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PFSD > SEC Filings for PFSD > Form 10-Q on 15-May-2013All Recent SEC Filings

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Form 10-Q for PACIFIC SANDS INC


15-May-2013

Quarterly Report


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 markets and sells its product lines directly, through pool, spa, hardware, specialty and other retail outlets in the US, Canada and Europe. The products are also sold via Pacific Sands distributors, manufacturers' representatives and internationally established pool and spa industry distribution networks. The Company's products are also sold through numerous popular pool and spa websites. The Company's Natural Choices branded products are sold in numerous retail outlets around the country as well as dozens of the top environmentally-oriented websites.

The Company's goal is to achieve sustained 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 through a widening base of retail outlets, distribution centers and OEM arrangements in order to achieve its goals.

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.


RESULTS OF OPERATIONS

Results for the three months ending March 31, 2013 compared to the three months ending March 31, 2012.

For the three months ended March 31, 2013, net sales were $573,335, an increase from net sales of $428,696 for the three months ended March 31, 2012.

For the three months ended March 31, 2013, cost of sales was $366,067 compared to $272,695 for the same period in the previous fiscal year. The Company's gross profit remained the same at 36% for both the three months ended March 31, 2012 and the current fiscal quarter.

For the three months ended March 31, 2013 and 2012, selling and general administrative expenses were $234,981 and $227,300, respectively. This slight increase represents continued investment in sales and marketing specifically trade shows to promote our branded products.

Interest expense for the three months ended March 31, 2013 was $8,579 compared to $3,501 for the three months ended March 31, 2012. This increase is due to additional borrowing.

The Company recorded a net loss of $36,113 or $0.001 loss per share for the three months ended March 31, 2013, as compared to a net loss of $80,235 or $0.001 loss per share for the three months ended March 31, 2012.

Results for the nine months ending March 31, 2013 compared to the nine months ending March 31, 2012.

For the nine months ended March 31, 2013, net sales were $1,437,330, an increase of 20% over net sales of $1,197,743 for the nine months ended March 31, 2012. This increase was due to an increase in private label product sales.

For the nine months ended March 31, 2013, cost of sales was $847,291 compared to $743,743 for the same period in the previous fiscal year. The Company's gross margin increased from 38% for the nine months ended March 31, 2012 to 41% for the current fiscal year to date. This increase is due to the ability to purchase raw materials in greater volumes and production efficiencies despite increased sales to private label customers which are sold at a much lower margin

For the nine months ended March 31, 2013 and 2012, selling and general administrative expenses were $711,714 and $581,097, respectively. The significant increase is due to a committed investment in advertising and promotional expenses over the same period in 2012.

Interest expense for the nine months ended March 31, 2013 was $23,631 compared to $16,810 for the nine months ended March 31, 2012. Again, the increase in interest costs is due to additional borrowing.

The company recorded a net loss of $145,127 or $0.002 loss per share for the nine months ended March 31, 2013. This compares to a net loss of $60,547 or $0.001 loss per share for the nine months ended March 31, 2012.


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.

At March 31, 2013, the Company had net working capital of $108,514 composed of current assets of $651,203 and current liabilities of $542,689. This reduction from $260,625 at June 30, 2012 when current assets were $672,536 and current liabilities were $411,911 is due to the investment in sales and marketing in the first three quarters that should yield significant sales in the current quarter.

Net cash used in operating activities during the nine months ended March 31, 2013 was $36,303, substantially lower than the $68,906 cash used in operating activities during the nine months ended March 31, 2012.

To finance the equipment purchases and the cash used in operating activities for the nine months ending March 31, 2012, the Company issued $110,770 of common stock and increased notes payable, net of principal payments, by $56,999 as compared to $71,000 of common stock and increased notes payable, net of principal payments, by $53,353 for the nine months ending March 31, 2013.

At June 30, 2012 the Company had a stockholders' equity of $123,524. At March 31, 2013 the Company had stockholders' equity of $25,352.

The Company has no "off balance sheet" source of liquidity arrangements

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