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PFSD > SEC Filings for PFSD > Form 10-K on 26-Sep-2013All Recent SEC Filings

Show all filings for PACIFIC SANDS INC



Annual Report

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations


The majority of the Company's operating revenues are achieved through the sale of its product lines. The Company's goal is to achieve sustained and significant profitability through revenues produced by the sale of its nontoxic, earth-, health- and kid-friendly, Pool, Spa, Household Cleaning and other product lines.

Potential Growth Through In-House Marketing and Sales Support:
The Company has placed more focus on new product development of its Natural Choices product line. 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 over 40% of its revenues through the sale of its ecooneŽ 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 its relatively early stages but is expanding rapidly. Management believes that the acquisition of Natural Choices, which was 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, Private 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 private 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 2013 compared to Fiscal Year 2012

Results of operations for the fiscal year ending June 30, 2013, compared to the fiscal year ending June 30, 2012:

Revenues and Gross Profit

For the fiscal year ending June 30, 2013, the Company's net sales were $2,032,057, an increase of 8% compared to net sales of $1,883,013 for the fiscal year ended June 30, 2012. This continued growth was due to several rapidly growing private label distributors increasing orders.

Gross profit for the fiscal year ending June 30, 2013, was $838,312 a 12% increase over the gross profit of $746,070 for the prior year. Gross profit margins increased to 41% in FY 2013 from the 40% level achieved in the prior year due in part to larger private label purchasing price incentives for larger volume purchasing. While the level of profit margins will always be subject to changes in the product mix, the Company believes, as its financial strength continues to grow, it may be able to improve margins with the purchase of larger, and more economic, quantities of raw materials.

Operating Expenses

The Company achieved an 8% increase in sales for the year ending June 30, 2013. To accomplish this the Company invested in sales personnel, marketing and advertising to continue to sustain this robust sales growth. As a result, selling and general administrative expenses increased to $909,828 for the year, 4% increase from the $875,278 level of last year. .

Other Income/Expense

Interest expense increased $16,014 or 82% for the year ended June 30, 2013, compared to the prior year. Although total liabilities increased $109,127 from June 30, 2012, to June 30, 2013, interest-bearing debt was reduced and new debt with lower interest rates replaced higher cost loans.

In October, 2011 the Company sold the direct-to-retail business of Pacific Sands, Inc., including unlimited rights and trademarks related to, to the Randum Creative Group, LLC. At the same time, it also entered into a three-year distributor agreement with Randum. The purchase, valued at $94,876, was made by a former executive officer of the Company, returning 825,000 shares of Pacific Sands, Inc. common stock to the Company. The Company reported a net gain on the sale of $88,795. The former executive officer is the sole member of the Randum Creative Group, LLC.

Net Profit (Loss)

The Company recorded a net loss of $104,482 for the year ended June 30, 2013, compared to a net loss of $12,770 for the year ended June 30, 2012. Income or loss for FY 2012 was affected by one-time items recorded in other income/expense, notably the sale of

The Company chose to invest in sales promotion and personnel to provide growth for the ecooneŽ product line in FY 2013. As a result, the loss from operations was reduced to $71,517 compared to a loss of $129,208 in FY 2012.

Because of current and prior net operating losses, there are no income tax expenses for these years. Deferred tax assets for these net operating loss carryforwards have been fully reserved due to the uncertainty of their utilization.

Liquidity and Capital Resources

The Company took additional steps in FY 2013 to improve its liquidity and capital position. Sale of 1,600,000 shares of common stock allowed the company to fund capital improvements. Net working capital decreased from $260,625 at June 30, 2012, to $135,089 at June 30, 2013.

Management believes that the Company is positioned for continued significant sales growth that will ultimately lead to sustained and significant profitability. This growth will require additional working capital.

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 provide working capital through loans, vendor credit, and sale of common stock until such time as the Company sustains fiscal profitability through operations.

To date, the Company has funded operations and expansion through a combination of revenues from the sale of its products, established credit with vendors, loans, and private placement stock sales. The Company's failure to continue to obtain adequate financing may jeopardize its plans for growth.

At June 30, 2013, the Company had current assets and total assets of $673,588 and $906,956, respectively, compared to June 30, 2012, when the Company had current assets of $672,536 and total assets of $828,625. Cash and cash equivalents totaled $90,040 and $57,575 on June 30, 2013 and 2012, respectively.

Current liabilities at June 30, 2013, were $538,499 compared to $411,911 at June 30, 2012. At June 30, 2013, current liabilities included accounts payable and accrued expenses of $262,283.

Other non-current liabilities include a note payable to a former executive officer totaling $55,864, note payable to the Kenosha Area Business Alliance totaling $91,065 and a note payable to a shareholder totaling $120,000.

Net cash used in operating activities during the year ended June 30, 2013, was reduced to $52,748 compared to $64,023 used in operating activities during the year ended June 30, 2012. This represents an 18% reduction.

For the year ended June 30, 2013, net cash used in investing activities was $135,703, representing a slight increase in the purchase of property and equipment over the $127,583 used in investing activities during the year ended June 30, 2012.

Net cash provided by financing activities was $220,916 and $239,428 for the years ended June 30, 2013, and 2012, respectively. During FY 2013, net proceeds from the sale of stock was $96,000, down from $203,450 the prior year. Also during FY 2013, the company received $415,272 from the issuance of debt and repaid $290,356 of outstanding debt.

On June 30, 2013, the Company had an accumulated deficit of $5,480,358 and total stockholders' equity of $92,728 as compared to June 30, 2012, when the company had an accumulated deficit of $5,375,876 and total stockholders' equity of $123,524.

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

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