Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
S ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR
THE FISCAL YEAR ENDED JUNE 30, 2009
Commission file
number 000-29483
Pacific
Sands, Inc.
(Exact
Name of Registrant in its Charter)
Nevada
|
88-0322882
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
1509
Rapids Drive, Racine, WI 53404
(Address
of principal executive offices (Zip Code)
(262)
619-3261
(Registrant's
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $.001 par value per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
£
No S
Indicate
by a check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 has submitted electronically and posted on its corporate website, if
any, every Interactive Data File required to be submitted and posted pursuant to
rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer”, or “smaller
reporting company in Rule 12b-2 of the Exchange Act (check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
|
Smaller
reporting Company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.).
Yes ¨ No x
Registrant's
revenues for its most recent fiscal year: $1,197,485.
Market
value of Common stock held by non-affiliates at October 8,
2009: $1,954,567.
Shares of
Common Stock outstanding at October 13, 2009: 43,581,940 shares
Documents
incorporated by reference: None
TABLE OF
CONTENTS
PART
I
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||
Item
1.
|
Description
of Business.
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3
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Item
2.
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Description
of Property.
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10
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Item
3.
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Legal
Proceedings.
|
10
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Item
4.
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Submission
of Matters to a Vote of Security Holders.
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10
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PART
II
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||
Item
5.
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Market
for Registrant'sCommon Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities.
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11
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Item 6. | Selected Financial Data. |
12
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Item
7.
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Management
s Discussion and Analysis of Financial Condition and Results of
Operations.
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13
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. | 17 |
Item
8.
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Financial
Statements and Supplementary Data.
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18
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Item
9.
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure.
|
36
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Item 9A(T). | Controls and Procedures. | 36 |
Item 9B. | Other Information. | 36 |
PART
III
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Item
10.
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Directors,
Executive Officers, Promoters and Corporate Governance.
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37
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Item
11.
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Executive
Compensation.
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38
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
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39
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Item
13.
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Certain
Relationships and Related Transactions and Director
Independence.
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39
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Item
14.
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Principal
Accountant Fees and Services.
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39
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Item 15. | Exhibits. | 40 |
Signatures
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41
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EX-31.1
(EXHIBIT 31.1)
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EX-31.2
(EXHIBIT 31.2)
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EX-32.1
(EXHIBIT 32.1)
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EX-32.2
(EXHIBIT 32.2)
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2
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-K 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-K. 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-K. 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-K, quarterly reports on Form 10-Q, 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-K. 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.
Item
1. Description of Business
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.
3
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 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 shelf
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%.
4
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.
5
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 slowed over the last year but is expected
to grow as the economy rebounds from last year’s recession.
6
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,
www.waterwarehouse.com and samsclub.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 one major US Spa
Manufacturer 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.
7
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.
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.
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:
The
majority of 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.
8
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, 2009, the Company had 6 full time (two of whom are officers of the
Company) and 5 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-K 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.
9
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,
2009, 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.
Item
2. Description of Property
The
Company leases approximately 12,000 square feet of office and warehouse
facilities under an operating lease expiring March 31, 2010.
Item
3. Legal Proceedings
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. Once final payment is made,
Mr. Paulus shall file a dismissal with prejudice within two weeks
thereafter.
Item
4. Submission of Matters to a Vote of Security Holders
No matter
was submitted to a vote of the Security Holders during the fiscal year ended
June 30, 2009.
10
PART
II
Item
5. Market for Registrant's Common Equity, Related Stockholder Matters, and
Issuer Purchases of Equity Securities
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 2009 and fiscal 2008, all as
reported on the NASDAQ OTC Bulletin Board.
High
|
Low
|
|
Fiscal
Year Ended June 30, 2008
|
||
First
Quarter
|
0.16
|
0.08
|
Second
Quarter
|
0.14
|
0.06
|
Third
Quarter
|
0.10
|
0.08
|
Fourth
Quarter
|
0.09
|
0.06
|
Fiscal
Year Ended June 30, 2009
|
||
First
Quarter
|
0.09
|
0.06
|
Second
Quarter
|
0.06
|
0.01
|
Third
Quarter
|
0.06
|
0.01
|
Fourth
Quarter
|
0.08
|
0.03
|
As of
June 30, 2009, there were approximately 478
Holders.
The
Company has never declared a cash dividend.
Transactions
involving the Company’s securities during the fiscal year ended June 30,
2009 are summarized below.
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 director for consulting
services provided to the Company. 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.
11
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.
On
December 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 director for
consulting services provided to the Company. The fair market value of the shares
on the date issued was $0.02 per share. The Company recorded
compensation expense of $2,400 related to the issuance of these
shares.
On March
12, 2009, the Company issued 80,000 shares of its common stock to its four
directors and 40,000 shares of its common stock to a director for consulting
services provided to the Company. The fair market value of the shares on the
date issued was $0.02 per share. The Company recorded compensation
expense of $2,400 related to the issuance of these shares.
On March
12, 2009, the Company issued 200,000 shares of its common stock to two
consultants for services performed. The fair market value of the shares on the
date issued
was $0.02
per share. The Company recorded consulting fee expense of $4,000 related to the
issuance of these shares.
On March
12, 2009, the Company issued 287,743 shares of its common stock to an unrelated
investor for a cash investment of $8,632.
On March
12, 2009, the Company issued 410,000 shares of its common stock to employees.
The fair market value of the shares on the date issued was $0.02 per
share. The Company recorded compensation expense of $8,200 related to
the issuance of these shares.
On March
12, 2009, the company converted $54,073 of accrued salaries and wages due two
employees into 400,000 shares of its common stock.
On June
29, 2009, the Company issued 80,000 shares of its common stock to its four
directors and 40,000 shares of its common stock to a director for consulting
services provided to the Company. The fair market value of the shares on the
date issued was $0.045 per share. The Company recorded compensation
expense of $5,400 related to the issuance of these
shares.
On June
29, 2009, the Company issued 312,978 shares of its common stock to two
executives and two directors as partial settlement of notes payable and accrued
interest totalling $14,084.
On June
29, 2009, the Company issued 500,000 shares of its common stock to an unrelated
investor for a cash investment of $20,000.
Item 6. Selected Financial
Data
Not
applicable.
12
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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.
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 revenues 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
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.
13
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 slowdowns
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 2009 compared to Fiscal Year 2008
Results
of operations for the fiscal year ending June 30, 2009 compared to the fiscal
year ending June 30, 2008.
Revenues and Gross
Profit
For the
fiscal year ending June 30, 2009, the Company’s net sales were $1,197,485
compared to net sales of $976,357 for the fiscal year ended June 30, 2008. The
sales increase of 22.6% is attributable to the additional sales recorded as a
result of the acquisition of Natural Choices. Sales of Natural
Choices products totaled approximately $380,000 during the year ended June 30,
2009. 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, 2009 was $640,189 or 53.4%.while
gross profit for the year ending June 30, 2008 was $571,725 or
58.5%. The decrease in gross profit percentage is due in large part
to the addition of the Natural Choices products for the entire year, 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
continues to outsource the manufacture of the some of these products although
many are now manufactured utilizing the Company’s in-house powder filling
machinery.
14
Operating
Expenses
For the
fiscal years ending June 30, 2009 and 2008, selling and general administrative
expenses were $931,108 and $852,277, respectively. A significant
amount of the increase resulted from an increase in salaries and wages from
approximately $408,000 to $510,000 for the years ended June 30, 2008 and 2009,
respectively. Much of the salary increase is attributable to the inclusion of an
entire year’s salary for the two former officers of Natural Choice Home Products
who became employees of the Company upon the acquisition in February of
2008. In addition, the Company hired additional personnel after the
acquisition to accommodate the additional sales volume. Salary
increases were largely offset by a decrease in legal and professional fees which
dropped nearly $65,000 during the year ended June 30, 2009 compared to the same
period last year. Operating expenses during the year ended June 30, 2008
included legal fees incurred for litigation involving the Company’s former CEO
which was settled in December 2007 and non-direct acquisition related accounting
and consulting fees incurred upon the acquisition of Natural
Choices.
Other
Income/Expense
Interest
expense was $85,578 and $44,055 for the years ended June 30, 2009 and 2008,
respectively. Discount amortization for the note payable recorded
upon the acquisition of Natural Choices in February 2008 was $41,626 for
the current year compared to $20,244 for the year ended June 30, 2008. An
additional $4,544 of amortized debt discount for convertible notes, issued in
October 2008, was recorded during the year ended June 30, 2009. The Company also
recorded interest expense of $7,200 for these convertible notes, which is
payable quarterly.
During
the year ended June 30, 2009, the Company recorded other income of $59,463
resulting from the settlement of certain accounts payable obligations with three
vendors. Under the settlement agreements,
the Company agreed to pay the vendors an aggregate amount of
approximately $22,500 by the end of its fiscal year and the vendors agreed to
forgive the balance of the Company’s obligations.
For the
year ended June 30, 2008 the Company recorded $10,000 of other income that
resulted from the settlement of $5,000 of debt and $5,000 interest accrued as
part of an obligation to a former officer of the Company.
Net Loss
The
Company's net loss for fiscal year 2009 was $317,033, or $0.008, per share
compared to $312,908, or $0.009 per share, for fiscal 2008.
15
Liquidity
and Capital Resources
In fiscal
2009, the vast majority of the Company’s operations were funded through the
profits from the sale of its products, issuance of debt and sale of restricted
stock. 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, 2009, the Company had current assets of $254,616 and total assets of
$1,192,133. Cash and cash equivalents totaled $7,144 on June 30, 2009.
Non-current assets include intangible assets resulting from the acquisition of
natural Choices in the amount of 877,854.
Current
liabilities at June 30, 2009 were $501,012. Current liabilities include accounts
payable and accrued expenses totaling approximately $278,000. Notes
payable to banks, finance companies, shareholders and directors approximate
$178,000. Current liabilities also include $36,000 in payments due to a former
officer pursuant to a settlement agreement executed in December 2007. The
remaining non-current portion of the note is $8,500.
During
the year the year ended June 30, 2009, the Company and the former member owners
of Natural Choices Home Safe Products, LLC (the “Members”), executed an
amendment to the Asset Purchase Agreement dated February 8, 2008 (the
“Amendment”). Pursuant to the Amendment, the Company shall pay the
Members the outstanding principal balance of $650,000 as follows:
·
|
$10,000
due May 1, 2009.
|
·
|
$640,000
due on or before March 31, 2012
|
As of
June 30, 2009 the Company had not made the $10,000 payment due May 1, 2009.
This
amount is included in current maturities at June 30, 2009.
On
October 1, 2008, the Company executed notes payable (the “Notes”) to eight
investors for a total of $82,000. Interest accrues at a rate of 12% per annum
and is payable quarterly. The Notes mature on October 1, 2011 at
which time all outstanding principal is payable in full in the form of freely
tradable common stock of the Company at an agreed upon conversion price of $0.10
(ten cents) per share. The Company shall have the right, but not the
obligation, to pay up to one half of the principal balance in cash. Pursuant to
a Stock Pledge Agreement dated October 1, 2008, each Note is secured by the
number of shares of common stock of the Company necessary to satisfy the entire
principal amount at the agreed upon price of $0.10 per share. The Company used
the proceeds from the debt to fund current operations.
On March
31, 2009, the Company converted deferred compensation due two executive officers
into two notes payable. The notes are due on March 31, 2012 and
accrue interest at 4% per annum. The outstanding balance of the notes and
accrued interest at June 30, 2009 was approximately $277,000.
16
Net cash
used in operating activities during the year ended June 30, 2009 was $86,958
compared to $155,423 used in operating activities during the year ended June 30,
2008. During the year ended June 30, 2009, cash provided by changes in assets
and liabilities approximated $122,000 as compared to only $40,000 for the year
ended June 30, 2008.
Cash
flows used in investing during the year ended June 30, 2009 was $4,645, all for
the purchase of equipment. 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.
Net cash
provided by financing activities was $91,260 and $214,438 for the years ended
June 30, 2009 and 2008, respectively. During the year ended June 30, 2009, the
Company raised $69,801 through the issuance of common stock compared to $167,000
in the prior year. Proceeds received from notes payable issued totaled $179,316
and $173,745 for the years ended June 30, 2009 and 2008,
respectively. Repayment of loans and other obligations totaled
$157,857 and $126,307 for the years ended June 30, 2009 and 2008, respectively.
Funds received from financing activities were primarily used to fund
operations.
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 2010 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.
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. To date, the Company had borrowed
$82,000 from under these terms. While the Company has avoided convertible notes
in the past, Management and the board 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.
Item 7A. Quantative and Qualitative
Disclosures About Market Risk
The
Company is not exposed to market risk related to interest on foreign
currencies.
17
Item 8. Financial
Statements and Supplementary Data
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 sheets of Pacific Sands, Inc. as
of June 30, 2009 and 2008, and the related statements of operations,
stockholders' equity and cash flows of the years ended June 30, 2009 and
2008. 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. The
Company is not required to have nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness on the Company's
internal control over financial reporting. Accordingly we express no such
opinion. An audit also 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,
2009 and 2008, and the results of its operations and its cash flows for the
years ended June 30, 2009 and 2008, in conformity with accounting principles
generally accepted in the United States of America.
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.
Oak Park, Illinois
October
13, 2009
6611
W. North Avenue * Oak Park, Illinois 60302 * Phone (708) 386-1433 * Fax (708)
386-0139
18
PACIFIC
SANDS, INC.
|
||||||||
BALANCE
SHEETS
|
||||||||
JUNE
30, 2009 AND 2008
|
||||||||
ASSETS
|
||||||||
June
30, 2009
|
June
30, 2008
|
|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 7,144 | $ | 7,487 | ||||
Trade
receivables, net of allowances for doubtful accounts of $70,000 and
$13,602
|
137,412 | 256,427 | ||||||
Inventories
|
108,803 | 135,282 | ||||||
Other
current assets
|
1,257 | 3,216 | ||||||
Total
Current Assets
|
254,616 | 402,412 | ||||||
Property
and equipment, net
|
59,663 | 78,311 | ||||||
Other
assets:
|
||||||||
Security
deposit
|
- | 816 | ||||||
Goodwill
|
877,854 | 861,862 | ||||||
877,854 | 862,678 | |||||||
Total
Assets
|
$ | 1,192,133 | $ | 1,343,401 | ||||
LIABILITIES AND
STOCKHOLDERS' DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 152,022 | $ | 331,824 | ||||
Accrued
expenses
|
125,660 | 154,469 | ||||||
Deferred
compensation
|
- | 139,732 | ||||||
Current
portion of notes payable and capital leases
|
223,330 | 382,819 | ||||||
Total
Current Liabilities
|
501,012 | 1,008,844 | ||||||
Notes
payable and capital leases - net of discount of $33,946 and $78,601, less
current portion
|
989,285 | 555,773 | ||||||
Total
Liabilities
|
1,490,297 | 1,564,617 | ||||||
Stockholders'
deficit
|
||||||||
Common
stock (50,000,000 shares authorized, 49,196,090 and
45,308,958
|
||||||||
shares
issued, and 42,586,903 and 38,699,771 shares outstanding)
|
49,196 | 45,309 | ||||||
Additional
paid in capital
|
4,134,561 | 3,898,363 | ||||||
Treasury
stock, at cost
|
(132,030 | ) | (132,030 | ) | ||||
Accumulated
deficit
|
(4,349,891 | ) | (4,032,858 | ) | ||||
Total
Stockholders' Deficit
|
(298,164 | ) | (221,216 | ) | ||||
Total
Liabilities and Stockholders' Deficit
|
$ | 1,192,133 | $ | 1,343,401 |
See
accompanying notes to the financial statements.
19
PACIFIC
SANDS, INC.
|
||||||||
STATEMENTS
OF OPERATIONS
|
||||||||
FOR
THE YEARS ENDED JUNE 30, 2009 AND 2008
|
||||||||
|
||||||||
|
||||||||
|
||||||||
2009
|
2008
|
|||||||
Net
sales
|
$ | 1,197,485 | $ | 976,357 | ||||
Cost
of sales
|
557,296 | 404,632 | ||||||
Gross
profit
|
640,189 | 571,725 | ||||||
Selling
and administrative expenses
|
931,108 | 852,277 | ||||||
Loss
from operations
|
(290,919 | ) | (280,552 | ) | ||||
Other
expense
|
||||||||
Interest
expense
|
(85,578 | ) | (44,055 | ) | ||||
Other
income
|
59,464 | 11,699 | ||||||
Loss
before income taxes
|
(317,033 | ) | (312,908 | ) | ||||
Income
taxes
|
- | - | ||||||
Net
loss
|
$ | (317,033 | ) | $ | (312,908 | ) | ||
Basic
and diluted loss per share:
|
$ | (0.008 | ) | $ | (0.009 | ) | ||
Basic
and diluted weighted average shares outstanding:
|
40,388,790 | 36,207,648 |
See accompanying notes to the financial
statements.
20
PACIFIC
SANDS, INC.
|
||||||||||||||||||||||||||||
STATEMENT
OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||
YEARS
ENDED JUNE 30, 2009 AND 2008
|
||||||||||||||||||||||||||||
Common Stock
|
Treasury Stock
|
|||||||||||||||||||||||||||
Number
of
|
Additional
Paid
|
Number
of
|
Accumulated
|
|||||||||||||||||||||||||
Shares
|
Amount
|
In
Capital
|
Shares
|
Amount
|
Deficit
|
Total
|
||||||||||||||||||||||
Balance
at June 30, 2007
|
40,970,311 | $ | 40,970 | $ | 3,517,196 | (6,609,187 | ) | $ | (132,030 | ) | $ | (3,719,950 | ) | $ | (293,814 | ) | ||||||||||||
Issuance
of common stock:
|
||||||||||||||||||||||||||||
For
cash
|
1,972,222 | 1,972 | 165,028 | - | - | - | 167,000 | |||||||||||||||||||||
For
settlement of debt and other liabilities
|
399,095 | 400 | 31,528 | - | - | - | 31,928 | |||||||||||||||||||||
Partial
payments of acquisition purchase price
|
1,000,000 | 1,000 | 99,000 | - | - | - | 100,000 | |||||||||||||||||||||
For
compensation
|
355,000 | 355 | 31,395 | - | - | - | 31,750 | |||||||||||||||||||||
For
professional services
|
564,000 | 564 | 50,156 | - | - | - | 50,720 | |||||||||||||||||||||
For
purchase of machinery
|
48,330 | 48 | 4,060 | - | - | - | 4,108 | |||||||||||||||||||||
Net
loss
|
- | - | - | - | - | (312,908 | ) | (312,908 | ) | |||||||||||||||||||
Balance
at June 30, 2008
|
45,308,958 | 45,309 | 3,898,363 | (6,609,187 | ) | (132,030 | ) | (4,032,858 | ) | (221,216 | ) | |||||||||||||||||
Issuance
of common stock:
|
||||||||||||||||||||||||||||
For
cash
|
1,359,154 | 1,359 | 68,442 | - | - | - | 69,801 | |||||||||||||||||||||
For
settlement of debt and other liabilities
|
1,337,978 | 1,338 | 112,422 | - | - | - | 113,760 | |||||||||||||||||||||
For
compensation
|
890,000 | 890 | 26,210 | - | - | - | 27,100 | |||||||||||||||||||||
For
professional services
|
300,000 | 300 | 10,950 | - | - | - | 11,250 | |||||||||||||||||||||
Debt
discount for beneficial conversion feature
|
- | - | 18,174 | - | - | - | 18,174 | |||||||||||||||||||||
Net
loss
|
- | - | - | - | - | (317,033 | ) | (317,033 | ) | |||||||||||||||||||
Balance
at June 30, 2009
|
49,196,090 | $ | 49,196 | $ | 4,134,561 | (6,609,187 | ) | $ | (132,030 | ) | $ | (4,349,891 | ) | $ | (298,164 | ) |
See accompanying notes to the financial
statements.
21
PACIFIC
SANDS, INC.
|
||||||||
STATEMENTS
OF CASH FLOWS
|
||||||||
FOR
THE YEARS ENDED JUNE 30, 2009 AND 2008
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (317,033 | ) | $ | (312,908 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating activities
-
|
||||||||
Depreciation
and amortization
|
23,295 | 14,962 | ||||||
Amortization
of debt discount
|
46,170 | 20,244 | ||||||
Common
shares and rights issued for services and compensation
|
38,350 | 82,470 | ||||||
Changes in assets and liabilities - | ||||||||
Trade
accounts receivable
|
107,024 | (140,133 | ) | |||||
Inventories
|
26,479 | (28,338 | ) | |||||
Prepaid
expenses
|
948 | 16,144 | ||||||
Other
assets
|
1,827 | 3,890 | ||||||
Accounts
payable and other current liabilities
|
(14,018 | ) | 188,246 | |||||
Net
Cash Used in Operating Activities
|
(86,958 | ) | (155,423 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchases
of equipment
|
(4,645 | ) | (5,497 | ) | ||||
Acquisition
of Natural Choices - initial payment
|
- | (60,000 | ) | |||||
Net
Cash Used in Investing Activities
|
(4,645 | ) | (65,497 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Issuance
of common stock
|
69,801 | 167,000 | ||||||
Issuance
of notes payable
|
179,316 | 173,745 | ||||||
Repayment
of note payable and long term obligation
|
(157,857 | ) | (110,508 | ) | ||||
Deferred
compensation payments
|
- | (15,799 | ) | |||||
Net
Cash Provided by Financing Activities
|
91,260 | 214,438 | ||||||
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(343 | ) | (6,482 | ) | ||||
CASH
AND CASH EQUIVALENTS
|
||||||||
Beginning
of year
|
7,487 | 13,969 | ||||||
End
of year
|
$ | 7,144 | $ | 7,487 |
22
PACIFIC
SANDS, INC.
|
||||||||
STATEMENTS OF CASH
FLOWS
|
||||||||
YEARS
ENDED JUNE 30, 2009 AND 2008
|
||||||||
Supplemental
disclosures of cash flow information:
|
||||||||
2009 | 2008 | |||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ | 20,576 | $ | 16,677 | ||||
Income
taxes
|
$ | - | $ | - | ||||
Supplemental
disclosure of non cash financing and investing activities
|
||||||||
Conversion
of debt to equity
|
$ | 64,084 | $ | 31,928 | ||||
Conversion
of accrued salaries to equity
|
$ | 49,676 | $ | - | ||||
Conversion
of deferred compensation to notes payable
|
$ | 274,443 | $ | - | ||||
Convertible
notes discount with corresponding increase to paid in capital for value of
the beneficial conversion feature
|
$ | 18,174 | $ | - | ||||
Capital
lease obligations
|
$ | - | $ | 49,400 | ||||
Common
stock issued as down payment for machinery purchased under capital
lease
|
$ | - | $ | 4,108 | ||||
Reclassification
of settlement obligation (previously recorded as deferred
compensation)
|
$ | - | $ | 100,000 | ||||
Debt
obligation incurred upon acquisition of the assets of Natural Choices Home
Safe Products, net of discount
|
$ | - | $ | 647,814 |
See accompanying notes to the financial
statements.
23
FORM
10-K
|
JUNE
30, 2009
|
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,
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 Sand’s 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 $23,295 and $14,962 during the years ended June 30,
2009 and 2008, 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, 2009 and 2008,
advertising and promotion costs totaled $5,258 and $14,057,
respectively.
24
FORM
10-K
|
JUNE
30, 2009
|
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.
In
addition, 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. .
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 $70,000 and $13,602 is adequate as of
June 30, 2009 and 2008, respectively.
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.
Recent Accounting
Pronouncements - The following is a summary of recent authoritative
pronouncements that affect accounting, reporting and disclosure of financial
information by the Company.
25
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
In
June 2009, the FASB issued SFAS No. 168, “The ‘FASB Accounting
Standards Codification’ and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162” (“SFAS 168”). SFAS 168
establishes the “FASB Accounting Standards Codification” (“Codification”), which
officially launched July 1, 2009, to become the source of authoritative
U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to
be applied by nongovernmental entities, superseding existing FASB, American
Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force
(“EITF”), and related accounting literature. Rules and interpretive releases of
the Securities and Exchange Commission (“SEC”) under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
SFAS 168 reorganizes
the previously issued GAAP pronouncements into accounting topics and displays
them using a consistent structure. The subsequent issuances of new standards
will be in the form of Accounting Standards Updates that will be included in the
Codification. SFAS 168 will be effective for the Company as of the interim
period ended September 30, 2009. As the Codification was not intended to
change or alter existing GAAP, it will not have an impact on the Company’s
consolidated financial statements. The only impact will be that any future
references to authoritative accounting literature will be in accordance with
SFAS 168 and the new numbering system prescribed by the
Codification.
In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS
165”). This standard is intended to establish general standards of accounting
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 requires
issuers to reflect in their financial statements and disclosures the effects of
subsequent events that provide additional evidence about conditions at the
balance sheet date. Disclosures should include the nature of the event and
either an estimate of its financial effect or a statement that an estimate
cannot be made. This standard also requires issuers to disclose the date through
which they have evaluated subsequent events and whether the date corresponds
with the release of their financial statements. The Company adopted SFAS 165 as
of the interim period ended June 30, 2009. As the requirements under SFAS
165 are consistent with its current practice, the implementation of this
standard did not have an impact on the Company’s consolidated financial
statements. The Company has evaluated subsequent events through October 13,
2009, the date it filed this annual report on Form 10-K.
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 adoption of SFAS No. 161 did not have a material impact
on the financial results of the Company.
26
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets. FSP 142-3 amends the factors an entity should consider
in developing renewal or extension assumptions used in determining the useful
life of recognized intangible assets under SFAS 142, Goodwill and Other Intangible
Assets, and adds certain disclosures for an entity’s accounting policy of
the treatment of the costs, period of extension, and total costs
incurred. FSP 143-3 must be applied prospectively to intangible
assets acquired after January 1, 2009. The Company does not expect
the adoption of FSP142-3 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.
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, 2009,
the Company has incurred cumulative losses of $4,349,891 and Stockholders’
deficit of $298,164. The company's successful transition to attaining
profitable operations is dependent upon obtaining financing adequate to fulfill
its development, marketing and sales activities and achieving a level of
revenues adequate to support the Company's cost
structure. Management's plan of operations anticipates that the cash
requirements of the Company for the next twelve months will be met by obtaining
capital contributions through the sale of common stock and from current
operations. However, there is no assurance that the company will be
able to fully implement its plan in order to generate the funds needed on a
going concern basis.
3.
INVENTORIES
Inventories
at June 30, 2009 and 2008 consisted of the following:
June
30, 2009
|
June
30, 2008
|
|||||||
Raw
materials
|
$ | 94,484 | $ | 106,862 | ||||
Finished
goods
|
14,319 | 28,420 | ||||||
|
||||||||
Total
|
$ | 108,803 | $ | 135,282 |
27
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
4.
ACCRUED EXPENSES
Accrued
expenses at June 30, 2009 and 2008 consisted of the following:
June
30, 2009
|
June
30, 2008
|
|||||||
Accrued
compensation
|
$ | 55,894 | $ | 71,484 | ||||
Accrued
taxes
|
39,525 | 33,497 | ||||||
Accrued
professional fees
|
18,766 | 38,964 | ||||||
Accrued
interest
|
9.897 | 789 | ||||||
Accrued
other
|
1,578 | 9,735 | ||||||
Total
|
$ | 125,660 | $ | 154,469 |
5.
NOTES PAYABLE AND CAPITAL LEASE
OBLIGATIONS
Notes
payable at June 30, 2009 and 2008 consisted of the following:
June
30, 2009
|
June
30, 2008
|
|||||||
Dell
Financial Services – line of credit
|
$ | 13,652 | $ | 10,632 | ||||
J.P.
Morgan Chase – business line of credit
|
94,992 | 99,589 | ||||||
Notes
payable stockholders and directors
|
59,652 | 25,000 | ||||||
Notes
payable – settlement obligation
|
44,500 | 80,500 | ||||||
Notes
payable – acquisition, net of discount
|
629,684 | 668,058 | ||||||
Convertible
notes payable – net of discount
|
68,370 | -- | ||||||
Notes
payable – executive officers
|
274,443 | -- | ||||||
Capital
leases
|
27,322 | 54,813 | ||||||
1,212,615 | 938,592 | |||||||
Less
current maturities
|
223,330 | 382,819 | ||||||
$ | 989,285 | $ | 555,773 |
The
Company received a line of credit from Dell Financial Services for $15,000 with
an interest rate of 22.99% 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 five unsecured notes
for amounts of $31,353, $10,000, $10,000, $5,000 and $3,299 at rates fluctuating
up to 10%.
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. 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.
28
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
On March
31, 2009, the Company and the former member owners of Natural Choices Home Safe
Products, LLC (the “Members”), executed an amendment to the Asset Purchase
Agreement dated February 8, 2008 (the “Amendment”). Pursuant to the
Amendment, the Company shall pay the Members the outstanding principal balance
of $650,000 as follows:
|
o
|
$10,000
due May 1, 2009.
|
|
o
|
$640,000
due on or before March 31, 2012
|
In
addition, the Company shall make monthly cash interest payments to the Members
on the outstanding balance at a rate of 4% per annum.
As of
June 30, 2009 the Company had not made the $10,000 payment due May 1, 2009.
This
amount is included in current maturities at June 30, 2009,
On
October 1, 2008, the Company executed convertible notes payable (the “Notes”) to
eight investors for a total of $82,000. Interest accrues at a rate of 12% per
annum and is payable quarterly. The Notes mature on October 1,
2011 at which time all outstanding principal is payable in full in the form of
freely tradable common stock of the Company at an agreed upon conversion price
of $0.10 (ten cents) per share. The Company shall have the right, but
not the obligation, to pay up to one half of the principal balance in cash.
Pursuant to a Stock Pledge Agreement dated October 1, 2008, each Note is secured
by the number of shares of common stock of the Company necessary to satisfy the
entire principal amount at the agreed upon price of $0.10 per
share.
The
Company allocated the proceeds received to the principal amount of the Notes and
the beneficial conversion feature based upon the relative fair value which was
determine using a Black Scholes pricing model. The fair value of the beneficial
conversion feature has been recorded as debt discount and additional paid in
capital. The debt discount recorded of $18,174 is being amortized
over the three-year term of the note and the carrying amount is presented net of
the unamortized discount. For the year ended June 30, 2009 the Company recorded
$4,544 of interest expense for the amortization of the discount.
On March
31, 2009, the Company converted $274,443 of deferred compensation due two
executive officers into two notes payable. The notes are due on March
31, 2012 and accrue interest at 4% per annum.
At June
30, 2009, the Company had three capital lease obligations two of which had one
remaining payment and a nominal aggregate balance. The other is a
four year agreement for machinery with an imputed interest rate of 12.00%,
placed into service in April 2008.with monthly installment payments
of $957, and a bargain purchase option of $1 at the end of the lease
term.
29
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
The
scheduled annual maturities for notes payable and capital lease obligations were
as follows at June 30,
2010
|
$ | 223,330 | ||
2011
|
100,317 | |||
2012
|
922,914 |
6.
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.
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 |
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
|
(57,302 | ) | ||
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. The intangible asset was deemed not to be impaired at December 31, 2008.
Additionally, management does not believe that any events, transactions or
circumstances have caused the asset to be impaired at June 30,
2009.
30
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
The
following pro forma condensed statement of operations reflects the results of
operations for the year ended June 30, 2008 had the acquisition occurred at the
beginning of the period.
June
30, 2008
|
||||
Net
sales
|
$ | 1,337,905 | ||
Gross
profit
|
715,791 | |||
Operating
loss
|
(279,785 | ) | ||
Net
loss
|
(314,283 | ) | ||
Loss
per share
|
(0.008 | ) |
7.
STOCKHOLDERS’ EQUITY
Transactions
for the year ended June 30, 2009 are as follows:
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 director for consulting
services provided to the Company. 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.
On
December 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 director for
consulting services provided to the Company. The fair market value of the shares
on the date issued was $0.02 per share. The Company recorded
compensation expense of $2,400 related to the issuance of these
shares.
On March
12, 2009, the Company issued 80,000 shares of its common stock to its four
directors and 40,000 shares of its common stock to a director for consulting
services provided to the Company. The fair market value of the shares on the
date issued was $0.02 per share. The Company recorded compensation
expense of $2,400 related to the issuance of these shares.
31
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
On March
12, 2009, the Company issued 200,000 shares of its common stock to two
consultants for services performed. The fair market value of the shares on the
date issued was $0.02
per share. The Company recorded consulting fee expense of $4,000 related to the
issuance of these shares.
On March
12, 2009, the Company issued 287,743 shares of its common stock to an unrelated
investor for a cash investment of $8,632.
On March
12, 2009, the Company issued 410,000 shares of its common stock to employees.
The fair market value of the shares on the date issued was $0.02 per
share. The Company recorded compensation expense of $8,200 related to
the issuance of these shares.
On March
12, 2009, the company converted $54,073 of accrued salaries and wages due two
employees into 400,000 shares of its common stock.
On June
29, 2009, the Company issued 80,000 shares of its common stock to its four
directors and 40,000 shares of its common stock to a director for consulting
services provided to the Company. The fair market value of the shares on the
date issued was $0.045 per share. The Company recorded compensation
expense of $5,400 related to the issuance of these
shares.
On June
29, 2009, the Company issued 312,978 shares of its common stock to two
executives and two directors as partial settlement of notes payable and accrued
interest totalling $14,084.
On June
29, 2009, the Company issued 500,000 shares of its common stock to an unrelated
investor for a cash investment of $20,000.
8. STOCK
BASED COMPENSATION
The
Company accounts for stock based compensation under SFAS 123(R) ("SFAS 123R"),
"Share-Based Payment", that focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
Stock based compensation cost is measured at the grant date based on the fair
value of the award and is recognized as expense over the requisite service
period.
The
Company did not have any stock options granted, exercised, cancelled or expired
during the years ended June 30, 2009 and 2008.
Price
per share
|
||||||||||
Shares
|
Range
|
Weighted
Average
|
||||||||
Balance,
June 30, 2008
|
3,000,000 | $.16 - $1.00 | $0.440 | |||||||
Balance,
June 30, 2009
|
3,000,000 | $.16 - $1.00 | $0.440 |
32
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
9.
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 $41,000 and $38,200 for the
years ended June 30, 2009 and 2008, respectively.
Remaining
minimum future payments under operating leases at June 30, 2009 were
$33,750.
10.
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.
Years
Ended
|
||||||||
June
30, 2009
|
June
30, 2008
|
|||||||
Numerator
|
||||||||
Basic
and diluted loss
|
$ | (317,033 | ) | $ | (312,908 | ) | ||
Denominator
|
||||||||
Basic
and diluted earnings per share-weighted average shares
outstanding
|
40,388,970 | 36,207,648 | ||||||
Basic
and diluted loss per common share
|
$ | (0.008 | ) | $ | (0.009 | ) |
33
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
Outstanding stock options were not
included in the computation of diluted earnings per common share for the years
ended June 30, 2009 and 2008 since it would have resulted in an antidilutive
effect.
Anti-dilutive
securities not included in the net loss per share
calculation:
|
June
30, 2009
|
June
30, 2008
|
||||||
Stock
options
|
3,000,000 | 3,000,000 |
11. 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, 2009 and 2008 were as follows:
June
30 ,2009
|
June
30 ,2008
|
|||||||
Net
Operating Loss Carryforwards
|
$ | 1,342,000 | $ | 1,242,000 | ||||
Deferred
Compensation
|
134,000 | 92,000 | ||||||
Accounts
receivable allowance
|
30,000 | 6,000 | ||||||
Valuation
Allowance
|
(1,506,000 | ) | (1,340,000 | ) | ||||
Net
Deferred Tax Asset
|
$ | -- | $ | -- |
At June 30, 2009, the Company has net
operating loss carryforwards for Federal tax purposes of approximately
$3,196,000 which, if unused to offset future taxable income, will expire in
years beginning in 2018.
12.
RELATED PARTY TRANSACTION
On March
31, 2009, the Company converted deferred compensation due its two executive
officers into notes payable. The notes are due on March 31, 2012 and
accrue interest at 4% per annum. The total due the officers including accrued
interest was approximately $278,000 at June 30, 2009.
For the
years ended June 30, 2009 and 2008, compensation accrued but not paid to the two
officers was approximately $146,000 and $51,000, respectively.
34
FORM
10-K
|
JUNE
30, 2009
|
PACIFIC
SANDS, INC
NOTES
TO FINANCIAL STATEMENTS
13.
CONCENTRATIONS
For the
year ended June 30, 2009, no single customer accounted for 10% or greater of the
Company’s sales. For the year ended June 30, 2008, one customer accounted for
approximately 18.8% of the Company's sales, and 29.3% and 27.6% of the Company’s
trade receivables at June 30, 2009 and 2008, respectively. Due to uncertainty of
collection, as of June 30, 2009 the Company has fully reserved for the amount
due from this customer.
14. SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter
ended
|
||||||||||||||||
September 30,
2008
|
December
31, 2008
|
March 31,
2009
|
June
30, 2009
|
|||||||||||||
Net
sales
|
$ | 352,806 | $ | 176,999 | $ | 328,070 | $ | 339,610 | ||||||||
|
||||||||||||||||
Gross
profit
|
190,856 | 56,588 | 201,434 | 191,311 | ||||||||||||
|
||||||||||||||||
Net
earnings (loss)
|
(64,912 | ) | (181,039 | ) | 24,264 | (95,346 | ) | |||||||||
Net
earnings (loss) per share – basic and diluted
|
(.002 | ) | (.005 | ) | .001 | (.002 | ) | |||||||||
|
||||||||||||||||
Weighted
average basic and diluted shares
|
39,229,515 | 40,117,486 | 40,551,236 | 41,674,207 |
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 | 170,067 | 199,964 | ||||||||||||
|
||||||||||||||||
Net
earnings (loss)
|
(53,829 | ) | (158,211 | ) | (85,148 | ) | (15,720 | ) | ||||||||
Net
earnings (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.
35
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosures
None.
Item
9A. Controls and Procedures
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-K,
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 chairman of the board and 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-K
was being prepared.
Item
9A(T). Controls and Procedures
Internal
Control Over Financial Reporting
Our
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). Our management assessed the effectiveness of our
internal control over financial reporting as of June 30, 2009. 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, 2009.
Other than as described above, there were no material changes in
our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) that occurred as of June 30, 2009 that have materially
affected, or are reasonably likely to materially affect our internal control
over financial reporting.
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.
9B.
Other Information
None.
36
PART
III
Item
10. Directors, Executive Officers, and Corporate
Governance
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
|
44
|
President/Chief
Executive Officer and Director
|
Michael
D. Michie
|
48
|
Chief
Financial Officer/Treasurer and Director
|
Thomas
Paulsen
|
46
|
Director
|
John
D. Hagarty
|
70
|
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.
37
Item
11. Executive Compensation
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, 2009, 2008 and 2007. 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(b)
|
Bonus
|
Restricted
Stock
Awards
|
Option
Awards(a)
|
Nonequity
incentive
plan
compensation
|
Non-qualified
deferred
compensation
|
Total
|
|||||||||||||||||||||
Michael
L. Wynhoff
|
2009
|
$ | 97,751 | -- | $ | 3,150 | -- | -- | -- | $ | 100,901 | ||||||||||||||||||
Chief
Executive Officer
|
2008
|
$ | 78,468 | -- | $ | 5,300 | -- | -- | -- | $ | 83,768 | ||||||||||||||||||
2007
|
$ | 82,215 | -- | $ | 27,440 | $ | 88,676 | -- | -- | $ | 198,331 | ||||||||||||||||||
Michael
D. Michie
|
2009
|
$ | 90,143 | -- | $ | 9,150 | -- | -- | -- | $ | 99,293 | ||||||||||||||||||
Chief
Financial Officer
|
2008
|
$ | 72,145 | -- | $ | 12,050 | -- | -- | -- | $ | 84,195 | ||||||||||||||||||
2007
|
$ | 98,754 | -- | $ | 15,720 | $ | 22,768 | -- | -- | $ | 137,242 | ||||||||||||||||||
Thomas
Paulson
|
2009
|
-- | -- | $ | 3,150 | -- | -- | -- | $ | 3,150 | |||||||||||||||||||
Secretary
|
2008
|
-- | -- | $ | 1,700 | -- | -- | -- | $ | 1,700 | |||||||||||||||||||
Mark
R. Rauscher
|
2008
|
-- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||
Retired
|
2007
|
-- | -- | $ | 9,860 | $ | 22,768 | -- | -- | $ | 32,628 | ||||||||||||||||||
John
Hagarty
|
2009
|
-- | -- | $ | 9,450 | -- | -- | -- | $ | 9,450 | |||||||||||||||||||
Director
|
2008
|
-- | -- | $ | 15,900 | -- | -- | -- | $ | 15,900 | |||||||||||||||||||
2007
|
-- | -- | $ | 19,744 | -- | -- | -- | $ | 19,744 | ||||||||||||||||||||
(a)
|
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.
|
(b)
|
During fiscal 2009, cash payments received as compensation by Mr. Wynhoff and Mr. Michie was $70,015 and $72,179, respectively. The balance of their salaries was accrued and subsequently converted to promissory notes. |
38
Item
12. Security Ownership of Certain Beneficial Owners, Management and
Related Stockholder Matters
The
following table sets forth the information relating to the beneficial ownership
of the Company's common stock by those persons holding more than 5% of the
Company's common stock, by the Company's directors and executive officers, and
by all of the Company's directors and executive officers as a group as of June
30, 2009.
Title
of Class
|
Name
of Beneficial Owner
|
Beneficial
Ownership
|
Percent
of Class
|
Common
|
Michael
L. Wynhoff
1509
Rapids Drive
Racine,
WI 53404
|
6,776,018
|
14.5%
|
Common
|
Michael
D. Michie
1509
Rapids Drive
Racine,
WI 53404
|
2,000,080
|
4.3%
|
Common
|
Mark
Rauscher
1509
Rapids Drive
Racine,
WI 53404
|
2,125,348
|
4.6%
|
Common
|
John
D. Hagarty
1509
Rapids Drive
Racine,
WI 53404
|
1.7%
|
|
Common
|
Thomas
Paulsen
1509
Rapids Drive
Racine,
WI 53404
|
676,923
|
1.5%
|
Item 13. Certain
Relationships and Related Transactions, and Director Independence
None.
Item 14. Principal Accountant
Fees and Services
Audit
Fees:
The
following table sets forth accounting and audit fees charged by Frank L.
Sassetti & Company, the Company’s independent registered public accounting
firm for each of the last two fiscal years.
Fiscal
2009
|
Fiscal
2008
|
|||||||
Audit
fees (1)
|
$
|
32,557 |
$
|
31,492
|
||||
Audit
related fees (2)
|
$
|
- |
$
|
18,864
|
||||
Tax
fees
|
$
|
3,135 |
$
|
2,700
|
(1)
|
Audit
fees represent fees for professional services provided in connection with
the audit of our financial statements and review of our quarterly
financial statements and audit services provided in connection with other
statutory or regulatory filings.
|
(2)
|
Audit
related fees consist of fees for professional services for the audit of
Natural Choices Home Products in connection with the acquisition made by
the Company.
|
39
(a)
Attached Exhibits
31.1
|
Chairman of the Board Certification of Periodic Financial Report
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31.2
|
Chief Financial Officer Certification of Periodic Financial Report
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32.1
|
Chairman of the Board Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
Chief Financial Officer Certification Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002
|
(b)
Reports on Form 8-K
There
were no reports on Form 8-K file for the quarter ended June 30,
2009.
40
SIGNATURES
Pursuant
to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Pacific
Sands, Inc
(Registrant)
By: /s/ Michael
Wynhoff
Michael
Wynhoff
Chief
Executive Officer,
Director
October
13, 2009
By:
/s/ Michael D.
Michie
Michael
D. Michie
Chief
Financial Officer,
Director
October
13, 2009
41