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EX-31.1 - CHIEF EXECUTIVE OFFICER CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - PACIFIC SANDS INCex31-1.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 INCex31-2.htm
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 INCex32-1.htm



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 




 
FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 


For the quarterly period ended 
  December 31, 2011
 
OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ___________________________ to ___________________________

Commission file number 000-29483

Pacific Sands, Inc.
 
(Exact Name of Registrant as specified in its charter)

Nevada
88-0322882
(State or Other Jurisdiction of Incorporation or Organization) 
(IRS Employer Identification No.) 
 

4611 Green Bay Road
Kenosha, WI
53144
(Address of Principal Executive Offices)
(Zip Code)

Issuer’s Telephone Number, Including Area Code:  (262) 925-0123

N/A
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
Indicate by check mark whether the issuer (1) 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 o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, 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  x    No o  
 
Indicate by check mark whether the registrant is a larger accelerated filer, an accelerated filer, a non-accelerated or a smaller reporting company. See the definition of “large accelerated filer, accelerated filer and smaller reporting company “in Rule 12b-2 of the Exchange Act. (Check one)
 
 Large accelerated filer o
 Accelerated filer  o
 Non-accelerated filer o
 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 o             No x
  
The number of shares outstanding of each of the issuer's classes of common equity, as of February 21, 2012 are as follows:
 
Class of Securities
 
Shares Outstanding
Common Stock, $0.001 par value
 
61,905,128
 
 
 

 
 
TABLE OF CONTENTS
 
 
 
   
   
PART I  FINANCIAL INFORMATION
   
Page
 Item 1. 
Financial Statements
     
 
Balance Sheets as of  December 31, 2011  (unaudited) and June 30, 2011
     
 
Statements of Operations for the Three and Six Months Ended December 31, 2011 and 2010 (unaudited)
     
 
Statements of Cash Flows for the Three and Six Months Ended December 31, 2011 and 2010 (unaudited)
     
 
Notes to Financial Statements (unaudited)
     
 Item 2.
Management Discussion and Analysis of Financial Condition and Results of Operations
15 
     
 Item 3.
Quantitative and Qualitative Disclosures About Market Risk
17 
     
 Item 4.
Controls and Procedures
18 
     
PART II  OTHER INFORMATION
     
 Item 1.
LEGAL PROCEEDINGS
19 
     
 Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
19 
     
 Item 3.
DEFAULTS UPON SENIOR SECURITIES
19 
     
 Item 4.
OTHER INFORMATION
20 
     
 Item 5.
EXHIBITS
20 
     
 SIGNATURES 
20 
 
 
 

 
 
PACIFIC SANDS, INC.
BALANCE SHEETS
DECEMBER 31, 2011 AND JUNE 30, 2011
             
ASSETS
             
   
December 31, 2011
   
June 30, 2011
 
Current assets:
 
(Unaudited)
       
Cash and cash equivalents
 
$
11,482
   
$
9,753
 
Trade receivables, net of allowances for doubtful accounts of  $18,000 and $8,678
   
260,888
     
334,511
 
Inventories
   
182,198
     
170,755
 
Other current assets
   
6,698
     
12,981
 
Total Current Assets
   
461,266
     
528,000
 
                 
Property and equipment, net
   
36,877
     
40,118
 
                 
Total Assets
 
$
498,143
   
$
568,118
 
                 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
                 
Current liabilities:
               
Accounts payable
 
$
222,764
   
$
201,203
 
Accrued expenses
   
127,161
     
117,710
 
Current portion of notes payable and capital leases
   
92,261
     
94,142
 
Total Current Liabilities
   
442,186
     
413,055
 
                 
 Notes payable and capital leases - net of discount of  $0 and $1,514,  less current portion
   
170,526
     
200,044
 
                 
Total Liabilities
   
612,712
     
613,099
 
                 
                 
Stockholders' deficit
               
Common stock (100,000,000 shares authorized, 67,101,813 and 67,856,813  shares issued, and 60,492,626 and 61,247,626 shares outstanding)
   
67,102
     
67,857
 
Additional paid in capital
   
5,293,778
     
5,382,298
 
Treasury stock, at cost
   
(132,030
)
   
(132,030
)
Accumulated deficit
   
(5,343,419
)
   
(5,363,106
)
Total Stockholders' Deficit
   
(114,569
)
   
(44,981
)
                 
Total Liabilities and Stockholders' Deficit
 
$
498,143
   
$
568,118
 
 
See accompanying notes.

 
3

 
 
PACIFIC SANDS, INC.
 
STATEMENTS OF OPERATIONS
 
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2011 AND 2010
 
(UNAUDITED)
 
 
   
Three months ended
December 31,
   
Six months ended
December 31,
 
   
2011
   
2010
   
2011
   
2010
 
Net sales
 
$
416,217
   
$
294,623
   
$
769,047
   
$
609,402
 
Cost of sales
   
240,072
     
     168,491
     
471,048
     
301,852
 
                                 
Gross profit
   
176,145
     
126,132
     
297,999
     
    307,550
 
                                 
Selling and administrative expenses
   
149,311
     
165,990
     
353,797
     
335,995
 
                                 
Income (Loss) from operations
   
26,834
     
(39,858
)
   
(55,798
)
   
(28,445
)
                                 
Other income (expense)
                               
        Gain on sale of direct retail business
   
88,795
     
-
     
88,795
     
-
 
Interest expense
   
(7,101
)
   
(44,589
)
   
(13,309
)
   
(67,752
)
                                 
Income (Loss) before income taxes
   
108,528
     
(84,447
)
   
19,688
     
(96,197
)
                                 
Income taxes
   
-
     
-
     
-
     
-
 
                                 
Net income  (loss)
 
$
108,528
   
$
(84,447
)
 
$
19,688
   
$
(96,197
)
                                 
Earnings (loss) per share:
                               
Basic
 
$
0.002
   
$
(0.002)
   
$
*
   
$
(0.002)
 
Diluted
 
$
0.002
   
$
(0.002)
   
$
*
   
$
(0.002)
 
                                 
Weighted average share outstanding:
                               
Basic
   
60,433,115
     
45,881,903
     
60,840,371
     
45,254,801
 
Diluted
   
60,853,115
     
45,881,903
     
61,260,371
     
45,254,801
 
                                 
*Less than $.001
                               
 
See accompanying notes.
 
 
4

 
 
PACIFIC SANDS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2011 AND 2010
(UNAUDITED)
             
   
2011
   
2010
 
Cash flows from operating activities
           
Net income (loss)
 
$
19,688
   
$
(96,197
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities -
               
Depreciation and amortization
   
10,564
     
9,017
 
Amortization of debt discount
   
1,514
     
3,028
 
Gain on sale of direct retail business
   
(88,795
   
-
 
Common shares received for retail business
   
(6,081)
     
14,300
 
Common shares issued for services
   
5,600
     
14,300
 
Common shares issued for interest
   
-
     
29,182
 
Changes in assets and liabilities -
               
Trade accounts receivable
   
73,623
     
2,509
 
Inventories
   
(11,443
)
   
(19,895)
 
Other assets
   
6,283
     
(11,749
)
Accounts payable and other current liabilities
   
31,012
     
(23,854
)
                 
  Net Cash Provided by (Used in) Operating Activities
   
41,965
     
(93,659
)
                 
Cash flows from investing activities
               
     Purchases of equipment
   
(7,323)
     
-
 
             Net Cash Used in Investing Activities
   
(7,323)
     
-
 
                 
Cash flows from financing activities
               
Proceeds from common stock issued
   
-
     
127,792
 
Proceeds from notes payable
   
-
     
20,236
 
Repayment of notes payable and long term obligations
   
(32,913
)
   
(47,720
)
                 
  Net Cash Provided by (Used in) Financing Activities
   
(32,913
)    
100,308
 
                 
Net increase in cash and cash equivalents
   
1,729
     
6,649
 
                 
Cash and cash equivalents:
               
Beginning of period
   
9,753
     
203
 
                 
End of period
 
$
11,482
   
$
6,852
 
 
See accompanying notes.
 
 
5

 
 
PACIFIC SANDS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2011 AND 2010
(UNAUDITED)
 
   
2011
   
2010
 
Supplemental disclosures of cash flow information:
           
Cash paid during the period for:
           
 Interest
 
$
7,948
   
$
16,266
 
 Income taxes
 
$
-
   
$
-
 
                 
Supplemental disclosure of non cash financing and investing activities
 
               
            Conversion of debt to equity
 
$
-
   
$
188,397
 
            Conversion of accrued interest to equity
 
$
-
   
$
16,710
 
            Conversion of accrued compensation and professional fees to equity
 
$
-
   
$
94,632
 
 
See accompanying notes.
 
 
6

 
 
PACIFIC SANDS, INC
NOTES TO FINANCIAL STATEMENTS 
 
1.               BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Pacific Sands, Inc., have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in Pacific Sands, Inc’s Annual Report filed with the SEC on Form 10-K for the year ended June 30, 2011.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2011 as reported elsewhere in this Form 10-Q have been omitted.


2.               DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business - Pacific Sands, Inc. with the right to do business as Natural Water Technologies (the "Company" or “Pacific Sands”) 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 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 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 previously marketed and sold its product lines directly to individual customers over the Internet. On October 1, 2011 the Company sold the Ecogeeks.com trademark and exclusive rights to sell Pacific Sands, Inc products online and direct to retail customers to a former Company executive.

The products are also sold via Pacific Sands distributors, manufacturers’ representatives and internationally established pool and spa industry distribution networks. The Company’s products are also sold through numerous popular pool and spa websites.  The Company’s Natural Choices branded products 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.

 
7

 
 
PACIFIC SANDS, INC
NOTES TO FINANCIAL STATEMENTS

Depreciation and Amortization - For financial reporting purposes, depreciation and amortization of property and equipment has been computed over estimated useful lives of two to seven years primarily using the straight-line method.  Depreciation and amortization charges totaled $10,564 and $9,017 during the six months ended December 31, 2011 and 2010, respectively.

Revenue Recognition - Revenue is recognized when the related products are shipped.

Income Taxes - The Company uses the asset and liability method in accounting for income taxes.  Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes.  The temporary differences relate primarily to net operating loss carryforwards and deferred compensation charges.  A valuation allowance is recorded for deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized through future operations.

The income tax accounting process for uncertainty in income taxes 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. A company must determine whether it is "more-likely-than-not" that a tax position will be sustained upon examination, including resolution of any related appeals or litigation procedures, based on the technical merits of the position.  Once it is determined that a position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. Management's review of the Company’s possible tax positions at December 31, 2011 and June 30, 2011 did not result in any positions requiring disclosure.  Should the Company need to record interest and/or penalties related to uncertain tax positions, or other tax authority assessments, it would classify such expenses as part of the income tax provision.

The Company’s income tax returns for the years ending June 30, 2008, 2009, and 2010 are subject to examination by the IRS and related states, generally for three years after they were filed.

Accounts Receivable - The Company makes judgments as to the collectability 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 collectability of the receivables. Management believes that the current specific and general receivable reserves aggregating $18,000 are adequate as of December 31, 2011.
 
 
8

 
 
PACIFIC SANDS, INC
NOTES TO FINANCIAL STATEMENTS
 
Basic and Diluted Net Earnings (Loss) Per Share - Basic net earnings (loss) per share is based upon the weighted average number of common shares outstanding.  Dilutive convertible shares and stock options are not included in the computation of the weighted average number of shares outstanding for dilutive net loss per common share, as the effect would be antidilutive.
 
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.
  
Reclassifications - Certain reclassifications have been made in prior year’s financial statements to conform to classification used in the current year. The reclassifications from selling and administrative expenses to cost of sales does not change total operating loss or net loss for any period presented.
     
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

Other Comprehensive Income
 
In June 2011 the FASB issued ASU 2011-5, “Comprehensive Income (topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011.  This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements.  This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in single continuous statement of income or separately in consecutive statements of income and comprehensive income.  The Company’s adoption of ASU 2011-05 is not expected to have a material impact on their financial condition or results of operations.  
 
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.
 
 
9

 
 
PACIFIC SANDS, INC
NOTES TO FINANCIAL STATEMENTS
 
3.               GOING CONCERN

The accompanying financial statements have been presented assuming that the Company will continue as a going concern.  This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business.  Through December 31, 2011, the Company has incurred cumulative losses of $5,343,419.  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 through the sale of common stock, debt financings 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.


4.               INVENTORIES

Inventories at December 31, 2011 and June 30, 2011 consisted of the following:
 
   
December 31,
2011
   
June 30,
2011
 
Raw materials
 
$
164,263
   
$
143,827
 
Finished goods
   
17,935
     
26,928
 
Total
 
$
182,198
   
$
170,755
 

5.               PROPERTY AND EQUIPMENT

 
Property and equipment at December 31, 2011 and June 30, 2011 consisted of the following:
 
   
December 31,
2011
   
June 30,
2011
 
Furniture and office equipment
 
$
50,290
   
$
42,967
 
Manufacturing equipment
   
69,358
     
69,358
 
Leasehold improvements
   
6,169
     
6,169
 
Computer software
   
16,577
     
16,577
 
     
142,394
     
135,071
 
Less accumulated depreciation and amortization
   
(105,517
)
   
(94,953
)
Property and equipment, net
 
$
36,877
   
$
40,118
 
 
 
10

 
 
PACIFIC SANDS, INC
NOTES TO FINANCIAL STATEMENTS

6.               ACCRUED EXPENSES
 
Accrued expenses at December 31, 2011 and June 30, 2011 consisted of the following:
 
   
December 31,
2011
   
June 30,
2011
 
Accrued compensation
 
$
74,227
   
$
73,310
 
Accrued payroll withholding taxes and penalties
   
33,749
     
33,848
 
Accrued professional fees
   
13,050
     
3,800
 
Accrued interest
   
6,135
     
6,752
 
Total
 
$
127,161
   
$
117,710
 

 
7.               NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable at December 31, 2011 and June 30, 2011 consisted of the following:
 
   
December 31,
2011
   
June 30,
 2011
 
Dell Financial Services – line of credit
 
$
302
   
$
3,675
 
J.P. Morgan Chase –  business line of credit
   
46,854
     
54,996
 
Notes payable - stockholders and directors
   
-
     
5,000
 
Convertible notes payable – net of discount
   
42,000
     
40,486
 
Notes payable – executive officers
   
170,526
     
181,558
 
Capital leases
   
3,105
     
8,471
 
     
262,787
     
294,186
 
Less current maturities
   
92,261
     
94,142
 
   
$
170,526
   
$
200,044
 
 
 
11

 
 
The scheduled annual maturities for notes payable and capital lease obligations are as follows for the years ending December 31,
 
2012
 
$
92,261
 
2013
   
170,526
 
 
8.               STOCKHOLDERS’ DEFICIT
     

On December 30, 2011, the Company issued 70,000 shares of common stock to a related party for consulting services. The Company recorded compensation expense of $5,600 for the shares issued.
 
 
12

 
 
PACIFIC SANDS, INC
NOTES TO FINANCIAL STATEMENTS
 
9.               LOSS PER SHARE

Basic loss per common share is based on the weighted average number of common shares outstanding in each period and net loss.
 
The following table sets forth the computation of basic and diluted loss per share.
 
   
Three months ended
December 31,
   
Six months ended
December 31,
 
                       
   
2011
   
2010
   
2011
   
2010
 
                         
Net earnings (loss) - basic
 
$
108,528
   
$
(84,447
)
 
$
19,688
   
$
(96,197
)
Interest expense on conversion of promissory notes
 
 
1,230
     
-
     
2,460
     
-
 
Net earnings (loss) diluted
   
109,758
     
(84,447
 )
   
22,148
     
(96,197
)
Weighted average shares - basic
   
60,433,115
     
45,881,903
     
60,840,371
     
45,254,801
 
Incremental shares outstanding assuming the
conversion of dilutive convertible promissory notes
   
420,000
     
-
     
420,000
     
-
 
Weighted average shares - diluted
   
60,853,115
     
45,881,903
     
61,260,371
     
45,254,801
 
                                 
Earnings (loss) per share
                               
Basic      $   .002     $ (.002 )     *     $ (.002 )
Diluted       $ .002     $ (.002 )     *     $ (.002 )
                                                                                            
*Less than $.001

Outstanding stock options were not included in the computation of diluted loss per common share for the three and  six month periods ended December 31, 2010 since their inclusion would have resulted in an antidilutive effect.

Anti-dilutive securities not included in the net loss per share calculation:

   
December 31, 2011
   
December 31, 2010
 
Stock options
    -       3,000,000  
Convertible Promissory Notes
    -       1,210,000  
 
 
13

 
 
PACIFIC SANDS, INC
NOTES TO FINANCIAL STATEMENTS

10.             INCOME TAXES

The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting and tax basis 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 December 31, 2011 and June 30, 2011 are as follows:
 
   
December 31, 2011
   
June 30, 2011
 
Net operating loss carryforwards
 
$
1,306,000
   
$
1,221,000
 
Deferred compensation
   
72,000
     
76,000
 
Accounts receivable allowance
   
8,000
     
4,000
 
Valuation allowance
   
(1,386,000
)
   
(1,301,000
)
Net deferred tax asset
 
$
--
   
$
--
 
 
At December 31, 2011, the Company has net operating loss carryforwards for Federal tax purposes of approximately $3,110,000 which, if unused to offset future taxable income, will expire in years beginning in 2018.
 
11.                OTHER INCOME

In October 2011 the Company sold the direct to retail business of Pacific Sands, Inc., including unlimited rights and trademarks related to ECOGEEKS.com and entered into a three year distributor agreement with the Randum Creative Group, LLC. The transaction valued at $94,876 was purchased with 825,000 shares of Pacific Sands, Inc. common stock owned by a former executive officer of the Company. The former executive officer is the sole member of the Randum Creative Group, LLC.

 
14

 
 
Item 2.  Management Discussion and Analysis of Financial Condition and Results of Operation
 
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS OR FUTURE PERFORMANCE OF THE COMPANY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH ARE ONLY PREDICTIONS AND SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS USUALLY CONTAIN THE WORDS "ESTIMATE," "ANTICIPATE," "BELIEVE," "EXPECT," OR SIMILAR EXPRESSIONS, AND ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW VARIOUS RISKS AND UNCERTAINTIES IDENTIFIED BELOW, AS WELL AS THE MATTERS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON 10-K FOR THE YEAR ENDED JUNE 30, 2010 AND ITS OTHER SEC FILINGS. THESE RISKS AND UNCERTAINTIES COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR PUBLICLY ANNOUNCE REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.
 
General
 
Pacific Sands, Inc. (the "Company" or "Pacific Sands") was incorporated in the State of Nevada on July 7, 1994. The Company's fiscal year ends June 30. The Company is a C-Corporation for federal income tax purposes. The Company does not have subsidiaries or affiliated entities. The Company also does business as Natural Water Technologies, ecoONE Marketing Group and Natural Choices Home Safe Products (see discussion below).
 
The Company develops, manufactures, markets and sells a range of non-toxic, environmentally friendly cleaning and water-treatment products based on proprietary blended botanical and nontoxic chemical technologies. The Company's products have applications ranging from water installation maintenance (spas, swimming pools, fountains, decorative ponds) to cleaning (non-toxic household and industrial).
 
The Company has a mature, actively marketed product line known as the ecoONE® Spa Treatment system as well as ecoONE® Pool conditioner and the Pacific Sands All-Purpose Hose Filter.

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 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 previously marketed and sold its product lines directly to individual customers over the Internet. On October 1, 2011 the Company sold the Ecogeeks.com trademark and exclusive rights to sell Pacific Sands, Inc products online and direct to retail customers to a former Company executive.

The products are also sold via Pacific Sands distributors, manufacturers’ representatives and internationally established pool and spa industry distribution networks. The Company’s products are also sold through numerous popular pool and spa websites.  The Company’s Natural Choices branded products are sold in numerous retail outlets around the country and in Europe as well as dozens of the top environmentally-oriented websites.

The Company's goal is to achieve sustained and significant profitability through revenues achieved by marketing and sales of its nontoxic, earth, health and kid-friendly, ecoONE® Pool, Spa, Household Cleaning and other product lines.

Management intends to continue the aggressive marketing and sale of its products by widening the base of retail outlets through distribution centers and direct OEM arrangements in order to achieve its goals.

The sale of the internet and direct retail marketing business has allowed the Company to reduce selling and administrative expenses through the reduction of customer support headcount. In addition the new owner of the business has access to the specialized marketing skills necessary to develop the business further by expanding the customer base.

The Company's ability to achieve its objectives is dependent on its ability to sustain and enhance its revenue stream and to continue to raise funds through loans, credit and the private placement of restricted securities until such time as the Company achieves sustained fiscal profitability.

To date, the Company has funded operations through a combination of revenues from the sale of its products, established credit with vendors, a bank line of credit and the sale of rule 144 stocks through private placement. The Company's failure to continue to raise adequate financing to fund operations may jeopardize its existence. (See “Liquidity and Capital Resources”)

Management knows of no additional trends or uncertainties beyond those discussed that are reasonably likely to have a material impact on the Company's short or long-term liquidity.
 
15

 
 
RESULTS OF OPERATIONS

Results for the three months ending December 31, 2011 compared to the three months ending December 31, 2010.

For the three months ended December 31, 2011, net sales were $416,217, an increase of 41% over net sales of $294,623 for the three months ended December 31, 2010. This change was due to an increase in private label product sales.

For the three months ended December 31, 2011, cost of sales was $240,072 compared to $168,491 for the same period in the previous fiscal year.  The Company’s gross margin decreased from 43% for the three months ended December 31, 2010 to 42% for the current fiscal quarter. This change is due to the fact that a larger portion of the Company’s sales during the period were to private label customers which are sold at a lower margin.
 
For the three months ended December 31, 2011 and 2010, selling and general administrative expenses were $149,311 and $165,990, respectively. This 10% reduction in operating expenses is primarily the result of headcount reductions related to the sale of the Company’s direct retail business on October 1, 2011.
 
On October 1, 2011, the Company recorded a gain, net of expenses, of $88,795 from the sale of its direct retail and internet business to a related party.

Interest expense for the three months ended December 31, 2011 was $7,101 an 84% reduction from the $44,589 recorded for the three months ended December 31, 2010.  This was caused by a reduction of total liabilities for the Company from $1,316,394 on December 31, 2010 to $612,712 on December 31, 2011.   
 
The Company recorded a net profit of $108,528 or $0.002 per share for the three months ended December 31, 2011 as compared to a net loss of $84,447 or $0.002 loss per share for the three months ended December 31, 2010.
 
Results for the six months ending December 31, 2011 compared to the six months ending December 31, 2010.

For the six months ended December 31, 2011, net sales were $769,047, an increase of 26% over net sales of $609,402 for the six months ended December 31, 2010. This was due to an increase in private label product sales.

For the six months ended December 31, 2011, cost of sales was $471,048 compared to $301,852 for the same period in the previous fiscal year.  The Company’s gross margin decreased from 50% for the six months ended December 31, 2010 compared to 39% for the current fiscal year to date. This decrease is due to the fact that a significant portion of the Company’s sales during the period were to private label customers which are sold at a much lower margin.
  
For the six months ended December 31, 2011 and 2010, selling and general administrative expenses were $353,797 and $335,995, respectively or a 5% increase. Part of this increase was related to an increase in the accounts receivable loss provision in the first fiscal quarter.

On October 1, 2011, the Company recorded a gain, net of expenses, of $88,795 from the sale of its retail and internet business segment to a related party.  

Interest expense for the six months ended December 31, 2011 was $13,309 compared to $67,752 for the six months ended December 31, 2010.  This 80% reduction is due to the elimination of $703,682 of total liabilities from December 31, 2010 to December 31, 2011.  

The Company recorded a net profit of $19,688 for the six months ended December 31, 2011 compared to a net loss of $96,197 or $0.002 for the six months ended December 31, 2010.
 
LIQUIDITY AND CAPITAL RESOURCES

Management believes that the Company is positioned for sales growth but will require additional funding to continue operations. The Company's ability to achieve its objectives is dependent upon its ability to sustain and enhance its current revenue stream and to continue to raise funds through loans, vendor credit and the private placement of restricted securities until such time as the Company sustains fiscal profitability. To date, the Company has funded operations and expansion through a combination of revenues from the sale of its products, established credit with vendors, deferred salaries (subsequently converted to notes payable to officers), debt financings 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.
 
 
16

 
 
At December 31, 2011, the Company had current assets of $461,266 and total assets of $498,143, compared to June 30, 2011 when current assets were $528,000 and total assets were $568,118.
    
Current liabilities at December 31, 2011 were $442,186 as compared to $413,055 at June 30, 2011. Current liabilities include accounts payable, current portion of notes payable and capital lease obligations and accrued expenses. At December 31, 2011, the Company had an outstanding line of credit balance totaling approximately $47,000.

Non-current liabilities include a note payable to a former executive of the Company.

Net cash provided by operating activities during the six months ended December 31, 2011 was $41,965 compared to $93,659 used in operating activities during the six months ended December 31, 2010.
 
Net cash used in financing activities was $32,913 for the six months ended December 31, 2011, a reversal from the $100,308 provided by financing. During the six months ended December 31, 2011, the Company repaid $32,913 of long term debt. During the six months ending December 31, 2010 the Company received proceeds from sale of common stock in the amount of $127,792.

On December 31, 2011 the Company had an accumulated deficit of $5,343,419 and total stockholders’ deficit of $114,569.
  
At June 30, 2011, the Company had working capital of $114,945. During the first half of the fiscal year that balance was reduced to $19,080.
 
Total liabilities of $613,099 at June 30, 2011 had been reduced to $612,712 by December 31, 2011 through equity issuance.  
 
Total stockholders’ deficit of $44,981 at June 30, 2011 has increased to $114,569 at December 31, 2011.
 
The company has taken additional steps, subsequent to December 31, 2011, and has further plans, to eliminate the stockholder deficit by the end of the June 30, 2012 fiscal year. These steps include the sale of a limited amount of shares of the Company’s common stock, conversion of the outstanding convertible notes and continued sales growth needed to generate ongoing profitable operations.

The Company's ability to achieve its objectives is dependent on its ability to sustain and enhance its revenue stream and to continue to raise funds through loans, credit and the private placement of restricted securities until such time as the Company achieves consistent profitability. To date, management has been successful in raising cash on an as-needed basis for the continued operations of the Company. There is no guarantee that management will be able to continue to raise needed cash in this fashion.    

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
  
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.
 
 
17

 
 
THE COMPANY HAS EXPERIENCED LOSSES FROM OPERATIONS SINCE COMMENCING OPERATIONS:
With the exception of the 3rd quarter of fiscal 2010, 2011 and the 4th quarters of fiscal 2006, 2007 and 2011, the Company since commencing operations, has been profitable once in fiscal 2011. The Company may not, in the future, generate sufficient revenues to achieve sustainable profitability.
 
POSSIBLE DIFFICULTY FINANCING PLANNED GROWTH:
The Company's present plans require an amount of expenditure and working capital. In the future the Company will require financing in addition to the cash generated from operations to fund planned growth. If additional resources are unavailable the Company may be unable to grow according to its present plan.
 
MANAGEMENT'S ASSUMPTIONS REGARDING THE FUTURE MARKET MAY BE FAULTY:
Management assumes there will be a continuing and increased desirability in the retail market for nontoxic, environment and health friendly products for cleaning and water treatment use. Should management's assumptions as to this increased desirability be faulty, the Company may have difficulty achieving its planned growth.
 
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT THE COMPANY:
The Company is run by a small number of key personnel. Should the Company experience a loss of these key people due to their inability or unwillingness to continue in their present positions, the Company's business and financial results could be adversely affected.
   
Item 4.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures

Based upon an evaluation of the effectiveness of disclosure controls and procedures, our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. 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 Exchange 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 and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
 
18

 
 
Changes in Internal Control over Financial Reporting

As reported in our Annual Report on Form 10-K for the year ended June 30, 2011, management is aware that there is a significant deficiency in our internal control over financial reporting. The significant deficiency relates to a lack of segregation of duties due to the small number of employees involvement with general administrative and financial matters. However, management believes that compensating controls are in place to mitigate the risks associated with the lack of segregation of duties. Compensating controls include outsourcing certain financial functions to an independent contractor. Management concluded that internal controls over financial reporting were effective as of June 30, 2011.

There have not been any changes in the Company's internal control over financial reporting during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting
 
PART II OTHER INFORMATION

Item 1 – LEGAL PROCEEDINGS

None

Item 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3 – DEFAULTS UPON SENIOR SECURITIES

None
 
 
19

 
 
Item 4 – OTHER INFORMATION

None

Item 5 – EXHIBITS

(a)
Exhibit Index
   
Exhibit
Description of the Exhibit
   
31.1
Chief Executive Officer 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.
   
101.ins XBRL Instance
101.sch XBRL Schema
101.cal XBRL Calculation
101.def XBRL Defintion
101.lab XBRL Label
101.pre XBRL Presentation

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
PACIFIC SANDS, INC.
     
     
     
Dated: February 21, 2012
By:
/s/ Michael Michie                               
   
Michael Michie
Chief Executive Officer
   
Chief Financial Officer
 

20