Holders.
The
Company has never declared a cash dividend.
Transactions
involving the Company’s securities during the fiscal year ended June 30, 2008
are summarized below.
On
September 25, 2007, the Company issued 200,000 shares of its common stock to an
unrelated investor for $20,000.
On
September 25, 2007, the Company issued 60,000 shares of its common stock, par
value $0.001 per share, to its three directors and 117,500 shares of its common
stock, to three consultants for services performed. The fair market value of the
shares on the date issued was $0.09 per share. The Company recorded
compensation expense of $15,975 related to the issuance of these
shares.
On
October 10, 2007, the Company issued 87,500 shares of its common stock to three
consultants for services performed. The fair market value of the shares on the
date issued was $0.10 per share. The Company recorded compensation
expense of $8,750 related to the issuance of these shares.
On
December 28, 2007, the Company issued 500,000 shares of its common stock share
as earnest money toward the purchase price for the acquisition of Natural
Choices Home Safe Products, LLC. The fair market value of the shares
on the date issued was $0.10 per share. The Company recorded the earnest payment
related to the issuance of the these shares as a prepaid non-current
asset
On
December 31, 2007, the Company issued 522,222 shares of its common stock to an
unrelated investor for $47,000.
On
December 31, 2007, the Company issued 60,000 shares of its common stock to its
three directors and 235,000 shares of its common stock to employees and
consultants. The fair market value of the shares on the date issued was $0.09
per share. The Company recorded compensation expense of $26,550
related to the issuance of these shares.
On
February 8, 2008, the Company issued 500,000 shares of its common stock as
payment toward the purchase price for the acquisition of Natural Choices Home
Safe Products, LLC. The fair market value of the shares
on
the date
issued was $0.10 per share.
On
February 8, 2008 the Company converted two notes payable due to unrelated
parties plus accrued interest totaling $31,928 into 399,095 shares of its common
stock. The fair market value of the shares on the date issued was
$0.08 per share.
On
February 8, 2008, the Company issued 125,000 shares of its common stock to a
consultant for services performed. The fair market value of the shares on the
date issued was $0.095 per share. The Company recorded consulting fee expense of
$11,875 related to the issuance of the shares.
On
February 8, 2008, the Company issued 1,250,000 shares of its common stock to an
unrelated investor for $100,000.
On March
4, 2008, the Company converted accounts payable related to professional services
rendered of $9,120 into 114,000 shares of its common stock. The fair
market value of the shares on the date issued was $0.08 per share.
On March
31, 2008, the Company issued 48,330 shares of its common stock as partial
payment for machinery and equipment purchased under a capital lease
agreement. The fair market value of the shares on the date issued was
$0.085 per share.
On March
31, 2008, the Company issued 80,000 shares of its common stock to its four
directors and 40,000 shares of its common stock to a consultant. The fair market
value of the shares on the date issued was $0.085 per share. The
Company recorded compensation expense of $10,200 related to the issuance of the
shares.
Management’s
Discussion and Analysis or Plan of Operation
General
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," “ecoone.biz” and Natural Choices.
In
mid-June of 2004 the Company completely reorganized its management and
leadership team. Since that time the Company has reported 16 consecutive
quarters of sustained quarter over same quarter growth.
Pacific
Sands develops, manufactures, markets and sells a range of nontoxic,
environmentally friendly cleaning and water-treatment products based on
proprietary blended botanical, nontoxic and natural chemical technologies. The
Company’s products have applications ranging from water maintenance (spas,
swimming pools, fountains, decorative ponds) to cleaning (nontoxic household and
industrial) and pet care.
In mid
February of 2008, The Company acquired Natural Choices Home Safe Products, LLC,
a developer and manufacture of environmentally friendly cleaning and laundry
products. The acquisition added dozens of new products to the Pacific Sands
portfolio of earth, health pet and kid-friendly offerings, including Oxy-Boost™
an oxygen-bleach based, chlorine-free bleach alternative. The Company believes
that it now has the largest selection of oxygen bleach based formulations
available anywhere both for retail distribution under its ecoone®, e-2 elemental
earth® and Natural Choices™ brands as well as for contract manufacturing and
re-label.
The
majority of the Company’s operating expenses are achieved through gross profits
from the sale of its products. The Company's goal is to achieve
sustained and significant profitability through revenues achieved through the
sale of its nontoxic, earth, health and kid-friendly, Pool, Spa, Household
Cleaning and other product lines.
ACQUISITION
OF NATURAL CHOICES
On
February 8, 2008 the Company acquired Natural Choices Home Safe Products, LLC
(“Natural Choices”) pursuant to the terms of an Asset Purchase Agreement (the
“Agreement”) for a purchase price of $890,000 in cash and shares of Company
common stock payable over a three-year period.
Natural
Choices markets environmentally and health friendly consumer and commercial
cleaning products both in United States and various territories outside the
U.S. Management believes that the acquisition of Natural Choices
benefits the Company in several ways as discussed below.
Reduced
Overhead for Natural Choices:
By
merging into Pacific Sands, the operational overhead for Natural Choices is
significantly reduced, thus potentially substantially increasing gross margins
for the Natural Choices products. Natural Choices cost savings include general
overhead such as rent and utilities and employee and accounting
expenses.
Potential
Growth Through In-House Marketing and Sales Support:
Pacific
Sands has focused its efforts primarily on marketing and sales for the past
several years. We have a highly skilled marketing and sales staff as well as
internal production ability for new labels, printing, video, internet and
imaging. Natural Choices has placed more focus on new product development.
Consequently, we now have the ability to apply Pacific Sands marketing and sales
staff to a fresh, new line of products that, while achieving a relatively
significant customer base, has never been aggressively marketed
nationally.
Less
Reliance on Narrow Market Channels:
To Date,
Pacific Sands has achieved the majority of its revenues through the sale of its
ecoone pool and spa water management systems. While management believes that the
Company will continue to grow the pool, spa and water maintenance sections of
the business at its current rate or better, the addition of new sales channels
and markets will serve to insulate the Company from industry-specific slow downs
and enhance the overall stability of the Company's revenue stream.
The
market for environment and health friendly consumer and commercial cleaning
products is still in the very early stages and is expanding rapidly. Management
believes that the acquisition of Natural Choices, which is already
well-established in these markets, places Pacific Sands in an ideal position to
actively compete in the environmental products marketplace.
Expanded
Business Model to include Contract Manufacturing, Re-label and Custom
Formulation:
Natural
Choices achieves a significant portion of its revenue through private label and
custom formulation sales. Pacific Sands will continue to foster and pursue this
business model as it offers the fastest track to entry into the 'big box”
distribution. We now manufacture for more than 30 re-label and custom
formulation customers. A number of these are manufacturers who already have
established sales channels of complementary products through national hardware
and building supply chains.
Results
of Operations for Fiscal Year 2008 compared to Fiscal Year 2007
Results
of operations for the fiscal year ending June 30, 2008 compared to the fiscal
year ending June 30, 2007.
Revenues and Gross
Profit
For the
fiscal year ending June 30, 2008, the Company’s net sales were $976,357 compared
to net sales of $596,774 for the fiscal year ended June 30, 2007. A significant
portion of the 63% increase in sales is attributable to the acquisition of
Natural Choices in February 2008. Fiscal year 2008 sales of Natural Choices
products since February 2008 approximated $260,000. Also contributing
to the increase in sales were a number of other factors including a continuing
increase in the higher number of retail outlets carrying the Company’s ecoone®
pool and spa treatment products and increased direct Internet retail
sales.
Gross
profit for the fiscal year ending June 30, 2008 was $571,725 or 58.6%.while
gross profit for the year ending June 30, 2007 was $366,050 or
61.3%. The decrease in gross profit percentage is due in large part
to the addition of the Natural Choices products, many of which have lower
margins than the existing Pacific Sands pool and spa products. This is
particularly true of many of the private label products which constitute a
significant percentage of the overall sales of the Natural Choices product line.
At the time of acquisition, Natural Choices manufactured the bulk of their
liquid and powder cleaning and laundry products through contract manufacturers,
adding significantly to the cost of manufacturing those products. The Company
continued to outsource the manufacture of the majority of these products through
4th
quarter of fiscal 2008 while it was building an in-house powder filling
facility.
In
mid-July, 2008, the company began producing the majority of its’ liquid and
powder products in-house which will likely result in a substantial
savings in its cost of goods sold and higher margins in the coming
quarters.
Net sales
of $976,357 included sales during the fourth quarter of $412,171, an increase of
88% from $219,162 for the same period during the fiscal year ended June 30,
2007. The addition of Natural Choices products accounted for a large part of the
increase. In addition, increases in direct internet retail sales, sales to
retail outlets, distribution outlets and OEM manufacturers also contributed to
the overall increase in sales during the final fiscal quarter.
The
growth reflected in fourth quarter sales represents the 16th consecutive period
of quarter over same quarter sales growth since the Company experienced a
complete management transition in June 2004. Management expects its track record
of same-quarter growth to continue for all of fiscal year 2009.
Operating
Expenses
For the
fiscal years ending June 30, 2008 and 2007, selling and general administrative
expenses were $852,277 and $876,016, respectively. The Company did
not record any stock based compensation expense in the fiscal year ended June
30, 2008, whereas, in the fiscal year ending June 30, 2007, the Company recorded
stock based compensation of $134,000 related to stock options granted to its
executives. After deducting the charge for the stock option grants in FY 2007,
selling and administrative expenses increased in FY 2008 by approximately
$110,000.
Several
factors contributed to the increase in operating expenses, primarily the
addition of a full time sales manager. Additionally, upon closing the
acquisition of Natural Choices, the Company hired under employment contracts,
the two former owners of Natural Choices thus increasing administrative salary
expense. Two additional employees were also hired to accommodate the
increase in production and sales volume resulting from the acquisition. A
portion of these salaries are included in selling and administrative expense.
Overall, salary expense included in operating expense was approximately $388,000
in fiscal 2008 compared to $335,000 in fiscal 2007.
The
Company expanded its leased space and executed a new operating lease increasing
its base rent from $2,000 to $3,750 per month. For the year ending
June 30, 2008 total rent expense was approximately $38,000 compared to $25,000
for the year ending June 30, 2007. Increases in product liability insurance,
depreciation and IT/computer consulting and maintenance also contributed to an
increase in operating expense over the prior fiscal year.
Other
Income/Expense
Interest
expense for the fiscal year ended June 30, 2008 was $44,055 compared $41,545 for
the fiscal year ended June 30, 2007. Interest expense for the year ending June
30, 2008 includes $20,244 of amortized debt discount resulting from interest
imputed on the debt incurred to acquire Natural Choices. The balance
of the interest expense relates to interest on the two lines of credit, capital
leases and notes payable to shareholders and directors.
For the
year ended June 30, 2008 the Company recorded $10,000 of other income that
resulted from the reversal of $5,000 of debt and $5,000 interest accrued as part
of an obligation to a former officer of the Company. Pursuant to the terms of a
settlement agreement between the Company and the former officer, the Company is
to pay a total of $100,000 to the former officer over a two and one half year
period. The reversals represent amounts accrued in excess of the agreed
settlement amount.
Net Loss
For the
fiscal year ended June 30, 2008, the Company experienced a loss from operations
of $280,552, a decrease of 45% compared to the loss from operations of $509,966
for fiscal year 2007. The Company's net loss for fiscal year
2008 was $312,908, or $0.009, per share compared to $551,097, or $0.017 per
share, for fiscal 2007. The decrease in losses is attributable primarily to the
increased revenue achieved during FY 2008 with a significant portion of the
increase coming from the addition of the Natural Choices product line in
February 2008. The larger loss in FY 2007 was also due in part to stock based
compensation for option grants discussed above.
Liquidity
and Capital Resources
In fiscal
2008, the vast majority of the Company’s operations were funded through the
profits from the sale of its products. Management believes that the Company is
now positioned for significant sales growth that will ultimately lead to
sustained and significant profitability but will require additional
funding.
The
Company's ability to achieve its objectives is dependent on its ability to
sustain and enhance its current revenue stream and to continue to raise funds
through loans, vendor credit and the private placement of restricted stock until
such time as the Company sustains fiscal profitability.
To date,
the Company has funded operations and expansion through a combination of
revenues from the sale of its products, established credit with vendors,
deferred salaries and the sale of rule 144 stock through private placement. The
Company's failure to continue to raise adequate financing to fund planned
expansion may jeopardize its plans for growth.
At the
June 30, 2008, the Company had current assets of $402,412 and total assets of
$1,343,401. Cash and cash equivalents totaled $7,487 on June 30, 2008. Non
current assets include intangible assets resulting from the acquisition of
natural Choices in the amount of $861,862.
Current
liabilities at June 30, 2008 were $1,008,844. Current liabilities include
accounts payable and accrued expenses totaling approximately
$486,000. Notes payable to banks, finance companies, shareholders and
directors approximate $140,000. Current liabilities also include $36,000 in
payments due to a former officer pursuant to a settlement agreement executed in
December 2007. The non-current portion of the note is $44,500 payable over a two
year period.
Current
liabilities include $190,000 representing the current portion of the debt
obligation incurred for the acquisition of Natural Choices. The non
current or long term portion of the debt of $540,000 is netted against the
unamortized debt discount of approximately $62,000. The remaining
debt is payable in cash and the Company’s restricted common stock over a three
year period as follows:
|
|
·
|
$40,000
in cash and $50,000 in the form of the Company’s restricted common stock
due August 1, 2008.
|
|
|
·
|
$50,000
in cash and $50,000 in the form of the Company’s restricted common stock
due February 1, 2009.
|
|
|
·
|
$100,000
cash and $100,000 in the form of the Company’s restricted common stock due
August 1, 2009.
|
|
|
·
|
$200,000
in cash due February 1, 2010.
|
|
|
·
|
$140,000
in cash due August 1, 2010.
|
Capital
lease obligations at June 30, 2008 total $54,813 include two new capital leases
for capital equipment placed in service during the third and fourth quarters of
fiscal year 2008. The Company acquired both a liquid filling line and
a powder filling line. The addition of the manufacturing equipment enables the
Company to produce in-house most of the Natural Choices products previously
produced by third party contract manufacturers. Management believes
that manufacturing these products in its own facility will increase
efficiencies, lower costs and ultimately increase profitability.
Net cash
used in operating activities during the year ended June 30, 2008 was $155,423
compared to $155,400 used in operating activities during the year ended June 30,
2007. Although net loss for the year ended June 30, 2007 was significantly
higher than that of the current fiscal year, a significant portion of the 2007
loss was attributable to stock based compensation and thus did not impact cash
flows.
The
Company used $65,497 in cash investing activities for the year ended June 30,
2008 of which $60,000 was cash paid at closing of the acquisition of Natural
Choices. For the year ended June 30, 2007, cash flows used in investing
activities totaled $14,983 of which $14,715 was for the purchase of capital
assets.
Net cash
provided by financing activities was $214,438 and $179,375 for the years ended
June 30, 2008 and 2007, respectively. In July 2007, the Company executed a bank
line of credit with JP Morgan Chase for $100,000. At June 30, 2008 balance due
on the line of credit approximated $99,600. The proceeds were used primarily to
fund operations. Additionally, the Company received $167,000 by issuing
1,972,222 shares of its common stock to three unrelated investors during the
year ended June 30, 2008. A portion of those funds were used to make the initial
cash payment for the acquisition of Natural Choices and fund certain other
direct costs of acquisition. During the year ended June 30, 2008 the
Company made payments against notes payable and capital lease obligations of
nearly $111,000 and $15,800 of deferred compensation payments for amounts due
its two executive officers.
The
Company has no material commitments for capital expenditures at this time. The
Company has no “off balance sheet” source of liquidity
arrangements.
Funding
For Fiscal 2009 Expansion and Growth:
In order
to maintain a balance between a conservative approach to dilution of the capital
structure of the Company with the Company's need to fund continued growth and
fund operations, Management has attempted to balance fiscal responsibility with
sales growth and funding using the sale of restricted stock on an as-needed
basis. The result has been approximately 33% addition to the Company's overall
capital structure (shares outstanding) over the past four years of operation
compared to nearly 16 fold increase in sales. Management believes that the
Company is well positioned for continued expansion in its sales growth
but will require additional funding for new sales and marketing
initiatives.
The
Company's ability to achieve its objectives is dependent on its ability to
sustain and enhance its current revenue stream and to continue to raise funds
through loans, credit and the private placement of restricted securities until
such time as the Company sustains fiscal profitability.
To date,
the Company has funded operations and expansion through a balanced combination
of revenues from the sale of its products, established credit with vendors,
deferred salaries and the sale of rule 144 stock through private
placement.
Subsequent
Event:
In
September of 2008, the Company entered into a three year, interest-only
convertible note with an interest rate of 12% per annum, payable in quarterly,
interest-only payments, with a group of unrelated investors. The principal
portion of the note is convertible into common stock of the Company after thirty
(30) months at an agreed-upon price of $.10 per share. At the time of
conversion, the Company has the right, but not the obligation to pay up to
one-half of the outstanding balance in cash. Under the terms of the convertible
note the Company may borrow up to $500,000. To date, the Company had
borrowed $82,000 under these terms. While the Company has avoided convertible
notes in the past, Management and the Company's board of directors felt
that the terms of this agreement were well in the favor of the Company and its
long term fiscal stability.
Although
management intends to continue to finance the Company’s growth through the sale
of restricted securities and debt financing, there is no assurance that Pacific
Sands will be successful in obtaining additional working capital. The
Company’s failure to raise adequate working capital may jeopardize its plans for
growth.
|
|
|
|
|
|
|
INDEX
TO FINANCIAL STATEMENTS
|
|
|
|
|
|
YEARS
ENDED JUNE 30, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
20
|
|
|
|
|
FINANCIAL
STATEMENTS
|
|
|
|
|
|
Balance
Sheet
|
21
|
|
|
|
|
Statements
of Operations
|
22
|
|
|
|
|
Statements
of Stockholders' Equity
|
23
|
|
|
|
|
Statements
of Cash Flows
|
24
|
|
|
|
|
Notes
to Financial Statements
|
26
|
Frank
L. Sassetti & Co.
Certified
Public Accountants
The Board
of Directors
Pacific
Sands, Inc.
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
We have
audited the accompanying balance sheet of Pacific Sands, Inc. as
of June 30, 2008, and the related statements of operations, stockholders' equity
and cash flows for each of the two years ended June 30, 2008 and
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 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.
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,
2008, and the results of its operations and its cash flows for each of the two
years ended June 30, 2008 and 2007, 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 2 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 plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainly.
/s/ Frank
L. Sassetti & Co.
October
13, 2008
Oak Park,
Illinois
6611 W.
North Avenue * Oak Park, Illinois 60302 * Phone (708) 386-1433 * Fax (708)
386-0139
|
PACIFIC
SANDS, INC.
|
|
| |
|
|
BALANCE
SHEET
|
|
| |
|
|
JUNE
30, 2008
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
7,487 |
|
|
Trade
receivables, net of allowance for doubtful accounts of
$13,602
|
|
|
256,427 |
|
|
Inventories
|
|
|
135,282 |
|
|
Prepaid
expenses
|
|
|
948 |
|
|
Other
current assets
|
|
|
2,268 |
|
|
Total
Current Assets
|
|
|
402,412 |
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
Furniture
and fixtures & office equipment
|
|
|
30,450 |
|
|
Manufacturing
equipment
|
|
|
61,604 |
|
|
Leasehold
improvements
|
|
|
3,035 |
|
|
Computer
software
|
|
|
15,277 |
|
|
|
|
|
110,366 |
|
|
Less
accumulated depreciation and amortization
|
|
|
(32,055 |
) |
|
Property
and Equipment, net
|
|
|
78,311 |
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
Security
deposits
|
|
|
816 |
|
|
Intangible
asset
|
|
|
861,862 |
|
|
|
|
|
862,678 |
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
1,343,401 |
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
Accounts
payable
|
|
$ |
331,824 |
|
|
Current
maturities of capital lease obligations
|
|
|
21,598 |
|
|
Accrued
expenses
|
|
|
154,469 |
|
|
Deferred
compensation
|
|
|
139,732 |
|
|
Notes
payable
|
|
|
135,221 |
|
|
Note
payable - Natural Choices acquisition
|
|
|
190,000 |
|
|
Note
payable - settlement obligation
|
|
|
36,000 |
|
|
Total
Current Liabilities
|
|
|
1,008,844 |
|
|
|
|
|
|
|
|
LONG
TERM LIABILITIES
|
|
|
|
|
|
Capital
leases, less current portion
|
|
|
33,215 |
|
|
Note
payable - Natural Choices acquisition net of discount of $61,942, less
current portion
|
|
|
478,058 |
|
|
Notes
payable - settlement obligation, less current portion
|
|
|
44,500 |
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
1,564,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
Common
stock (50,000,000 shares authorized, 45,308,958 shares issued and
38,699,771 shares outstanding)
|
|
|
45,309 |
|
|
Additional
paid in capital
|
|
|
3,898,363 |
|
|
Treasury
stock, at cost
|
|
|
(132,030 |
) |
|
Accumulated
deficit
|
|
|
(4,032,858 |
) |
|
Total
Stockholders' Equity
|
|
|
(221,216 |
) |
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
1,343,401 |
|
| FORM 10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
1.
DESCRIPTION OF BUSINESS AND 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.
Pacific
Sands develops, manufactures, markets and sells a range of nontoxic,
environmentally friendly cleaning and water-treatment products based on
proprietary blended botanical, nontoxic and natural chemical technologies. The
Company’s products have applications ranging from water maintenance (spas,
swimming pools, fountains, decorative ponds) to cleaning (nontoxic household and
industrial) and pet care.
In mid
February of 2008, the Company acquired Natural Choices Home Safe Products, LLC
("Natural Choices"), a developer and manufacture of environmentally friendly
cleaning and laundry products. The acquisition added dozens of new products to
the Pacific Sands portfolio of earth, health pet and kid-friendly offerings,
including Oxy-Boost™ an oxygen-bleach based, chlorine-free bleach alternative.
The Company now has a large selection of oxygen bleach based formulations
available both for retail distribution under its ecoone®, e-2 elemental earth®
and Natural Choices™ brands as well as for contract manufacturing and
re-label.
The
Company markets and sells its product lines directly, over the Internet and
through pool, spa, hardware, specialty and other retail outlets in the US,
Canada and Europe. The products are also sold via Pacific Sands distributors,
manufacturers’ representatives and internationally established pool and spa
industry distribution networks. The Company’s products are also sold through
numerous popular pool and spa websites. The Company’s Natural Choices
branded product are sold in numerous retail outlets around the country and in
Europe as well as dozens of the top environmentally-oriented
websites.
Inventories - Inventories are
stated at the lower of cost or market on the first-in, first-out (FIFO)
basis.
Depreciation and Amortization - For financial reporting
purposes, depreciation and amortization of property and equipment has been
computed over estimated useful lives of two to seven years primarily using the
straight-line method. Depreciation and amortization charges totaled
$14,962 and $15,145 during the years ended June 30, 2008 and 2007,
respectively.
Revenue Recognition - Revenue
is recognized when the related products are shipped.
Advertising and Promotional
Costs - Advertising and promotion costs are expensed as
incurred. During the fiscal years ended June 30, 2008 and 2007,
advertising and promotion costs totaled $14,057 and $37,503,
respectively.
| FORM 10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
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.
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 $13,602 are adequate as of June 30,
2008.
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.
Statements 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.
Recent Accounting
Pronouncements - The following is a summary of recent authoritative
pronouncements that affect accounting, reporting and disclosure of financial
information by the Company.
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements. SFAS No. 157 provides enhanced guidance for using
fair value to measure assets and liabilities. The standard also requires
expanded disclosures about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value and the
effect of fair value measurements on earnings. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company does not expect the
adoption of Statement No. 157 to materially impact the Company’s financial
statements.
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
In
February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities". SFAS No. 159 permits entities to choose, at
specified election dates, to measure eligible items at fair value (the "fair
value option"). A business entity shall report unrealized gains and losses on
items for which the fair value option has been
elected in earnings at each subsequent reporting date. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of SFAS No. 157, "Fair
Value Measurements". . The Company does not expect the adoption of
Statement No. 157 to materially impact the Company’s financial
statements.
In
December 2007, the FASB issued SFAS No. 141(R), 'Business Combinations -
Revised,' that improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. To accomplish
that, this statement establishes principles and requirements how the acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree, recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and determines what information
to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. The changes to current
practice resulting from the application of SFAS No. 141(R) are effective for
financial statements issued for fiscal years beginning after December 15, 2008.
The adoption of SFAS No. 141(R) before December 15, 2008 is prohibited. The
Company has not determined the effect, if any, that may result from the adoption
of SFAS No. 141(R) on its financial statements.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
2. 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, 2008,
the Company has incurred cumulative losses of $4,032,858. 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, by issuing
debt 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.
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
3.
INVENTORIES
Inventories at June 30, 2008 consisted of the following:
|
Raw
materials
|
|
$ |
106,862 |
|
|
|
|
|
|
|
|
Finished
goods
|
|
|
28,420 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
135,282 |
|
4.
ACCRUED EXPENSES
Accrued expenses at June
30, 2008 consisted of the following:
|
Accrued
compensation
|
|
$ |
71,484 |
|
|
Accrued
taxes
|
|
|
33,497 |
|
|
Accrued
professional fees
|
|
|
38,964 |
|
|
Accrued
other
|
|
|
10,524 |
|
|
Total
|
|
$ |
154,469 |
|
5.
CAPITAL LEASE OBLIGATIONS
The
Company had the following capital lease obligations at June 30, 2008: a four
year agreement for software dated June 20, 2005 with an imputed interest rate of
14.45%; a three year agreement for computer hardware with an imputed
interest rate of 21.62%, placed in service in August 2005; a three and a half
year agreement for software with an imputed interest rate of 12.64%, placed in
service in January 2006; a two year agreement for computer hardware with an
imputed interest rate of 22.81%, placed in service in September 2006;
a three year agreement for machinery with an imputed interest rate of 22.60%,
placed into service in March 2008; a four year agreement for machinery with an
imputed interest rate of 12.00%, placed into service in April 2008
.. Monthly installment payments are $691, $93, $312, $59, $342
and $957, respectively with a bargain purchase option at the end of each lease
of $1. All of the above agreements have been accounted for as capital leases in
accordance with generally accepted accounting principles.
The
scheduled maturities for the capital leases at June 30, 2008 were as
follows:
|
2009
|
|
$ |
21,598 |
|
|
2010
|
|
|
12,117 |
|
|
2011
|
|
|
12,628 |
|
|
2012
|
|
|
8,470 |
|
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
6.
NOTES PAYABLE
Notes
payable at June 30, 2008 consisted of the following:
|
Dell
Financial Services – line of credit
|
|
$ |
10,632 |
|
|
J.P.
Morgan Chase – business line of credit
|
|
|
99,589 |
|
|
Notes
payable stockholders and directors
|
|
|
25,000 |
|
|
|
|
$ |
135,221 |
|
The
Company received a line of credit from Dell Financial Services for $15,000 with
an imputed interest rate of 27.24% on any outstanding balance. To
date the Company has used the line of credit to purchase computer hardware to
serve its accounting and e-commerce functions.
On July
27, 2007, the Company executed a promissory note pursuant to a business line of
credit ("BLOC") with JP Morgan Chase Bank, NA. Under the terms of the
promissory note, the Company may borrow up to $100,000 against the BLOC at the
prime interest rate plus 1.5%. The Company must pay all accrued
interest on a monthly basis. The promissory note is secured by the
assets of the Company. .
Notes
payable stockholders and directors consist of three unsecured notes for amounts
of $10,000, $10,000 and $5,000 at rates fluctuating up to 10%.
7.
NOTE PAYABLE SETTLEMENT OBLIGATION
Note
payable – settlement obligation is due to a former officer of the Company
pursuant to a settlement of a legal dispute between the Company and the former
officer. Under the terms of the settlement agreement, the
Company will pay $100,000 over a two and a half year period beginning in
February 2008. The Company has the option to settle the entire obligation if it
pays the officer a total of $80,000 by December 7, 2008. Prior to the settlement
agreement being executed, the Company had accrued $100,000 as deferred
compensation and $10,000 of accrued interest related to this obligation. As a
result of the settlement the Company reduced accrued interest by $10,000 and
recorded the amount as other income during the year ended June 30,
2008.
The
scheduled maturities for the settlement obligation note at June 30, 2008 were as
follows:
|
2009
|
|
$ |
36,000 |
|
|
2010
|
|
|
44,500 |
|
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
8.
ACQUISITION
On
February 8, 2008 the Company completed the purchase of the assets Natural
Choices Home Safe Products, LLC (“Natural Choices”) pursuant to the terms of an
Asset Purchase Agreement (the “Agreement”) for a purchase price of $890,000 in
cash and shares of Company common stock payable over a three-year period as
follows:
|
|
·
|
$50,000
in the form of 500,000 shares of the Company’s restricted common stock
paid as earnest money prior to
closing.
|
|
|
·
|
$60,000
in cash and $50,000 in the form of the Company’s restricted common stock
paid at closing.
|
|
|
·
|
$40,000
in cash and $50,000 in the form of the Company’s restricted common stock
due August 1, 2008.
|
|
|
·
|
$50,000
in cash and $50,000 in the form of the Company’s restricted common stock
due February 1, 2009.
|
|
|
·
|
$100,000
cash and $100,000 in the form of the Company’s restricted common stock due
August 1, 2009.
|
|
|
·
|
$200,000
in cash due February 1, 2010.
|
|
|
·
|
$140,000
in cash due August 1, 2010.
|
At the
date of acquisition the Company recorded a note payable due to the former owners
of Natural Choices. The note payable is equal to the aggregate amount of the
future payments of cash and restricted stock per above. Interest was
imputed on the note using an interest rate of 3.75%. The imputed
interest of $82,186 was recorded as debt discount is being amortized over the
term of the note. For the year ended June 30, 2008 interest expense
related to amortization of the debt discount was $20,244. The
unamortized discount at June 30, 2008 was $61,942.
The
scheduled maturities for the note payable for the Natural Choices acquisition at
June 30, 2008 were as follows:
|
2009
|
|
$ |
190,000 |
|
|
2010
|
|
|
400,000 |
|
|
2011
|
|
|
140,000 |
|
The
aggregate consideration for the purchase price of Natural Choices was recorded
by the Company is as follows:
|
Common
stock issued as earnest money prior to closing, at fair
value
|
|
$ |
50,000 |
|
|
Cash
paid at closing
|
|
|
60,000 |
|
|
Common
stock issued at closing, at fair value
|
|
|
50,000 |
|
|
Debt
obligation incurred
|
|
|
730,000 |
|
|
Less:
imputed interest on debt obligation incurred
|
|
|
(82,186 |
) |
|
|
|
$ |
807,814 |
|
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
The
acquisition of the assets of Natural Choices has been accounted for as a
purchase and the purchase price, including the direct costs of acquisition, have
been allocated as follows:
|
Accounts
receivable
|
|
$ |
17,645 |
|
|
Inventories
|
|
|
13,687 |
|
|
Accounts
payable
|
|
|
(41,310 |
) |
|
Direct
cost of acquisition
|
|
|
(44,070 |
) |
|
Intangible
asset
|
|
|
861,862 |
|
|
|
|
$ |
807,814 |
|
The
excess of the purchase price over the estimated fair value of the tangible
assets acquired and liabilities assumed was recorded as an intangible asset.
Under FASB Statement No. 142, Goodwill and Other Intangible Assets
(“SFAS 142”), goodwill and certain intangible assets are deemed to have
indefinite lives and are no longer amortized, but are reviewed at least annually
for impairment. Other identifiable intangible assets are amortized over their
estimated useful lives. SFAS 142 requires that goodwill be tested for impairment
annually, utilizing the “fair value” methodology. The Company has adopted
December 31st as the date of the annual impairment test for the intangible
asset. Additional fair value adjustments from the acquisition are being reviewed
by management.
The
following pro forma condensed statement of operations reflects the results of
operations had the acquisition occurred at the beginning of the periods
presented herein.
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,337,905 |
|
|
$ |
1,217,058 |
|
|
Gross
profit
|
|
|
715,791 |
|
|
|
674,482 |
|
|
Operating
loss
|
|
|
(279,785 |
) |
|
|
(376,510 |
) |
|
Net
loss
|
|
|
(314,283 |
) |
|
|
(460,076 |
) |
|
Loss
per share
|
|
|
(0.008 |
) |
|
|
(0.014 |
) |
9.
STOCKHOLDERS’ EQUITY
On
September 25, 2007, the Company issued 200,000 shares of its common stock to an
unrelated investor for $20,000.
On
September 25, 2007, the Company issued 60,000 shares of its common stock, par
value $0.001 per share, to directors and 117,500 shares of its common stock, to
three consultants for services performed. The fair market value of the shares on
the date issued was $0.09 per share. The Company recorded
compensation expense of $15,975 related to the issuance of these
shares.
On
October 10, 2007, the Company issued 87,500 shares of its common stock to three
consultants for services performed. The fair market value of the shares on the
date issued was $0.10 per share. The Company recorded compensation
expense of $8,750 related to the issuance of these shares.
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
On
December 28, 2007, the Company issued 500,000 shares of its common stock as
earnest money toward the purchase price for the acquisition of Natural Choices
Home Safe Products, LLC (See Note 8). The fair market value of the
shares on the date issued was $0.10 per share.
On
December 31, 2007, the Company issued 522,222 shares of its common stock to an
unrelated investor for $47,000.
On
December 31, 2007, the Company issued 60,000 shares of its common stock to
directors and 235,000 shares of its common stock to employees and consultants.
The fair market value of the shares on the date issued was $0.09 per
share. The Company recorded compensation expense of $26,150 related
to the issuance of these shares.
On
February 8, 2008, the Company issued 500,000 shares of its common stock as
payment toward the purchase price for the acquisition of Natural Choices Home
Safe Products, LLC. The fair market value of the shares on
the date
issued was $0.10 per share.
On
February 8, 2008 the Company converted two notes payable due to unrelated
parties plus accrued interest totaling $31,928 into 399,095 shares of its common
stock. The fair market value of the shares on the date issued was
$0.08 per share.
On
February 8, 2008, the Company issued 125,000 shares of its common stock to a
consultant for services performed. The fair market value of the shares on the
date issued was $0.095 per share. The Company recorded consulting fee expense of
$11,875 related to the issuance of the shares.
On
February 8, 2008, the Company issued 1,250,000 shares of its common stock to an
unrelated investor for $100,000.
On March
4, 2008, the Company converted accounts payable related to professional services
rendered of $9,120 into 114,000 shares of its common stock. The fair
market value of the shares on the date issued was $0.08 per share.
On March
31, 2008, the Company issued 48,330 shares of its common stock as partial
payment for machinery and equipment purchased under a capital lease
agreement. The fair market value of the shares on the date issued was
$0.085 per share.
On March
31, 2008, the Company issued 80,000 shares of its common stock to directors and
40,000 shares of its common stock to a consultant. The fair market value of the
shares on the date issued was $0.085 per share. The Company recorded
compensation expense of $10,200 related to the issuance of the
shares.
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
|
10.
|
STOCK BASED
COMPENSATION
|
The
Company accounts for stock based compensation under 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.
During
the year ended June 30, 2007, the Company modified 3,000,000 options that were
set to expire on July 5, 2006 by reissuing for one year with no vesting period
at the same price. On September 28, 2006 these 3,000,000 vested
options were surrendered and reissued for four years with no vesting period and
exercise prices as follows; 2,000,000 shares at $.16 and 1,000,000 shares at
$1.00.
The fair
value of each option award is estimated on the date of grant using the standard
Black-Scholes-Merton model and modified using calculations based on likely
"expected term" rather than "contractual term" additionally modified by historic
likelihood that the participants will exercise the options based on previous
exercise behavior. The Historic volatility was calculated using
weekly price observations for the expected term of the
options. Expected term was calculated using the formula (vesting term
plus original contractual term divided by two). The risk-free rate
for periods within the contractual life of the option is based on the U.S.
Treasury constant maturity for one year at July 3, 2006 and the difference
between three and five years at September 28, 2006.
|
|
|
July
3, 2006
|
|
|
September
28, 2006
|
|
|
|
|
|
|
|
|
|
|
Weighted
average volatility
|
|
|
116 |
% |
|
|
161 |
% |
|
Expected
dividends
|
|
|
0 |
% |
|
|
0 |
% |
|
Expected
term (in years)
|
|
|
1 |
|
|
|
2 |
|
|
Risk
free rate
|
|
|
5.260 |
% |
|
|
4.585 |
% |
A summary
of option activity for the years ended June 30, 2007 is presented
below. The Company did not have any stock options granted, exercised,
cancelled or expired during the year ended June 30, 2008.
|
|
|
|
|
|
Price
per share
|
|
|
|
|
Shares
|
|
|
Range
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2006
|
|
|
3,000,000 |
|
|
$ |
.03
- $.10 |
|
|
$ |
0.053 |
|
|
Granted/Modified
|
|
|
6,000,000 |
|
|
$ |
.03
- $1.00 |
|
|
|
-- |
|
|
Cancelled
|
|
|
(3,000,000 |
) |
|
$ |
.03
- $.10 |
|
|
$ |
0.053 |
|
|
Expired
|
|
|
(3,000,000 |
) |
|
$ |
.03
- $.10 |
|
|
$ |
0.053 |
|
|
Balance,
June 30, 2007
|
|
|
3,000,000 |
|
|
$ |
.16
- $1.00 |
|
|
$ |
0.440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
|
|
3,000,000 |
|
|
$ |
.16
- $1.00 |
|
|
$ |
0.440 |
|
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
11.
LEASE COMMITTMENTS
The
Company entered into a two year operating lease expiring March 31, 2010 for
approximately 12,000 square feet of office and warehouse space for $3,750 per
month. The Company is responsible for insuring the
premises. Rent expense was approximately $38,200 and $24,000 for the
years ended June 30, 2008 and 2007, respectively.
Minimum
future payments under operating leases at June 30, 2008 are as
follows:
|
2009
|
|
$ |
45,000 |
|
|
2010
|
|
|
33,750 |
|
12.
LOSS PER SHARE
|
|
Basic
loss per common share is based on the weighted average number of common
shares outstanding in each period and net earnings. Diluted
earnings per common share assumes that outstanding common shares were
increased by shares issuable upon exercise of those stock options for
which market price exceeds exercise price, less shares which could have
been purchased by the Company with related
proceeds.
|
|
|
The
following table sets forth the computation of basic and diluted earnings
per share.
|
|
|
|
Years
Ended
|
|
|
|
|
June
30, 2008
|
|
|
June
30, 2007
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
Basic
and diluted loss
|
|
$ |
(312,908 |
) |
|
$ |
(551,097 |
) |
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per
share- weighted average shares
outstanding
|
|
|
36,207,648 |
|
|
|
32,915,564 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per
common
share
|
|
$ |
(0.009 |
) |
|
$ |
(0.017 |
) |
|
|
Outstanding stock options were
not included in the computation of diluted earnings per common share for
the years ended June 30, 2008 and 2007 since it would have resulted in an
antidilutive effect.
|
|
|
Anti-dilutive
securities not included in the net loss per share
calculation:
|
|
|
June
30, 2008
|
|
June
30, 2007
|
|
Stock
options
|
3,000,000
|
|
3,000,000
|
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
13. 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, 2008 are as follows:
|
Net
Operating Loss Carryforwards
|
|
$ |
1,242,000 |
|
|
Deferred
Compensation
|
|
|
92,000 |
|
|
Accounts
receivable allowance
|
|
|
6,000 |
|
|
|
|
|
|
|
|
Valuation
Allowance
|
|
|
(1,340,000 |
) |
|
Net
Deferred Tax Asset
|
|
$ |
-- |
|
At June 30, 2008, the Company has net
operating loss carryforwards for Federal tax purposes of approximately
$2,956,000 which, if unused to offset future taxable income, will expire in
years beginning in 2018.
Effective
July 1 2007, the Company adopted FASB issued FIN No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109, which clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement No. 109, Accounting for Income
Taxes. The interpretation 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. FIN
No. 48 requires recognition of tax benefits that satisfy a greater than 50%
probability threshold. The adoption of FIN No. 48 did not have a
material impact on the Company’s financial statements for the year ended June
30, 2008.
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
14.
RELATED PARTY TRANSACTION
The
Company's two executive officers have agreed to defer a substantial portion of
their salaries until such time as it may be paid. As of June 30,
2008, the deferred compensation for these two officers was
$139,700. 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,
2008. Deferred compensation charged to operations for the year ended June
30, 2007 was $43,400. No amounts were charged to deferred compensation for the
year ended June 30, 2008. Payments of deferred compensation of $15,800 were
made by the Company to one of the officers during the year ended June 30,
2008.
15.
COMMITMENTS AND CONTINGENCIES
The
Company received notice on May 3, 2007 that a lawsuit had been filed against the
Company in US District Court, Eastern District of California by the Company's
former CEO, Stanley Paulus. The lawsuit demanded payment of $105,000
plus penalties and legal fees for a note that was issued in June of
2006. The note was based on deferred salaries accrued for Mr. Paulus
during his tenure as CEO of the Company. On June 7, 2007, the Company
filed a counter-complaint specifying certain allegations against Mr.
Paulus. On June 27, 2007, Mr. Paulus filed a motion to dismiss the
Company's counter-complaint. On August 12, 2007, the Court denied Mr.
Paulus' motion to dismiss, but did order the Company to amend its
counter-complaint which the Company did and filed on September 12,
2007.
On
January 24, 2008 Pacific Sands, Inc. (“Company”) and its former CEO, Stanley
Paulus, entered into a settlement agreement resolving all legal actions between
them, each party being responsible for its own legal expenses. Proceedings
had been pending in the US District Court, Eastern District of
California. The proceedings involved certain compensation and note
claims alleged by Mr. Paulus, as well as certain allegations by the Company
relating to compensation and performance deficiencies during Mr. Paulus’ tenure
as CEO. The Company will pay Mr. Paulus $100,000 over a two and a
half year period. Mr. Paulus extended an option to the Company for a pre-payment
discount. Once final payment is made, Mr. Paulus shall file a dismissal with
prejudice within two weeks thereafter.
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
16.
CONCENTRATIONS
For the
years ended June 30, 2008 and 2007, one customer accounted for approximately
18.3% and 29.9% of the Company's sales, respectively, and 27.6% and 37.4% of the
Company’s trade receivables at June 30, 2008 and 2007,
respectively.
|
17.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
|
|
|
|
Quarter
ended
|
|
|
|
|
September 30,
2007
|
|
|
December
31, 2007
|
|
|
March 31,
2008
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
179,807 |
|
|
$ |
153,234 |
|
|
$ |
231,145 |
|
|
$ |
412,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
116,944 |
|
|
|
84,654 |
|
|
|
170,163 |
|
|
|
199,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(53,829 |
) |
|
|
(158,211 |
) |
|
|
(85,148 |
) |
|
|
(15,720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share – basic and diluted
|
|
|
(.002 |
) |
|
|
(.005 |
) |
|
|
(.002 |
) |
|
|
(.000 |
)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic and diluted shares
|
|
|
34,004,047 |
|
|
|
34,830,931 |
|
|
|
37,503,493 |
|
|
|
38,699,771 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Less than (.001) per share.
|
|
|
|
Quarter
ended
|
|
|
|
|
September 30,
2006
|
|
|
December
31, 2006
|
|
|
March 31,
2007
|
|
June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
119,558 |
|
|
$ |
106,568 |
|
|
$ |
151,486 |
|
|
$ |
219,162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
54,245 |
|
|
|
65,158 |
|
|
|
82,412 |
|
|
|
164,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
|
(292,084 |
) |
|
|
(151,171 |
) |
|
|
(132,853 |
) |
|
|
25,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings (loss) per share – basic and diluted
|
|
|
(.009 |
) |
|
|
(.005 |
) |
|
|
(.004 |
) |
|
|
.001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average basic and diluted shares
|
|
|
31,212,029 |
|
|
|
32,292,193 |
|
|
|
33,985,846 |
|
|
|
34,298,531 |
|
| FORM
10-QSB |
JUNE 30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
|
|
In
September of 2008, the Company entered into a three year, interest-only
convertible note with an interest rate of 12% per annum, payable in
quarterly, interest-only payments, with a group of unrelated investors.
The principal portion of the note is convertible into common stock of the
Company after thirty (30) months at an agreed-upon price of $.10 per
share. At the time of conversion, the Company has the right, but not the
obligation to pay up to one-half of the outstanding balance in cash. Under
the terms of the convertible note the Company may borrow up to $500,000.
To date, the Company had borrowed $82,000 under these
terms.
|
None.
Disclosure
Controls and Procedures
In
accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 as amended
(the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-KSB,
the Company’s management evaluated, with the participation of the Company’s
principal executive and financial officer, the effectiveness of the design and
operation of the Company’s disclosure controls and procedures (as defined in
Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act). Disclosure controls
and procedures are defined as those controls and other procedures of an issuer
that are designed to ensure that the information required to be disclosed by the
issuer in the reports it files or submits under the Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the Act is
accumulated and communicated to the issuer’s management, including its principal
executive officer and principal financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure. Based on their evaluation of these disclosure controls and
procedures, the Company’s chief executive and financial officer has concluded
that the disclosure controls and procedures were effective as of the date of
such evaluation to ensure that material information relating to the Company was
made known to them by others within those entities, particularly during the
period in which this Annual
Report on Form 10-KSB was being prepared.
Internal
Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act). Management assessed the effectiveness of our internal
control over financial reporting as of June 30, 2008. In making this assessment,
our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated
Framework. Based on its evaluation, our management concluded that there is a
there is a significant deficiency in our internal control over financial
reporting.
The
significant deficiency relates to a lack of segregation of duties due to the
small number of employees involvement with general administrative and financial
matters. However, management believes that compensating controls are in place to
mitigate the risks associated with the lack of segregation of duties.
Compensating controls include outsourcing certain financial functions to an
independent contractor. Management concluded that internal controls over
financial reporting were effective as of June 30, 2008.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.
None.
PART
III
Compliance
with Section 16(a) of the Exchange Act
The
following table sets forth: (1) names and ages of all persons who presently are
and who have been selected as directors of the Registrant; (2) all positions and
offices with the Registrant held by each such person.
|
Name
|
Age
|
Position with the
Company
|
|
|
|
Michael
L. Wynhoff
|
43
|
President/Chief
Executive Officer and Director
|
|
Michael
D. Michie
|
47
|
Chief
Financial Officer/Treasurer and Director
|
|
Thomas
Paulsen
|
44
|
Director
|
|
John
D. Hagarty
|
68
|
Director
|
Michael L.
Wynhoff - Michael L. Wynhoff was appointed President and CEO by
the Board of directors on June 14, 2004. From 2000 to 2004, Mr. Wynhoff
worked as a marketing and public relations consultant, focusing his efforts
on environmental products companies, including Pacific Sands. From 1999
through 2000 he was the Director of Marketing and Operations at
Domain Host International. Prior to 1999, Mr. Wynhoff was involved in the
film and television industries as a writer, producer and coordinator of
feature films and television commercials. Michael Wynhoff graduated from
Carthage College in 1987 with a BA in Speech, Communications and
Theatre.
Michael D.
Michie - Michael D. Michie was appointed CFO/Treasurer by the
Board of Directors on June 14, 2004. From 2003 to 2004, Mr. Michie
privately consulted challenged businesses while concurrently serving as
Business Manager for a large real estate investor/broker group. He
established cost containment measures as well as performance metrics for
eight real estate holding companies. He produced and refined accurate
revenue projections providing investors the knowledge to make better
investment decisions. Prior to 2003, he was a Territory Sales Manager for
Creo Products, Inc, a high technology company located in Vancouver, BC.
During his tenure with Creo he achieved over 70% market share in
his territory of responsibility, Previous to 1999, Mr. Michie worked for
the DuPont Corporation beginning in 1994. He was a shared recipient of a
regional Pinnacle Award for regional performance in electronic imaging as
well as a Recipient of DuPont's "commitment to excellence"
award.
Thomas
Paulsen – Thomas Paulsen is the chief financial officer of
Wismarq Corporation, a national coil coater of steel and aluminum building
products, based in Oconomowoc, Wis, employing over 100 workers. Mr. Paulsen is a certified public
accountant with an MBA from Marquette University. He began his career in public
accounting with Ernst & Whinney and has over 21 years of experience with an
extensive background in accounting, corporate budgeting and operations. He was
the chief financial officer and corporate controller for Kelley Company, based
in Milwaukee, WI, from 2000 to 2002
Dr. John
Hagarty – Since his retirement in 1999 from SC Johnson Wax,
where he served as Senior Research Chemist, Dr. Hagarty has worked as an
independent consultant. During the past two years Dr. Hagarty has, as a
consulting scientist, managed new product development at Pacific Sands, and has
supervised the final development of nontoxic, earth and health-friendly pet
care, household cleaning and other product lines. Currently, Dr. Hagarty
spearheads new product development at Pacific Sands. Dr. Hagarty earned his PhD
in Organic Chemistry from Duquesne University.
Summary
Compensation Table
The
following Summary Compensation Table shows certain compensation information for
each of the Named Executive Officers. Compensation data is shown for
the fiscal years ended June 30, 2008, 2007 and 2006. This
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted, and certain other compensation, if any, whether paid
or deferred.
|
Name
and Principal Position
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Restricted
Stock
Awards(b)
|
|
|
Option
Awards(a)
|
|
|
Nonequity
incentive plan compensation
|
|
|
Non-qualified
deferred compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
L. Wynhoff
|
2008
|
|
$ |
78,468 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
78,468 |
|
|
Chief
Executive Officer
|
2007
|
|
$ |
82,215 |
|
|
|
-- |
|
|
$ |
27,440 |
|
|
$ |
88,676 |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
198,331 |
|
|
|
2006
|
|
$ |
85,491 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
85,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
D. Michie
|
2008
|
|
$ |
72,145 |
|
|
|
-- |
|
|
$ |
6,750 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
78,895 |
|
|
Chief
Financial Officer
|
2007
|
|
$ |
98,754 |
|
|
|
-- |
|
|
$ |
15,720 |
|
|
$ |
22,768 |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
137,242 |
|
|
|
2006
|
|
$ |
80,732 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
80,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In
fiscal 2008, the Company granted an aggregate of 375,000 shares of
restricted stock to executive officers, which vest
immediately.
|
|
(b)
|
In
fiscal 2005, the Company granted to its executives, 2,000,000 stock
options to purchase common shares at an exercise price of $0.03 per share,
and 1,000,000 stock options at an exercise price of $0.10 per
share. During fiscal 2007, those options were surrendered and
reissued for four years no vesting period and exercise prices as follows;
2,000,000 stock options at $0.16 and 1,000,000 stock options at
$1.00.
|
Director
Compensation
The
following table summarizes director compensation for fiscal year ended June 30,
2008.
|
Name
|
|
Fees
earned or paid in cash
|
|
|
Restricted
Stock
Awards
|
|
|
Option
Awards
|
|
|
Nonequity
incentive plan compensation
|
|
|
Non-qualified
deferred compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Michael
L. Wynhoff |
|
|
-- |
|
|
$ |
5,300 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
5,300 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Michael
D. Michie |
|
|
-- |
|
|
$ |
5,300 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
5,300 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Hagarty (a)
|
|
|
-- |
|
|
$ |
5,300 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
5,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Paulson
|
|
|
-- |
|
|
$ |
1,700 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
$ |
1,700 |
|
|
(a)
|
Mr.
Hagarty also consults for the Company as an independent contractor. During
the fiscal year ended June 30, 2008, the Company paid Mr. Hagarty $10,600
in consulting fees, which was paid in restricted
stock.
|