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EX-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 - PACIFIC SANDS INCpfsd10k20090630ex32-1.htm
EX-31.2 - CHIEF FINANCIAL OFFICER CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - PACIFIC SANDS INCpfsd10k20090630ex31-2.htm
EX-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 - PACIFIC SANDS INCpfsd10k20090630ex32-2.htm
EX-31.1 - CHAIRMAN OF THE BOARD CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - PACIFIC SANDS INCpfsd10k20090630ex31-1.htm


 
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
 
     
Item 1.
Description of Business.
3
Item 2.
Description of Property.
10
Item 3.
Legal Proceedings.
10
Item 4.
Submission of Matters to a Vote of Security Holders.
10
     
PART II
 
     
Item 5.
Market for Registrant'sCommon Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
11
Item 6. Selected Financial Data. 
12
Item 7.
Management s Discussion and Analysis of Financial Condition and Results of Operations.
13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.  17
Item 8.
Financial Statements and Supplementary Data.
18
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
36
Item 9A(T). Controls and Procedures.  36
Item 9B. Other Information.  36
     
PART III
 
     
Item 10.
Directors, Executive Officers, Promoters and Corporate Governance.
37
Item 11.
Executive Compensation.
38
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
39
Item 13.
Certain Relationships and Related Transactions and Director Independence.
39
Item 14.
Principal Accountant Fees and Services.
39
Item 15. Exhibits.  40
Signatures
41
     
EX-31.1 (EXHIBIT 31.1)
 
     
EX-31.2 (EXHIBIT 31.2)
 
     
EX-32.1 (EXHIBIT 32.1)
 
     
EX-32.2 (EXHIBIT 32.2)
 
 
 
 
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.
 
 
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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 PaulsenThomas 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.
 
 
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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.
 
 
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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.
 
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(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

 
 
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