pacsands10q093008.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
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For the quarterly period ended
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SEPTEMBER
30, 2008
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
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For the
transition period from ___________________________ to
___________________________
Commission
file number 000-29483
Pacific Sands,
Inc.
(Exact
Name of Registrant as specified in its charter)
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Nevada
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88-0322882
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(State
or Other Jurisdiction of Incorporation or
Organization)
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(IRS
Employer Identification No.)
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1509
Rapids Drive
Racine,
WI
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53404
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Issuer’s
Telephone Number, Including Area Code: (262) 619-3261
N/A
(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days. Yes x
No ¨
Indicate
by check mark whether the registrant is a larger accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one)
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Large accelerated
filer o
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Accelerated filer o
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Non-accelerated
filer o
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Smaller reporting company x
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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
The
numbers of shares outstanding of each of the issuer's classes of common equity,
as of November 20, 2008, are as follows:
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Class
of Securities
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Shares
Outstanding
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Common
Stock, $0.001 par value
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40,116,182
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Transitional
Small Business Disclosure Format (check one): Yes o
No x
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Page
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PART I FINANCIAL
INFORMATION
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Item
1.
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3
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4
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5
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7
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Item
2.
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18
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Item
3.
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22
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Item
4.
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23
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PART II OTHER
INFORMATION
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ITEM
1.
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24
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ITEM
2.
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24
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ITEM
3.
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24
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ITEM
4.
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24
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ITEM
5.
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24
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ITEM
6.
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24
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25
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BALANCE
SHEETS
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SEPTEMBER
30, 2008 AND JUNE 30, 2008
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ASSETS
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Current
assets:
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September
30, 2008
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June
30, 2008
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(unaudited)
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Cash
and cash equivalents
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$ |
22,651 |
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$ |
7,487 |
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Trade
receivables, net of allowances for doubtful accounts of
$13,602
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326,487 |
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256,427 |
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Inventories
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126,446 |
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135,282 |
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Prepaid
expenses
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- |
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948 |
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Other
current assets
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2,468 |
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2,268 |
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Total
Current Assets
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478,052 |
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402,412 |
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Property
and equipment, net
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74,915 |
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78,311 |
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Other
assets:
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Security
deposits
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1,527 |
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816 |
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Intangible
asset
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877,854 |
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861,862 |
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879,381 |
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862,678 |
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Total
Assets
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$ |
1,432,348 |
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$ |
1,343,401 |
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LIABILITIES AND
STOCKHOLDERS' EQUITY
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Current
liabilities:
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Current
maturities of capital lease obligations
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$ |
19,583 |
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$ |
21,598 |
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Current
portion of notes payable
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515,092 |
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361,221 |
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Accounts
payable
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311,313 |
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331,824 |
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Accrued
expenses
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190,649 |
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154,469 |
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Deferred
compensation
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139,732 |
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139,732 |
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Total
Current Liabilities
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1,176,369 |
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1,008,844 |
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Capital
leases, less current portion
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30,105 |
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33,215 |
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Notes
payable - net of discount of $50,617, less current portion
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327,883 |
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522,558 |
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Loans
payable
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77,000 |
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- |
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Total
Liabilities
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1,611,357 |
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1,564,617 |
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Stockholders'
Deficit
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Common
stock (50,000,000 shares authorized, 46,725,369 and 45,308,958
shares issued and 40,116,182 and 38,699,771 shares
outstanding)
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46,726 |
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45,309 |
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Additional
paid in capital
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4,004,065 |
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3,898,363 |
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Treasury
stock, at cost
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(132,030 |
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(132,030 |
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Accumulated
deficit
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(4,097,770 |
) |
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(4,032,858 |
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Total
Stockholders' Deficit
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(179,009 |
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(221,216 |
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Total
Liabilities and Stockholders' Deficit
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$ |
1,432,348 |
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$ |
1,343,401 |
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See accompanying notes
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STATEMENTS
OF OPERATIONS
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FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
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(unaudited)
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2008
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2007
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Net
sales
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$ |
352,806 |
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$ |
179,807 |
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Cost
of sales
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161,950 |
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62,863 |
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Gross
profit
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190,856 |
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116,944 |
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Selling
and administrative expenses
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239,680 |
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167,806 |
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Loss
from operations
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(48,824 |
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(50,862 |
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Other
expense
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Interest
expense
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(16,088 |
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(2,967 |
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Loss
before income taxes
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(64,912 |
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(53,829 |
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Income
taxes
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- |
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- |
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Net
loss
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$ |
(64,912 |
) |
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$ |
(53,829 |
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Basic
and diluted net loss per share
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$ |
(0.002 |
) |
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$ |
(0.002 |
) |
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Basic
and diluted weighted average shares outstanding
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39,229,515 |
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34,004,047 |
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See accompanying notes
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STATEMENTS
OF CASH FLOWS
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FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007
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(unaudited)
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2008
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2007
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Cash
flows from operating activities
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Net
loss
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$ |
(64,912 |
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$ |
(53,829 |
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Adjustments
to reconcile net loss to net cash used in operating
activities
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Depreciation
and amortization
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6,542 |
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3,540 |
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Amortization
of debt discount
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11,325 |
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- |
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Common
shares and rights issued for services and
compensation
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15,950 |
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15,975 |
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Changes
in assets and liabilities
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Trade
accounts receivable
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(82,051 |
) |
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(38,119 |
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Inventories
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8,836 |
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(1,794 |
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Prepaid
expenses
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|
948 |
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2,975 |
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Other
assets
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(200 |
) |
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1,433 |
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Accounts
payable and other current liabilities
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11,794 |
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(29,303 |
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Net
Cash Used in Operating Activities
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(91,768 |
) |
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(99,122 |
) |
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Cash
flows from investing activities
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Purchases
of equipment
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(3,146 |
) |
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|
- |
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Increase
in security deposits
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(711 |
) |
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|
- |
|
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Net
Cash Used in Investing Activities
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(3,857 |
) |
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|
- |
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Cash
flows from financing activities
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Issuance
of common stock
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|
41,169 |
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20,000 |
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Proceeds
from notes payable
|
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|
116,364 |
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|
106,696 |
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Repayment
of note payable and long term obligation
|
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|
(46,744 |
) |
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|
(35,938 |
) |
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Deferred
compensation payments
|
|
|
- |
|
|
|
(2,800 |
) |
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Net
Cash Provided by Financing Activities
|
|
|
110,789 |
|
|
|
87,958 |
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|
|
|
|
|
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Net
increase/(decrease) in cash and cash equivalents
|
|
|
15,164 |
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(11,164 |
) |
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Cash
and cash equivalents:
|
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Beginning
of period
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7,487 |
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13,969 |
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End
of period
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$ |
22,651 |
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$ |
2,805 |
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See
accompanying notes
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PACIFIC
SANDS, INC.
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STATEMENTS
OF CASH FLOWS
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FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
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(unaudited)
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Supplemental
disclosures of cash flow information:
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2008
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2007
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Cash
paid during the year for:
|
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Interest
|
|
$ |
4,280 |
|
|
$ |
2,483 |
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Income
taxes
|
|
$ |
- |
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$ |
- |
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Supplemental
disclosures of non cash financing and investing activities
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Conversion
of acquisition debt to equity
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$ |
50,000 |
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$ |
- |
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See accompanying notes
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FORM
10-QSB
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SEPTEMBER
30, 2008
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NOTES
TO FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION
The
accompanying unaudited interim financial statements of Pacific Sands, Inc., have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
(“SEC”), and should be read in conjunction with the audited financial statements
and notes thereto contained in Pacific Sands, Inc’s Annual Report filed with the
SEC on Form 10-KSB for the year ended June 30, 2008. In the opinion
of management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full
year. Notes to the financial statements which would substantially
duplicate the disclosure contained in the audited financial statements for
fiscal 2008 as reported elsewhere in this Form 10-Q have been
omitted.
2.
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,
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 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.
|
FORM
10-QSB
|
SEPTEMBER
30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
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 $6,542 and $3,540 during the three months ended
September 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 three months ended September 30, 2008 the
Company did not incur any advertising or promotional expenses. During
the three months ended September 30, 2007 advertising and promotion costs
totaled $3,341.
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 is adequate as of September 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.
Statement of Cash Flows - For
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with an initial maturity of three months or
less to be cash equivalents.
|
FORM
10-QSB
|
SEPTEMBER
30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
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 the
current quarter. The Company believes that the adoption of Statement
No. 157 may have an impact on the valuation and disclosures
regarding intangible assets recorded on the Company’s financial
statements which will be tested for impairment during the Company's second
fiscal quarter.
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 has not determined the effect of the
adoption of Statement No. 159.
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.
|
FORM
10-QSB
|
SEPTEMBER
30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
In March
2008, the FASB issued FASB Statement No. 161 “Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No.
133” (“SFAS No. 161”), which changes the disclosure requirements for
derivative instruments and hedging activities. Pursuant to SFAS
No.161, Entities are required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008 with early
application encouraged. SFAS No. 161 encourages but does not require disclosures
for earlier periods presented for comparative purposes at initial
adoption. In years after initial adoption, this Statement requires
comparative disclosures only for periods subsequent to initial
adoption. The Company does not expect the adoption of SFAS No. 161 to
have a material impact on the financial results of the Company.
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.
3.
GOING CONCERN
The
accompanying financial statements have been presented assuming that the Company
will continue as a going concern. This basis of accounting
contemplates the recovery of the Company's assets and the satisfaction of its
liabilities in the normal course of business. Through September 30,
2008, the Company has incurred cumulative losses of $4,097,770. 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. At September 30, 2008 the Company had cash
and cash equivalents of $22,651 and accounts payable and accrued liabilities of
$501,962. 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, debt financings and from
current operations. There can be no assurance that the Company will
be successful in implementing its plan of operations and ultimately achieving
operational profitability. The Company's long-term viability as a going
concern is dependent on its ability to 1) achieve adequate profitability and
cash flow from operations to sustain its operations, 2) expand revenues from
existing or new business and 3) meet current committments and fund the
continuation of its business operation in the near future.
4.
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.
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
|
SEPTEMBER
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
|
|
$ |
5,653 |
|
|
Inventories
|
|
|
13,687 |
|
|
Accounts
payable
|
|
|
(45,310 |
) |
|
Direct
cost of acquisition
|
|
|
(44,070 |
) |
|
Intangible
asset
|
|
|
877,854 |
|
|
|
|
$ |
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.
5.
INVENTORIES
Inventories
at September 30, 2008 and June 30, 2008 consisted of the following:
|
|
|
September
30, 2008
|
|
|
June
30, 2008
|
|
|
Raw
materials
|
|
$ |
100,892 |
|
|
$ |
106,862 |
|
|
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
|
25,554 |
|
|
|
28,420 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
126,446 |
|
|
$ |
135,282 |
|
6.
PROPERTY AND EQUIPMENT
Property
and equipment at September 30, 2008 and June 30, 2008 consisted of the
following:
|
|
|
September
30, 2008
|
|
|
June
30, 2008
|
|
|
Furniture
and office equipment
|
|
$ |
33,596 |
|
|
$ |
30,450 |
|
|
Manufacturing
equipment
|
|
|
61,604 |
|
|
|
61,604 |
|
|
Leasehold
improvements
|
|
|
3,035 |
|
|
|
3,035 |
|
|
Computer
software
|
|
|
15,277 |
|
|
|
15,277 |
|
|
|
|
|
113,512 |
|
|
|
110,366 |
|
|
Less
accumulated depreciation and amortization
|
|
|
(38,597 |
) |
|
|
(32,055 |
) |
|
Property
and equipment, net
|
|
$ |
74,915 |
|
|
$ |
78,311 |
|
|
FORM
10-QSB
|
SEPTEMBER
30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
7.
ACCRUED EXPENSES
Accrued
expenses at September 30, 2008 and June 30, 2008 consisted of the
following:
|
|
|
September
30, 2008
|
|
|
June
30, 2008
|
|
|
Accrued
compensation
|
|
$ |
104,995 |
|
|
$ |
71,484 |
|
|
Accrued
payroll withholding taxes
|
|
|
43,528 |
|
|
|
33,497 |
|
|
Accrued
professional fees
|
|
|
34,500 |
|
|
|
38,964 |
|
|
Accrued
other
|
|
|
7,626 |
|
|
|
10,524 |
|
|
Total
|
|
$ |
190,649 |
|
|
$ |
154,469 |
|
8.
CAPITAL LEASE OBLIGATIONS
The
Company had the following capital lease obligations at September 30, 2008 and
June 30, 2008: a four year agreement for software dated June 20, 2005 with an
imputed interest rate of 14.45%; a three and a half year agreement
for software with an imputed interest rate of 12.64%, placed in service in
January 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, $312, $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 September 30, 2008 were as
follows:
|
2009
|
|
$ |
19,583 |
|
|
2010
|
|
|
12,236 |
|
|
2011
|
|
|
12,041 |
|
|
2012
|
|
|
5,828 |
|
9.
NOTES PAYABLE
Notes
payable at September 30, 2008 and June 30, 2008 consisted of the
following:
|
|
|
September
30, 2008
|
|
|
June
30, 2008
|
|
|
Dell
Financial Services – line of credit (1)
|
|
$ |
14,228 |
|
|
$ |
10,632 |
|
|
J.P.
Morgan Chase – business line of credit (2)
|
|
|
97,639 |
|
|
|
99,589 |
|
|
Notes
payable stockholders and directors (3)
|
|
|
37,225 |
|
|
|
25,000 |
|
|
Note
payable – settlement obligation (4)
|
|
|
74,500 |
|
|
|
80,500 |
|
|
Note
payable – acquisition, net of discount (5)
|
|
|
619,383 |
|
|
|
668,058 |
|
|
|
|
|
842,975 |
|
|
|
883,779 |
|
|
Less
current maturities
|
|
|
515,092 |
|
|
|
361,221 |
|
|
|
|
$ |
327,883 |
|
|
$ |
522,558 |
|
|
FORM
10-QSB
|
SEPTEMBER
30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
(1) 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.
(2) 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. .
(3) Notes
payable stockholders, officers and directors consist of four unsecured notes for
amounts of $10,000, $10,000, $5,000 and $12,225 at rates fluctuating up to
10%.
(4) 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.
(5) 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. 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
and is being amortized over the term of the note. For the three
months ended September 30, 2008 interest expense related to amortization of the
debt discount was $11,325. The unamortized discount at September 30,
2008 and June 30, 2008 was $50,617 and $61,942, respectively. At September 30,
2008, remaining payments for the note were as follows:
|
|
·
|
$30,000
in cash 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.
|
|
FORM
10-QSB
|
SEPTEMBER
30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
10.
LOANS PAYABLE
During
September 2008 the Company received $77,000 from investors for
convertible notes payable. As of November 20, 2008 the terms of the
notes have not been finalized and therefore the notes have not been
executed. The Company anticipates that the notes will be executed
prior to December 31, 2008. The Company expects the term of the notes
to be greater than one year and therefore all amounts due were included in long
term liabilities at September 30, 2008.
11.
STOCKHOLDERS’ EQUITY
On
September 25, 2007, the Company issued 200,000 shares of its common stock to an
investor for $20,000.
On
September 25, 2007, the Company issued 60,000 shares of its common stock 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 August
5, 2008, the Company issued 100,000 shares of its common stock to a consultant
for services performed. The fair market value of the shares on the date issued
was $0.0725 per share. The Company recorded consulting fee expense of $7,250
related to the issuance of these shares.
On August
5, 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 consultants for
services performed. The fair market value of the shares on the date issued was
$0.075 per share. The Company recorded compensation expense of $8,700
related to the issuance of these shares.
On August
5, 2008, the Company issued 625,000 shares of its common stock as partial
payment of the note payable for the purchase price for the acquisition of
Natural Choices Home Safe Products, LLC. The shares had a value of $50,000 on
the date they were issued.
On
September 30, 2008, the Company issued 372,724 shares of its common stock to an
unrelated investor for a cash investment of $26,863.
On
September 30, 2008, the Company issued 198,687 shares of its common stock to an
employee for a cash investment of $14,305.
|
FORM
10-QSB
|
SEPTEMBER
30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
12.
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 $6,900 and $6,100 for the
three months ended September 30, 2008 and 2007, respectively.
Minimum
future payments under operating leases at September 30, 2008 are as
follows:
|
2009
|
|
$ |
45,000 |
|
|
2010
|
|
|
26,850 |
|
13.
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 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.
|
|
|
|
Three
Months Ended
|
|
|
|
|
September 30,
2008
|
|
|
September 30,
2007
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
Basic
and diluted loss
|
|
$ |
(64,912 |
) |
|
$ |
(53,829 |
) |
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per
share- weighted average shares
outstanding
|
|
|
39,229,515 |
|
|
|
34,004,047 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$ |
(0.002 |
) |
|
$ |
(0.002 |
) |
|
|
Outstanding stock options were
not included in the computation of diluted earnings per common share for
the nine month periods ended September 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:
|
|
|
September
30, 2008
|
September
30, 2007
|
|
Stock
options
|
3,000,000
|
3,000,000
|
|
FORM
10-QSB
|
SEPTEMBER
30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
14.
INCOME TAXES
The
Company recognizes deferred tax assets and liabilities for temporary differences
between the financial reporting and tax bases of its assets and
liabilities. Deferred assets are reduced by a valuation allowance
when deemed appropriate.
The tax
effects of existing temporary differences that give rise to significant portions
of deferred tax assets at September 30, 2008 and June 30, 2008 are as
follows:
|
|
|
September
30, 2008
|
|
|
June
30, 2008
|
|
|
Net
Operating loss carryforwards
|
|
$ |
1,269,000 |
|
|
$ |
1,242,000 |
|
|
Deferred
compensation
|
|
|
90,000 |
|
|
|
92,000 |
|
|
Accounts
receivable allowance
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
Allowance
|
|
|
(1,365,000 |
) |
|
|
(1,340,000 |
) |
|
Net
deferred tax asset
|
|
$ |
-- |
|
|
$ |
-- |
|
At September 30, 2008, the Company has
net operating loss carryforwards for Federal tax purposes of approximately
$3,021,000 which, if unused to offset future taxable income, will expire in
years beginning in 2018.
Effective
July 1 2007, the Company adopted FASB Interpretation 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 three months ended
September 30, 2008.
|
FORM
10-QSB
|
SEPTEMBER
30, 2008
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
15.
RELATED PARTY TRANSACTION
Two of
the current officers of the Company have agreed to defer a substantial portion
of their salaries until such time as it may be paid. As of September
30, 2008 and 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 September 30,
2008 and June 30, 2008. No amounts were charged to deferred compensation and no
deferred compensation payments were made during the three months ended September
30, 2008.
16.
CONCENTRATIONS
For the
three months ended September 30, 2008, one customer accounted for 20.3% and
a second customer for 14.1% of the Company's sales and for the three months
ended September 30, 2007, one customer accounted for approximately 29.5% of
the Company's sales. At September 30, 2008 and 2007, one customer’s balance
represented 34.1% and 40.0% of the Company’s trade receivables,
respectively.
THIS
REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY
UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING
FUTURE EVENTS OR FUTURE PERFORMANCE OF THE COMPANY. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH ARE ONLY
PREDICTIONS AND SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS
USUALLY CONTAIN THE WORDS "ESTIMATE," "ANTICIPATE," "BELIEVE," "EXPECT," OR
SIMILAR EXPRESSIONS, AND ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY REVIEW VARIOUS RISKS AND UNCERTAINTIES IDENTIFIED BELOW, AS WELL AS
THE MATTERS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON 10-KSB FOR THE YEAR
ENDED JUNE 30, 2008 AND ITS OTHER SEC FILINGS. THESE RISKS AND UNCERTAINTIES
COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
INDICATED IN THE FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO
OBLIGATION TO UPDATE OR PUBLICLY ANNOUNCE REVISIONS TO ANY FORWARD-LOOKING
STATEMENTS TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
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 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.
Natural
Choices Home Products 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 several
years. Consequently, we have a highly qualified 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 relatively
significant sales, has never been aggressively marketed.
Less
Reliance on Narrow Market Channels:
To Date,
Pacific Sands has achieved the majority of its sales through the sale of its
Ecoone pool and spa water management systems. Since the management transition of
2004, the Company has grown this business in excess of 12 fold. 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 market place.
Expanded
Business Model to include Re-label and Custom Formulation:
Natural
Choices achieves a significant portion of its revenue through private and custom
label 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.
Natural Choices currently sells to approximately 25 re-label and custom label
customers. A number of these are manufacturers who already have established
sales channels of complementary products through national hardware and building
supply chains such as Home Depot, Lowes, etc. For instance, a major paint
manufacturer may have a desire to sell a cleaning product to compliment their
paint line but no interest in developing or manufacturing that product. This is
the ideal situation where Natural Choices' broad spectrum of specialty products
can fill a market niche with a built-in distribution channel without having to
expend the marketing and sales dollars generally necessary to gain access to
those markets.
RESULTS
OF OPERATIONS
Results
for the three months ending September 30, 2008 compared to the three months
ending September 30, 2007.
For the
three months ending September 30, 2008 net sales were $352,806, an increase of
96% over net sales of $179,807 for the same period in 2007. The increase in
sales is attributable to the additional sales recorded as a result of the
acquisition of Natural Choices.
For the
three months ended September 30, 2008, cost of goods sold was
$161,950 compared to $62,863 for the same period in the previous fiscal
year. The Company’s gross margin decreased from 65% for the three
months ended September 30, 2007 to 54% for the current fiscal quarter. The
significant decrease is due in large part to lower gross margins recognized
on certain products acquired from Natural Choices. This is
particularly true of many of the private label products which constitute a
significant portion of the Natural Choices product sales. Prior to the
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. In the fourth quarter
of fiscal 2008, the Company made significant capital expenditures, including
building an in-house powder filling facility, and is in the process of moving
away from contract manufacturers. Management believes that doing so
will significantly increase margins on the Natural Choices product line in the
future.
For the three months ended September
30, 2008 and 2007, selling and general administrative expenses were $239,680 and
$167,806, respectively. The overall increase in selling and general
administrative is due primarily to a significant increase in salaries and wages
expense which was $146,000 during the three months ended September 30, 2008
compared to $77,000 for the same period in 2007. The increase is
attributable to the addition of the former officers of Natural Choices and one
additional employee who began employment during the second quarter of fiscal
2008. The increase in salaries was offset somewhat by a decrease in
legal and professional fees which decreased from $46,000 to $32,000 during the
first fiscal quarter in fiscal 2009 as compared to the same period in
fiscal 2008. During 2007 the Company incurred legal fees in
conjunction with litigation involving the Company's former CEO,
Stanley Paulus, which was settled in January 2008.
Interest
expense for the three months ended September 30, 2008 was $16,088 compared to
$2,967 for the three months ended September 30, 2007. During the
three months ended September 30, 2008, the Company amortized $11,325 of the
discount of the note payable recorded upon the acquisition of Natural Choices in
February 2008.
Net loss
for the three months ended September 30, 2008 was $64,912 or $0.002 per share
compared to a net loss of $53,829 or $0.002 per share for the same period in
fiscal 2007.
LIQUIDITY AND CAPITAL
RESOURCES
Management
believes that the Company is positioned for sales growth but will require
additional funding to continue operations. 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 securities 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
September 30, 2008, the Company had current assets of $478,052 and total assets
of $1,432,348, compared to June 30, 2008 when current assets were $402,412 and
total assets were $1,343,401. The increase in current assets is attributable
primarily to an increase in accounts receivable from $256,427 at June 30,
2008 to $326,487 at September 30, 2008. Cash and cash equivalents
totaled $22,651 on September 30, 2008. Non current assets include an intangible
asset resulting from the acquisition of Natural Choices in the amount of
$877,854 which increased from $861,862 at June 30, 2008 as a result of
adjustments to purchase price allocations during the three months ended
September 30, 2008.
Current
liabilities at September 30, 2008 were $1,176,369. Current liabilities include
accounts payable, capital lease obligations and accrued expenses totaling
approximately $521,000. At September 30, 2008, the Company had outstanding line
of credit balances with a bank and finance company totaling $114,000.
Current liabilities also include $36,000 in payments due to a former officer
pursuant to a settlement agreement executed in January, 2008. The current
portion of the debt obligation incurred for the acquisition of Natural Choices
was $330,000 at September 30, 2008. The non current
portion of the debt is $340,000. The acquisition debt is payable in
cash and the Company’s restricted common stock over a three year
period.
Long term
liabilities at September 30, 2008 include amounts due pursuant to the settlement
agreement involving the Company’s former CEO of $38,500, and the non-current
portion of the debt incurred to acquire Natural Choices of approximately
$289,000, net of unamortized debt discount. Long-term capital lease
obligations were $30,105 at September 30, 2008.
During
September 30, 2008 the Company received $77,000 in loans from investors.
The Company and the investors executed a term sheet that obligates the Company
to issue convertible notes payable to the investors for their
loans. As of November 20, 2008 the terms of the notes have not been
finalized and therefore the notes have not been executed. The Company
anticipates that the notes will be executed prior to December 31,
2008. The Company expects the term of the notes to be greater than
one year and therefore all amounts due are included in long term liabilities at
September 30, 2008.
Net cash
used in operating activities during the three months ended September 30, 2008
was $91,768 compared to $99,122 used in operating activities during the three
months ended September 30, 2007. The net loss for the three months ended
September 30, 2008 was slightly higher than the same period in the prior fiscal
year due to increased staffing as a result of the acquisition of Natural
Choices.
Net cash
used in investing activities was $3,857 during the three months ended September
30, 2008. The Company purchased computer equipment totaling
approximately $3,200. The Company did not use any cash for investing
during the quarter ended September 30, 2007.
Net cash
provided by financing activities was $110,789 and $87,958 for the three months
ended September 30, 2008 and 2007, respectively. During the three months ended
September 30, 2008, the Company issued restricted common stock for cash totaling
$41,169 and also received proceeds from borrowings in the amount of
$116,364. During the three months ended September 30, 2007, the
Company executed a bank line of credit for $100,000. Proceeds from financing
activities were used to fund operations and to meet current obligations of notes
payable.
On
September 30, 2008 the Company had an accumulated deficit of $4,097,770 and
stockholders’ total deficit of $179,009.
The
Company's ability to achieve its objectives is dependent on its ability to
sustain and enhance its revenue stream and to continue to raise funds through
loans, credit and the private placement of restricted securities until such time
as the Company achieves profitability. To date, management has been successful
in raising cash on an as-needed basis for the continued operations of the
Company. There is no guarantee that management will be able to continue to raise
needed cash in this fashion.
The
Company has no material commitments for capital expenditures at this time. The
Company has no “off balance sheet” source of liquidity
arrangements.
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
quarters of fiscal 2007 and 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 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.
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.
Evaluation
of Disclosure Controls and Procedures
Based
upon an evaluation of the effectiveness of disclosure controls and procedures,
our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have
concluded that as of the end of the period covered by this Quarterly Report on
Form 10-Q our disclosure controls and procedures (as defined in Rules 13a-15(e)
or 15d-15(e) under the Exchange Act) were effective to provide reasonable
assurance that information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized and reported within the time periods
specified by the rules and forms of the SEC and is accumulated and communicated
to management, including the CEO and CFO, as appropriate to allow timely
decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
As
reported in our Annual Report on Form 10-KSB for the year ended June 30, 2008,
management is aware that 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.
There
have not been any changes in the Company's internal control over financial
reporting during the quarter ended September 30, 2008 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting
PART
II OTHER INFORMATION
None
None
None
None
None
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Exhibit |
Description
of the Exhibit |
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In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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PACIFIC
SANDS, INC.
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Dated:
November 20, 2008
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By:
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/s/ Michael
Wynhoff
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Michael
Wynhoff
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Chief
Executive Officer
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Dated:
November 20, 2008
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By:
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/s/ Michael
Michie
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Michael
Michie
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Chief
Financial Officer
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