<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
----------
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or (g) of Securities Exchange Act of 1934
PACIFIC SANDS, INC.
----------------------------
(Name of Small Business Issuer in its charter)
NEVADA 88-0322882
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
601 W. Shaw Ave., #D
Clovis, CA 93612
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(559) 325-7023
---------------------
(Issuer's telephone number)
Securities to be registered pursuant to section 12(g) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
COMMON SHARES NASD OTC BULLETIN BOARD
- ------------------- ------------------------------
1
<PAGE>
TABLE OF CONTENTS
PAGE
----
Item 1. Description of Business............................................ 3
Item 2. Management's Discussion and Analysis............................... 4
Item 3. Description of Property............................................ 5
Item 4. Security Ownership of Certain Beneficial
Owners and Management.............................................. 5
Item 5. Directors, Executive Officers, Promoters
and Control Persons................................................ 6
Item 6. Executive Compensation............................................. 8
Item 7. Certain Relationships and Related
Transactions....................................................... 8
Item 8. Legal Proceedings.................................................. 8
Item 9. Market for Common Equity and Related
Stockholder Matters................................................ 9
Item 10. Recent Sales of Unregistered
Securities......................................................... 9
Item 11. Description of Securities.......................................... 12
Item 12. Indemnification of Directors and
Officers........................................................... 13
Item 13. Financial Statements............................................... 13
Item 14. Changes In and Disagreements
With Accountants on Accounting and Financial
Disclosure......................................................... 13
Item 15. Financial Statements and Exhibits.................................. 14
Signatures.................................................................. 15
2
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS.
(a) Business Development
Pacific Sands, Inc. ("the Company" or "Pacific Sands" ) was
incorporated in the State of Nevada on July 7, 1994. The Company, an entity with
a fiscal year ending June 30, is a standard C- Corporation for federal income
tax purposes. The Company does not have any subsidiaries or affiliated entities.
The Company does business as Natural Water Technologies. The Company
has never been involved in any bankruptcy, receivership or similar proceedings.
(b) Business of Issuer
Technology History and Background. For many years both individuals and
commercial consumers had no choice when it came to purchasing chemicals for
their pools/spas. It was status quo to provide hazardous chemicals to these
consumers. The individuals consumer had to decide whether to use Chlorine or
Bromine which are both thought to be deadly cancer causing chemicals. When a
person became ill or broke out in a rash there was nothing to be done because
these chemicals were widely used. The consumer was given two choices, which were
to either accept this condition or simply not use their pool or spa. Pacific
Sands, Inc. can and will change this. The same situation existed with respect to
various industrial applications.
The Natural Spa product balances the water to perfection by eliminating
organic contamients. All products of Pacific Sands, Inc. are so safe that they
require no warning labels.
Company Locations and Facilities. The Company executive offices are
located in Clovis, CA. Portions of the products are manufactured in Atlanta, GA
and Phoenix Arizona and the brought to Clovis, California for assembly. As sales
increase, the company intends to contract with a packager such as Gar Labs in
southern California until such time as the sales will support a manufacturing
facility.
Products. Pacific Sands, Inc. manufactures and supplies a very specific
non-toxic variety of enzymes which are 100% safe. Because of the specific nature
of the Pacific Sands enzyme based products, the products are extremely vertical
and offer what seems to be an endless stream of product opportunities. Not only
have these products been found to be preferable because of the obvious
advantages ecologically but they are also super performers. They provide
superior cleaning and purifying performance.
<PAGE>
The Principal product lines presently prepared or projected for the
marker are: The Natural Spa, Cooling Tower Treatment, Natural Purge and Detox,
Miracle Spray, Natural Pool, Natural Koi Pond, The Industrial Applications, and
Spa Lid Conditioner. The Company formulates, manufactures, and distributes for
domestic and international use a special product formulation that has no
toxicity yet has numerous uses. The formulated compound eliminates germs and
bacteria. The end product has household, commercial and hygiene applications.
Forward-Looking Statements
This Form 10-SB includes "forward-looking statements" within the
meaning of the "safe-harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties that could
cause actual results to differ materially from those described in the
forward-looking statements. All statements, other than statements of historical
facts included in this Form, including without limitation, statements under
"Description of Business", regarding the Company's financial position, business
strategy, and plans and objectives of management of the Company for future
operations, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations include, but
are not limited to, market conditions, competition and the ability to
successfully complete financing.
(c) Reports to Security Holders
The public may read and copy any materials the Company files with the
Securities and Exchange Commission ("SEC") at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The Public may obtain
information on the operation of the public Reference Room by calling the SEC at
1-800-SEC-0330.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Fiscal Year Ended June 30, 1999 v. June 30, 1998
Sales increased from $955 to $20,449. Gross profit percentage increased
from 78.0% in 1998 to 85.5% to 1999 due to efficiency in operations, i.e.
finding cost-efficient chemicals and packaging materials.
General, sales and administrative expenses were consistent, with the
exception of consulting fees of approximately $96,000 in fiscal 1998. The
consulting fees consisted primarily of legal, accounting and other consulting
services.
During both fiscal 1999 and fiscal 1998 the Company's primary of
liquidity was issuance of common stock to investors. Going forward the Company,
since it is incurring continuing operating losses, intends to raise additional
capital through equity/and or debt offerings. However, there can be no assurance
management will be successful in this endeavor.
Presently the Company has no material commitments for any significant
capital expenditures.
Six Months Ended December 31, 1999 v. December 31, 1998
Sales increased from $7,753 in 1998 to $20,449 in 1999, an increase of
163%. Sales increased primarily due to the Company's marketing efforts. Gross
profit percentage remained consistent at 85.5% during both periods.
General, sales and administrative expenses increase almost three fold
($53,366 in 1998 to $173,270) due to increased employee salaries and fees in
procuring debt/equity funds.
On September 16, 1999 the Company entered into an unsecured debenture
agreement for $300,000. Date of maturity was September 16, 2001 at an interest
rate of 8% per annum.
The Company's liquidity problem is continuing. However, management is
seeking to improve liquidity by increasing revenues and striving to become
profitable as well as raising additional equity /debt funds. However, there can
be no assurance that management will be successful in this endeavors.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company does not own any physical properties at this time. The
Company leases, on a month-to-month basis its facility including office located
at 601 W. Shaw Avenue, Suite #D Clovis, California 93615. The monthly rent is
$500.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of February 11,
2000 with respect to the beneficial ownership (as such term is defined under
section 13(d) of the Securities Exchange Act of 1934, as amended) of the common
stock by (I) each person who is the beneficial owner of more than 5% of the
common stock outstanding as of such date, (II) each director of the Company,
(III) the named officers, and (IV) all executive officers of the Company as a
group:
5
<PAGE>
AMOUNT OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------------------ --------- --------
Stanley Paulus 2,827,267 23.75%
601 W. Shaw, #D
Clovis, CA 93615
Rita Paulus 200,000 1.67%
601 W. Shaw, #D
Clovis, CA 93615
Wade Hanson 1,000,000 8.40%
601 W. Shaw, #D
Clovis, CA 93615
Harold Dahl 700,000 5.88%
14660 East Manning
Parlier, CA 93648
----------- --------
All Directors, Nominees and Executive
Officers as a Group (4 persons) 4,727,267 39.70%
Ermine Trust 3,333,333 28.00%
14660 East Manning
Parlier, CA 93648
BVH Holdings LLC, 1,758,631 14.77%
a Colorado limited liability
company,
300 East 42
New York, NY 10017
Bratton Group 1,000,000 8.40%
2763 North Argyle
Fresno, CA 93727
6
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following individuals are the directors of the Company:
NAME OF DIRECTOR AGE TITLE
- ---------------- --- -----
Stanley Paulus 52 Chairman of the Board, President
Rita Paulus 50 Director, Treasurer
Wade Hanson 58 Director, Secretary, CEO
Harold Dahl 72 Director
All directors have indefinite terms of office.
Stanley Paulus became a director on February 4, 1998. Rita Paulus became a
director on November 2, 1998. Wade Hanson became a director on July 15,
1999. Harold Dahl became a director on July 15, 1999.
The following individuals are the executive officers of the Company:
NAME OF EXECUTIVE OFFICER AGE TITLE
- ------------------------- --- -----
Stanley Paulus 52 Chairman of the Board, President
Rita Paulus 50 Director, Treasurer
Wade Hanson 58 Director, Secretary, CEO
Business Experience
Stanley Paulus. Mr. Stanley Paulus, as Chairman, has overseen the
creation and development of Pacific Sands. His diversified experience includes
sales and marketing, water treatment and general contracting.
Rita Paulus. Ms. Rita Paulus, wife of Stanley Paulus, has over twenty
years of general business experience.
Wade Hanson. Mr. Wade Hanson serves as Secretary, CEO and is a
Director. Mr. Hanson brings to Pacific Sands a vast amount of experience in
finance, operations, product and customer support, sales, marketing, consulting
and International Operations.
Harold Dahl. Mr Harold Dahl serves as a Director. Mr. Dahl has an
extensive business background, including administrative, financial and marketing
matters.
7
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
Other Securities
Name Annual Registered Under- All other
and Compen- Stock Lying LTIP Compen-
Principal Year sation Award(s) Opinions/ Payouts sation
Position (Note A) Salary ($) Bonus ($) $ $ Sars (#) $ $
-------- -------- ---------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley Paulus 2000 15,000 - - - - - -
Chairman 1999 15,500 - - - - - 500
1998 20,000 - - - - - 658
Rita Paulus 2000 9,000 - - - - - -
Treasurer 1999 9,985 - - - - - -
1998 5,000 - - - - - 200
Wade Hanson 2000 18,000 - - - - - 1,000
Secretary
Harold Dahl 2000 - - - - - - 700
Director
Note A: 2000 is for the six period ended December 31, 1999.
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 6, 1997 the Company sold for cash, restricted common stock to
its officers and directors as follows: Ermine Trust 3,333,333 shares for $3,333.
R. Douglas Dahl and Michael E. James are officers, directors, and sole
shareholders of American Integrity, Inc., a Nevada Corporation, Trustee for the
Trust. R. Douglas Dahl and Michael E. James may be deemed to be the beneficial
owners of said stock; Stanley Paulus 1,666,667 shares for $1,667. Stanley Paulus
is the President and a Director of the Company. The purchasers were in a
position to insist upon the issuer providing them with information more
extensive than that contained in a registration statement.
8
<PAGE>
On December 1, 1998 the Company issued 705,600 restricted common shares
to Stanley Paulus, Chairman and President, for services. The estimated fair
market value of these services was $658.
On August 13, 1999 the Company issued 500,000 restricted common shares
to Stanley Paulus, Chairman and President, for services. The estimated fair
market value of these services was $500.
On August 13, 1999 the Company issued 200,000 restricted common shares
to Rita Paulus, wife of Stanley Paulus, Director and Treasurer for services. The
estimated fair market value of these services was $200.
On August 13, 1999 the Company issued 1,000,000 restricted common
shares to Wade Hanson, Director and Secretary for services. The estimated fair
market value of these services was $1,000.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceeding. Management
is not aware of any threatened litigation, claims or assessments.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
The Company's common stock trades on the National Association of
Securities Dealers Electronic Bulletin Board under the symbol PFSDE.
Following are the high and low sales prices for each quarter (trading
commenced October 16, 1998):
QUARTER ENDED HIGH LOW
------------- ---- ---
December 31, 1998 $ 1.00 $ 0.25
March 31, 1999 0.63 0.14
June 30, 1999 0.13 0.08
September 30, 1999 0.17 0.07
December 31, 1999 0.06 0.03
9
<PAGE>
(b) Holders
As of February 11, 2000 there were approximately 100 holders of record
of the Company's common stock.
(c) Dividends
The Company has never declared any cash dividends.
The current policy of the Company is not to pay cash dividends, but
instead to retain future earnings, if any, to support the growth of the Company.
However, there are no restrictions that limit the ability to pay dividends on
common equity when it is lawful to do so.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On July 6, 1997 the Company sold for cash, restricted common stock to
its officers and directors as follows: Ermine Trust 3,333,333 shares for $3,333.
R. Douglas Dahl and Michael E. James are officers, directors, and sole
shareholders of American Integrity, Inc., a Nevada Corporation, Trustee for the
Trust. R. Douglas Dahl and Michael E. James may be deemed to be the beneficial
owners of said stock; Stanley Paulus 1,666,667 shares for $1,667. Stanley Paulus
is the President and a Director of the Company. The purchasers were in a
position to insist upon the issuer providing them with information more
extensive than that contained in a registration statement.
On July 6, 1997, the Company issued for legal services rendered 300,000
restricted common shares to Neil Leibman. The purchaser was in a position to
insist upon the issuer providing him with information more extensive than that
contained in a registration statement.
On July 11, 1997 the Company issued, for services rendered, at par
value of $0.001, 500,000 unrestricted common shares to J.B. Marc for consulting
services. The purchaser was in a position to insist upon the issuer providing
him with information more extensive than that contained in a registration
statement.
On August 5, 1997 the Company issued for inventory, 1,000,000
restricted common shares to the Bratton Group. The estimated fair market value
of the inventory was $23,900. The purchaser was in a position to insist upon the
issuer providing him with information more extensive than that contained in a
registration statement.
The forgoing described issuances without an underwriter, total
6,800,000 shares of restricted common stock. Each of these persons had access to
all material information regarding the Company prior to the offer or sale,
without an underwriter, of the Company's common stock. These offers and sales of
common stock are believed to have been exempt form the registration requirements
of section 5 of the Securities Act of 1933, as amended, pursuant to section 4(2)
thereof; and by available state exemptions, from similar applicable state's
securities laws exempting from registration the offer and sale of such common
stock.
The following described issuances, without an underwriter, were of
unrestricted common stock. These issuances took place from November 27, 1997
through July 30, 1998. The offers and sales of these securities are believe are
believed to have been exempt from registration pursuant to Rule 504, and from
similar applicable states: securities laws, rules and regulations exempting the
offer and sale of these securities by available state exemptions from required
registration. There was no general solicitation.
On November 22, 1997 the Company issued 6,000 unrestricted common
shares for cash at $1 per share for a total of $6,000 to Susan Van Klaverman.
On April 28, 1998 the Company issued a total of 10,000 unrestricted
common shares for cash at $1 per share as follows: Michael Moreno, 5,000 shares;
Walter Hahn 5,000 shares.
On April 29, 1998 the Company issued a total of 20,000 unrestricted
common shares for cash at $1 per share as follows: Karen Gaynor, 5,000 shares;
Martin and Mary Fleischer, 5,000 shares; Martin Kalunn, 5,000 shares; Robert
Ross, 3,000 shares; Daniel Roden, 2,000 shares.
On April 30, 1998 the Company issued a total of 18,500 unrestricted
common shares for cash at $1 per share as follows: Robert Sanzoverinio, 6,000
shares; Joseph Swinton, 2,500 shares.
On May 1, 1998 the Company issued a total of 49,500 unrestricted common
shares for cash at $1 per share as follows: George Wilson Strera, 2,000 shares;
Linda Vito Andrew, 6,000 shares; Bernard Seringer III 31,000 shares; Francis
Belando, 3,000 shares Patricia Seringer, 5,000 shares; John Seringer, 2,500
shares.
On May 5, 1998 the Company issued a total of 8,000 unrestricted common
shares for cash at $1 per share as follows: Frank Kezmoff, 5,000 shares;
Christopher Duncan, 3,000 shares.
On May 6, 1998 the Company issued a total of 35,000. Unrestricted
common shares for cash at $1 per share as follows: Joseph Stansky, 10,000
shares; John Seringer, 25,000 shares.
On May 13, 1998 the Company issued 5,000 unrestricted common shares for
cash at $1 per share to Terrance Green.
11
<PAGE>
On May 14, 1998 the Company issued 5,000 unrestricted common shares for
cash at $1 per share to Scott Broder.
On May 15, 1998 the Company issued 15,000 unrestricted common shares
for cash at $1 per share to Devon Norton Goldenor.
On May 29, 1998 the Company issued 10,000 unrestricted common shares
for cash at $1 per share to Thomas Ispas.
On June 8, 1998 the Company issued a total of 650 unrestricted common
shares for cash at $1 per share as follows: Ellise Donahue, 200 shares; Herman
Leibman, 450 shares.
On June 9, 1998 the Company issued a total of 2,250 unrestricted common
shares for cash at $1 per share as follows: Daniel Horawitz, 400 shares; Charles
Huorian, 200 shares; James Colucci, 1,650 shares.
On June 18, 1998 the Company issued a total of 500 unrestricted common
shares for cash at $1 per share as follows: Eric Workman, 400 shares; Jannell
Rosenfeld, 100 shares.
On June 30, 1998 the Company issued 10,000 unrestricted common shares
for cash at $1 per share to Jerry Holden.
On July 27, 1998 the Company issued a total of 35,300 unrestricted
common shares for cash at $1 per share as follows: Robert J. Rose, 2,000 shares;
Eugene Yanniguchi, 5,000 shares; Joseph Sansfavirio, 6,000 shares; Francisco
Balando, 2,000 shares; Steven Ross, 15,000 shares; Robert Venino, 5,000 shares;
Steve Cande, 300 shares.
On July 30, 1998 the Company issued a total of 10,000 unrestricted
common shares for cash at $1 per share as follows: Jack Zeigler, 5,000 shares;
Patricia Seringer, 5,000 shares.
On December 1, 1998 the Company issued 705,600 restricted common shares
to Stanley Paulus, Chairman and President, for services. The estimated fair
market value of these services was $658.
On December 1, 1998 the Company issued 700,000 restricted common shares
to Harold Dahl, Director, for services. The estimated fair market value of these
services was $700.
On August 13, 1999 the Company issued 500,000 restricted common shares
to Stanley Paulus, Chairman and President, for services. The estimated fair
market value of these services was $500.
On August 13, 1999 the Company issued 200,000 restricted common shares
to Rita Paulus, wife of Stanley Paulus, Director and Treasurer for services. The
estimated fair market value of these services was $200.
On August 13, 1999 the Company issued 1,000,000 restricted common
shares to Wade Hanson, Director and Secretary for services. The estimated fair
market value of these services was $1,000.
12
<PAGE>
On December 15, 1999 the Company issued, for services, 1,158,631
restricted common shares to BVH Holdings LLC, a Colorado limited liability
Company. The estimated fair market value of the services was $1,159.
On January 10, 2000, BVH Holdings LLC, a Colorado limited liability
company, converted a portion of its Company debentures and was issued 600,000
shares of the Company's common stock.
All of the above purchasers were in a position to insist upon the
issuer providing them with information more extensive than that contained in a
registration statement.
Each of the aforementioned persons or entities had access to all
material information regarding the Company prior to the offer or sale, without
an underwriter, of the Company's common stock. These offers and sales of common
stock are believed to have been exempt from the registration requirements of
Sections 5 of the Securities Act of 1933, as amended, pursuant to section 4 (2)
thereof; and by available state exemptions, from similar applicable state
securities laws exempting from registration the offer and sale of such common
stock.
ITEM 11. DESCRIPTION OF SECURITIES.
The Company's authorized capital stock consists of 20,000,000 shares of
common stock, of which, 11,904,931 shares were issued and outstanding as of
February 11, 2000.
Shareholders do not have an unqualified right to a dividend. The policy
of the Company is not to declare dividends, however dividends may be declared,
when lawful to do so, at the discretion of the Board of Directors.
A common shareholder has the right to vote her shares in the affairs of
the Company. Common shares have one vote each. The right to vote may be
delegated by the shareholder to another person.
In the event of a liquidation or dissolution of the Company, common
shareholders are entlited to share pro rata all assets remaining, if any, after
payment in full of liabilities.
13
<PAGE>
Shareholders do not have preemption rights. NRS 78.265 pertaining to
corporations organized on or after October 1, 1991 states: "the stockholders of
a corporation do not have a preemptive right to acquire the corporation's
unissued shares except to the extent the articles of incorporation so provide".
The Company's articles of incorporation do not so provide.
In the event of a liquidation or dissolution of the Company, common
shareholders are entitled to share pro rata all assets remaining, if any, after
payment in full of all liabilities.
Shareholders do not have any other material rights. There are no
provisions in the Company's articles of incorporation or by-laws that would
delay, defer or prevent a change in control of the Company.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's by-laws provide for indemnification against necessary
expenses incurred, of directors or officers who are named as defendants in
litigation relating to corporate affairs, except where the director or officer
is adjudged in the action to be liable for negligence or misconduct in the
performance of duty.
Section 78.7502 of Nevada Corporation Law ("Discretionary and Mandatory
Indemnification of Officers, Directors, Employees and Agents: General
Provisions.") authorizes the Company to do the above.
ITEM 13. FINANCIAL STATEMENTS
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To The Shareholders and Board of Directors
Pacific Sands, Inc.
dba Natural Water Technologies
We have audited the accompanying combined balance sheet of PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES as of June 30, 1999, and the related statements
of operations, retained earnings, and cash flows for the fiscal years ending
June 30, 1999 and June 30, 1998. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. 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 audit provides 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. DBA NATURAL
WATER TECHNOLOGIES as of June 30, 1999, and the results of its operations and
its cash flows for the fiscal years ending June 30, 1999 and June 30, 1998, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Companies will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has suffered a current loss from operations
and has a capital deficiency to pursue its projected operation that 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 7. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Brad B. Haynes
Los Angeles, California
January 19, 2000
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
BALANCE SHEET
-------------
JUNE 30, 1999
-------------
ASSETS
------
CURRENT ASSETS
- --------------
Cash $18,800
Inventory 21,736
------------
Total Current Assets 40,536
FIXED ASSETS (Net of $190 depreciation) 1,713
- ------------ ------------
$42,249
TOTAL ASSETS ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable 2,705
Accrued expenses 25,000
Payroll and other taxes 3,479
Income tax payable 1,600
------------
Total Current Liabilities 32,784
Common stock authorized,
20,000,000 shares at .001, 8,262
issued and outstanding 8,262,300 shares 362,299
Additional paid-in capital (331,078)
Retained earnings (30,018)
Treasury stock at cost 49,000 shares
TOTAL SHAREHOLDERS' EQUITY 9,465
------------
TOTAL LIABILITIES AND $42,249
SHAREHOLDERS' EQUITY ============
See accompanying notes to financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
---------------------------------------------
FOR THE FISCAL YEARS ENDED
--------------------------
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
REVENUE
Sales $20,449 $955
Cost of sales 2,958 210
------------- -------------
GROSS PROFIT 17,491 745
EXPENSES
General, sales and administrative 119,168 228,546
(LOSS) FROM OPERATIONS 101,677 (227,801)
- ----------------------
PROVISION FOR INCOME TAX 800 800
- ------------------------ ------------- -------------
NET (LOSS) (102,477) (228,601)
- ----------
RETAINED EARNINGS (DEFICIT) - beginning (228,601) --
- --------------------------- ------------- -------------
RETAINED EARNINGS (DEFICIT) -- end ($331,078) $(228,601)
- --------------------------- ============= =============
BASIC AND DILUTED WEIGHTED
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,712,825 6,997,250
- -------------------------- ============= =============
BASIC LOSS PER COMMON SHARE $(0.07) $(0.03)
- --------------------------- ============= =============
DILUTED LOSS PER COMMON SHARE $(0.07) $(0.03)
- ----------------------------- ============= =============
See accompanying notes to financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF CASH FLOWS
-----------------------
FOR THE FISCAL YEARS ENDED
--------------------------
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
NET (LOSS) $(102,477) (228,601)
- ----------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 190
Shares issued for services 900 20,500
Shares issued for inventory -- 23,690
------------- -------------
Total Adjustments 1,090 44,190
(INCREASE) DECREASE IN ASSETS
- -----------------------------
Inventory 1,734 (23,470)
Marketable securities -- --
INCREASE (DECREASE) IN LIABILITIES
- ----------------------------------
Accounts payable 155 2,550
Accrued expenses 14,095 10,905
Payroll taxes payable (3,291) 6,770
Income tax 800 800
------------- -------------
NET CASH USED BY OPERATING ACTIVITIES (87,894) 186,856
- -------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of fixed assets 1,903 --
Purchase of company stock (Treasury stock) 30,018 --
------------- -------------
NET CASH USED BY INVESTING ACTIVITIES 31,921 --
- -------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Common stock issuance 132,671 192,800
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 132,671 192,800
- -----------------------------------------
INCREASE IN CASH 12,856 5,944
- ----------------
CASH - beginning of period 5,944 --
- ---- ------------- -------------
CASH - end of period $18,800 $5,944
- ---- ============= =============
See accompanying notes to financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF CASH FLOWS CONTINUED
---------------------------------
FOR THE FISCAL YEARS ENDED
--------------------------
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
SUPPLEMENTAL CASH FLOWS INFORMATION:
- -----------------------------------
Cash paid during the period
$-- $--
Income tax ============= =============
$320 $--
Interest ============= =============
NON-CASH FINANCING TRANSACTIONS: 20,500
- -------------------------------
Common shares issued for services 23,690
-------------
Common shares issued for inventory $44,190
See accompanying notes to financial statements
<PAGE>
<TABLE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1999 AND JUNE 30, 1998
---------------------------------------------------
<CAPTION>
ADDITIONAL RETAINED STOCK-
NUMBER OF PAR COMMON PAID-IN- EARNINGS TREASURY STOCK HOLDERS'
SHARES VALUE STOCK CAPITAL (DEFICIT) SHARES AMOUNT EQUITY
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 6, 1997
To management at par for cash 5,000,000 $.001 $5,000 $5,000
July 6, 1997
For execution of Company's
Financing and Reorganization Plan 300,000 .001 300 $19,700 20,000
July 11, 1997
Consulting services regarding
financing plan 500,000 .001 500 500
August 5, 1997
Assignment of inventory 1,000,000 .001 1,000 22,690 23,690
November 27, 1997-
June 30, 1998 197,250 .001 197 187,603 187,800
Net loss - June 30, 1998 $(228,601) (228,601)
Balance June 30, 1998 6,997,250 .001 $6,997 $229,993 $(228,601) $8,389
July 16, 1998
7,700 shares at $1.00 7,700 .001 8 7,693 7,701
July 21 - July 30, 1998
40,300 shares at $1.00 40,300 .001 40 40,260 40,300
October 10, 1998 -
January 27, 1999 - services 145,000 .001 145 145
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY CONTINUED
------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1999 AND JUNE 30, 1998
---------------------------------------------------
<CAPTION>
ADDITIONAL RETAINED STOCK-
NUMBER OF PAR COMMON PAID-IN- EARNINGS TREASURY STOCK HOLDERS'
SHARES VALUE STOCK CAPITAL (DEFICIT) SHARES AMOUNT EQUITY
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
February 3, 1999 -
March 9, 1999 - services 110,200 .001 110 110
March 16, 1999
220,000 shares 220,000 .001 220 44,680 44,900
March 17, 1999 - services 500,000 .001 500 500
March 25, 1999 100,000 .001 100 39,673 39,773
March 26, 1999 -
June 25, 1999 - services 141,850 .001 142 142
Purchase of treasury shares
March 16 - May 27, 1999 (49,000) $(30,018) (30,018)
Net loss - June 30, 1999 (102,477) (102,477)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
8,262,300 .001 $8,262 $362,299 $(331.078) (49,000) $(30,018) $9,465
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1999
-------------
1. NATURE OF OPERATIONS
--------------------
PACIFIC SANDS, INC. (the Company) doing business as NATURAL WATER
TECHNOLOGIES was incorporated under the laws of the State of Nevada. The
Company formulates, manufactures, and distributes for domestic and
international use a special product formulation that has no toxicity yet
has numerous uses. The formulated compound eliminates germs and bacteria.
The end product has household, commercial and hygiene applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) REVENUE RECOGNITION
-------------------
Revenue from sales of products to distributors and resellers is
recognized upon shipment when no significant vendor obligations
remain and collection of the receivable is probable. When
significant obligations remain after the product has been delivered,
revenue is not recognized until such obligations have been completed
or are no longer significant. The costs of any significant
obligations are accrued when the revenue is recognized.
(b) CASH EQUIVALENTS
----------------
Cash equivalents consist of funds invested in money market accounts
and investments with a maturity of three months or less when
purchased. There were no cash equivalents for the fiscal years ended
June 30, 1999 and June 30, 1998.
(c) USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the amounts reported in financial
statements and accompanying notes. Actual results could differ from
those estimates.
(d) ISSUANCE OF SHARES FOR SERVICE
------------------------------
Valuation of shares for services is based on the estimated fair
market value of the services performed.
(e) INCOME TAXES
------------
The Company's uses the liability method of accounting for income
taxes specified by SFAS No. 109, "Accounting for Income Taxes",
whereby deferred tax liabilities and assets are determined based on
the difference between financial statements and tax bases of assets
and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Deferred tax assets
are recognized and measured based on the likelihood of realization
of the related tax benefit in the future. The Company had no
material net deferred tax assets or liabilities at June 30, 1999 and
June 30, 1998.
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS CONT.'D
-------------------------------------
JUNE 30, 1999
-------------
(f) INVENTORY
---------
Inventory is stated at lower of cost of market. Cost is determined
principally on the first-in first-out method.
(g) PROPERTY AND EQUIPMENT
----------------------
Depreciation for equipment and vehicles are computed using the
straight-line method calculated to depreciate the cost of assets
over the estimated useful lives. Leasehold improvements are
amortized over the life of the original lease. Costs of maintenance
and repairs are charged to expense while costs of significant
renewals and betterments are capitalized.
(h) LOSS PER SHARE
--------------
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128 "Earnings Per Share." The statement replaced
primary EPS with basic EPS which is computed by dividing reported
earnings available to common shareholders by weighted average shares
outstanding. The provision requires the calculation of diluted EPS.
The company uses the method specified by the statement.
3. RELATED PARTY TRANSACTIONS
--------------------------
There were 1,358,333 common shares issued to the Chairman and President
and the Board of Directors for services rendered during the year ended
June 30, 1998 at an estimated fair market value of $1,358.
4. ADVERTISING
-----------
Advertising is expensed as incurred.
5. LEASE AGREEMENT
---------------
The Company is on a month-to-month tenant occupancy.
6. TREASURY STOCK
--------------
Total cost for treasury stock was $30,018. Total number of shares held in
treasury was 49,000. Treasury stock at cost was 30,017.
7. GOING CONCERN UNCERTAINTIES
---------------------------
At the end of the current year, the Company incurred an operating loss of
$102,477. Signed agreements in effect required cash resources over and
above the Company's current assets. If management will be unable to
generate more revenue or secure adequate financing to do its current
business operational plan, there will be substantial doubt of the
Company's ability to continue as a going concern. The Company, however,
believes that its current financing and reorganization plan will generate
the resources required to continue and sustain its operation indefinitely.
8. SUBSEQUENT EVENTS
-----------------
On September 16, 1999 the Company entered into an unsecured debenture
agreement for $300,000. Date of maturity was September 16, 2001 at an
interest rate of 8% per annum.
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
BALANCE SHEET
-------------
December 31, 1999
-----------------
ASSETS
------
CURRENT ASSETS
- --------------
Cash $ 152,003
Accounts receivable 2,554
Inventory 22,204
-----------
Total Current Assets 176,761
FIXED ASSETS (Net of depreciation of $439) 2,643
- ------------ -----------
TOTAL ASSETS $ 179,404
===========
LIABILITIES AND ACCUMULATED DEFICIT
-----------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable 2,825
Accrued expenses 24,500
Payroll and other taxes 2,966
-----------
Total Current Liabilities 30,291
LONG-TERM LIABILITIES
- ---------------------
Debentures payable 300,000
Common stock authorized,
20,000,000 shares at .001,
issued and outstanding 11,304,931 shares 11,304
Additional paid-in capital 362,299
Retained earnings (deficit) (30,018)
Treasury stock (494,472)
-----------
TOTAL ACCUMULATED DEFICIT (150,887)
-----------
TOTAL LIABILITIES AND
ACCUMULATED DEFICIT $ 179,404
===========
See accompanying notes to compiled financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
---------------------------------------------
For the Six Months Ended
------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
REVENUE
- -------
Sales $ 12,487 $ 7,753
Cost of sales 1,811 1,126
----------- -----------
GROSS PROFIT 10,676 6,627
EXPENSES
- --------
General, sales and administrative 173,270 53,366
(LOSS) FROM OPERATIONS (162,594) (46,739)
- ----------------------
INCOME TAX 800 800
- ---------- ----------- -----------
NET (LOSS) (163,394) (47,539)
- ----------
RETAINED EARNINGS (DEFICIT) - beginning (331,078) (228,601)
- --------------------------- -----------
RETAINED EARNINGS (DEFICIT) -- end $ (494,472) $ (276,140)
- --------------------------- =========== ===========
BASIC AND DILUTED WEIGHTED
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,387,801 4,712,825
- ------------------ =========== ===========
BASIC LOSS PER COMMON SHARE $ (.02) $ (.01)
- --------------------------- =========== ===========
DILUTED LOSS PER COMMON SHARE $ (.02) $ (.01)
- ----------------------------- =========== ===========
</TABLE>
See accompanying notes to compiled financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF CASH FLOWS
-----------------------
For the Six Months Ended
------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
NET (LOSS) $ (163,394) $ (47,539)
- ----------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 249 --
Shares issued for services -- 3,080
----------- -----------
Total Adjustments 249 3,080
(INCREASE) DECREASE IN ASSETS
- -----------------------------
Accounts receivable (2,554) --
Inventory (468) --
INCREASE (DECREASE) IN LIABILITIES
- ----------------------------------
Accounts payable 120 (1,250)
Accrued expenses (500) (5,905)
Payroll and other taxes (513) (4,219)
Income taxes payable (1,600) --
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (168,660)
- -------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of fixed assets 1,179 (403)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Issue of debentures 300,000 --
Common stock issuance --
3,042 51,080
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES
- -----------------------------------------
303,042 51,080
INCREASE IN CASH 133,203 --
- ----------------
CASH - beginning of period 18,800 5,944
- ---- ----------- -----------
CASH - end of period $ 152,003 $ 788
- ---- =========== ===========
</TABLE>
See accompanying notes to compiled financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF CASH FLOWS continued
---------------------------------
For the Six Months Ended
------------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:
- ------------------------------------
Cash paid during the period for:
Income tax $ 2,400 $ --
=========== ===========
Interest $ -- $ --
=========== ===========
NON-CASH FINANCING TRANSACTIONS:
- --------------------------------
Common shares issued for services $ 3,042 $ 3,080
=========== ===========
</TABLE>
See accompanying notes to compiled financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------
For the Six Months Ended December 31, 1999, June 30, 1999 and June 30, 1998
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
NUMBER OF PAR COMMON PAID-IN- EARNINGS TREASURY STOCK STOCKHOLDERS'
SHARES VALUE STOCK CAPITAL (DEFICIT) SHARES AMOUNT EQUITY
----------- ------- --------- ----------- ----------- --------- ---------- --------------
<S> <S> <C> <C> <C> <C> <C>
July 6, 1997
To management at par for cash 5,000,000 $ .001 $ 5,000 $ 5,000
July 6, 1997
For execution of Company's 300,000 .001 300 $ 19,700 20,000
Financing and Reorganization Plan
July 11, 1997
Consulting services regarding 500
financing plan 500,000 .001 500
August 5, 1997
Assignment of inventory 1,000,000 .001 1,000 22,690 23,690
November 27, 1997-
June 30, 1998 197,250 .001 197 187,603 187,800
Net loss - June 30, 1998 $ (228,601) (228,601)
Balance June 30, 1998 6,997,250 .001 $ 6,997 $ 229,993 $ (228,601) $ 8,389
July 16, 1998
7,700 shares at $1.00 7,700 .001 8 7,693 7,701
July 21 - July 30, 1998
40,300 shares at $1.00 40,300 .001 40 40,260 40,300
October 10, 1998 -
January 27, 1999 - services 145,000 .001 145 145
</TABLE>
See accompanying notes to financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY continued
------------------------------------------------------
For the Six Months Ended December 31, 1999, June 30, 1999 and June 30, 1998
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
NUMBER OF PAR COMMON PAID-IN- EARNINGS TREASURY STOCK STOCKHOLDERS'
SHARES VALUE STOCK CAPITAL (DEFICIT) SHARES AMOUNT EQUITY
----------- ------- --------- ----------- ----------- --------- ---------- --------------
<S> <S> <C> <C> <C> <C> <C> <C> <C>
February 3, 1999 -
March 9, 1999 - services 110,200 .001 110 110
March 16, 1999
220,000 shares 220,000 .001 220 44,680 44,900
March 17, 1999 - services 500,000 .001 500 500
March 25, 1999 100,000 .001 100 39,673 39,773
March 26, 1999 -
June 25, 1999 - services 141,850 .001 142 142
Purchase of treasury shares
March 16 - May 27, 1999 (49,000) $ (30,018) (30,018)
Net loss - June 30, 1999 (102,477) (102,477)
----------- --------- --------------
Balance June 30, 1999 8,262,300 .001 $ 8,262 $ 362,299 $ (331.078) (49,000) $ (30,018) $ 9,465
August 13, 1999 -
December 21, 1999 - services 3,042,631 .001 3,042 3,042
Net loss - December 31, 1999 (163,394) (163,394)
----------- --------- --------------
Balance December 31, 1999 11,304,931 .001 $ 11,304 $ 362,299 $ (497,472) (49,000) $ (30,018) $ (150,887)
=========== ======= ========= =========== =========== ========= ========== ==============
</TABLE>
See accompanying notes to financial statements
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
December 31, 1999
-----------------
1. NATURE OF OPERATIONS
--------------------
PACIFIC SANDS, INC. (the Company) doing business as NATURAL WATER
TECHNOLOGIES was incorporated under the laws of the State of Nevada. The
Company formulates, manufactures, and distributes for domestic and
international use a special product formulation that has no toxicity yet
has numerous uses. The formulated compound eliminates germs and bacteria.
The end product has household, commercial and hygiene applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) REVENUE RECOGNITION
-------------------
Revenue from sales of products to distributors and resellers is
recognized upon shipment when no significant vendor obligations
remain and collection of the receivable is probable. When
significant obligations remain after the product has been delivered,
revenue is not recognized until such obligations have been completed
or are no longer significant. The costs of any significant
obligations are accrued when the revenue is recognized.
(b) CASH EQUIVALENTS
----------------
Cash equivalents consist of funds invested in money market accounts
and investments with a maturity of three months or less when
purchased. There were no cash equivalents for the six months ended
December 31, 1999.
(c) USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the amounts reported in financial
statements and accompanying notes. Actual results could differ from
those estimates.
(d) ISSUANCE OF SHARES FOR SERVICE
------------------------------
Valuation of shares for services is based on the estimated fair
market value of the services performed.
(e) INCOME TAXES
------------
The Company's uses the liability method of accounting for income
taxes specified by SFAS No. 109, "Accounting for Income Taxes",
whereby deferred tax liabilities and assets are determined based on
the difference between financial statements and tax bases of assets
and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Deferred tax assets
are recognized and measured based on the likelihood of realization
of the related tax benefit in the future. The Company had no
material net deferred tax assets or liabilities at December 31,
1999.
<PAGE>
PACIFIC SANDS, INC.
DBA NATURAL WATER TECHNOLOGIES
NOTES TO FINANCIAL STATEMENTS cont.'d
-------------------------------------
December 31, 1999
-----------------
(f) INVENTORY
---------
Inventory is stated at lower of cost of market. Cost is determined
principally on the first-in first-out method.
(g) PROPERTY AND EQUIPMENT
----------------------
Depreciation for equipment and vehicles are computed using the
straight-line method calculated to depreciate the cost of assets
over the estimated useful lives. Leasehold improvements are
amortized over the life of the original lease. Costs of maintenance
and repaired are charged to expense while costs of significant
renewals and betterments are capitalized.
(h) LOSS PER SHARE
--------------
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128 "Earnings Per Share." The statement replaced
primary EPS with basic EPS which is computed by dividing reported
earnings available to common shareholders by weighted average shares
outstanding. The provision requires the calculation of diluted EPS.
The company uses the method specified by the statement.
3. RELATED PARTY TRANSACTIONS
--------------------------
There were 1,700,000 common shares issued to the Chairman and President
and the Board of Directors for services rendered during the six months
ended December 31, 1999 at an estimated fair market value of $1,700.
4. ADVERTISING
-----------
Advertising is expensed as incurred.
5. TREASURY STOCK
--------------
Total cost for treasury stock was $30,018. Total number of shares held in
treasury was 49,000.
6. GOING CONCERN UNCERTAINTIES
---------------------------
At the end of the current year, the Company incurred an operating loss of
$228,601. Singed agreements in effect required cash resources over and
above the Company's current assets. If management will be unable to
generate more revenue or secure adequate financing to do its current
business operational plan, there will be a substantial doubt of the
Company's ability to continue as a going concern. The Company, however,
believes that its current financing and reorganization plan will generate
the resources required to continue and sustain its operation indefinitely.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has not had any changes in or disagreements with accountants
since inception.
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
Audited:
Balance sheet as of: June 30, 1999.
Statements of Operations, Cash Flows and Stockholders' Equity for each
of the two years ended June 30, 1999
Unaudited:
Balance sheet as of December 31, 1999
Statements of Operations, Cash Flows and Stockholders' Equity for the
six months ended December 31, 1999 and 1998
The above financial statements, and related footnotes, are all included in Item
13.
(b) Index of exhibits
Exhibit: PAGE
- --------
Articles of Incorporation
of Pacific Sand, Inc. ....................................................
By-laws of Pacific Sands, Inc., as amended ................................
Debenture..................................................................
Escrow Agreement...........................................................
<PAGE>
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.
Date: February 4, 2000 /S/ STANLEY PAULUS
--------------------------------
Stanley Paulus
Chairman of the Board, President
FILED
BY THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JUL 07 1994
10371-94
CHERYL A. LAU SECRETARY OF STATE
/S/
ARTICLES OF INCORPORATION
-------------------------
OF
--
PACIFIC SANDS, INC.
-------------------
FIRST. The name of the corporation is:
PACIFIC SANDS, INC.
SECOND. Its registered office in the State of Nevada is located at 2533
North Carson Street, Carson City, Nevada 89706 that this Corporation may
maintain an office, or offices, in such other place within or without the State
of Nevada as may be from time to time designated by the Board of Directors, or
by the By-Laws of said Corporation, and that this Corporation may conduct all
Corporation business of every kind and nature, including the holding of all
meetings of Directors and Stockholders, outside the State of Nevada as well as
within the State of Nevada
THIRD. The objects for which this Corporation is formed are: To engage
in any lawful activity, including, but not limited to the following:
(A) Shall have such rights, privileges and powers as may be conferred
upon corporations by any existing law.
(B) May at any time exercise such rights, privileges and powers, when
not inconsistent with the purposes and objects for which this corporation is
organized.
1
<PAGE>
4. If a quorum is not present at the annual meeting, the stockholders
present, in person or by proxy, may adjourn to such future time as shall be
agreed upon by them, and notice of such adjournment shall be mailed, postage
prepaid, to each stockholder of record at least ten (10) days before such date
to which the meeting was adjourned; but if a quorum is present, they may adjourn
from day to day as they see fit, and no notice of such adjournment need be
given.
5. Special meetings of the stockholders may be called at anytime by the
President; by all of the directors provided there are no more than three, or if
more than three, by any three Directors; or by the holder of a majority share of
the capital stock of the corporation. The Secretary shall send a notice of such
called meeting to each stockholder of record at least ten (10) days before such
meeting, and such notice shall state the time and place of the meeting, and the
object thereof. No business shall be transacted at a special meeting except as
stated in the notice to the stockholders, unless by unanimous consent of all
stockholders present, either in person or by proxy, all such stock being
represented at the meeting.
6. A majority of the stock issued and outstanding, either in person or
by proxy, shall constitute a quorum for the transaction of business at any
meeting of the stockholders.
7. Each stockholder shall be entitled to one vote for each share of
stock in his own name on the books of the company, whether represented in person
or by proxy.
8. All proxies shall be in writing and signed.
9. The following order of business shall be observed at all meetings of
the stockholders so far as is practicable: a. Call the roll; b. Reading,
correcting, and approving of the minutes of the previous meeting;
2
<PAGE>
c. Reports of officers;
d. Reports of Committees;
e. Election of Directors;
f. Unfinished business; and
g. New business.
ARTICLE II STOCK
- ---------- -----
1. Certificates of stock shall be in a form adopted by the Board of
Directors and shall be signed by the President and Secretary of the Corporation.
2. All certificates shall be consecutively numbered; the name of the
person owning the shares represented thereby, with the number of such shares and
the date of issue shall be entered on the company's books.
3. All certificates of stock transferred by endorsement thereon shall
be surrendered by cancellation and new certificates issued to the purchaser or
assignee.
ARTICLE III DIRECTORS
- ----------- ---------
1. A Board of Directors, consisting of at least one (1) person shall be
chosen annually by the stockholders at their meeting to manage the affairs of
the company. The Directors' term of office shall be one (1) year, and Directors
may be re-elected for successive annual terms.
2. Vacancies on the board of Directors by reason of death, resignation
or other causes shall be filled by the remaining Director or Directors choosing
a Director or Directors to fill the unexpired term.
3. Regular meetings of the Board of Directors shall be held at
1:00p.m., on the 7th day of July of each year beginning in 1995 at the office of
the company at Carson City, NV, or at such other time or place as the Board of
Directors shall by resolution appoint; special meetings may be called by the
3
<PAGE>
President or any Director giving ten (10) days notice to each Director. Special
meetings may also be called by execution of the appropriate waiver of notice and
call when executed by a majority of the Directors of the company. A majority of
the Directors shall constitute a quorum.
4. The Directors shall have the general management and control of the
business and affairs of the company and shall exercise all the powers that may
be exercised or performed by the corporation, under the statutes, the
certificates of incorporation, and the By-Laws. Such management will be by equal
vote of each member of the Board of Directors with each Board member having an
equal vote.
5. A resolution, in writing, signed by all or a majority of the members
of the Board of Directors, shall constitute action by the Board of Directors to
effect therein expressed, with the same force and effect as though such
resolution had been passed at a duly convened meeting; and it shall be the duty
of the Secretary to record every such resolution in the Minute Book of the
corporation under its proper date.
ARTICLE IV OFFICERS
- ---------- --------
1. The officers of this company shall consist of: a President, one or
more Vice Presidents, Secretary, Treasurer, and such other officers as shall,
from time to time, be elected or appointed by the Board of Directors.
2. The PRESIDENT shall preside at all meetings of the Directors and the
Stockholders and shall have general charge and control over the affairs of the
corporation subject to the Board of Directors. He shall sign or countersign all
certificates, contracts and other instruments of the corporation as authorized
by the Board of Directors and shall perform all such other duties as are
incident to his office or are required by him by the Board of Directors.
4
<PAGE>
3. The VICE PRESIDENT shall exercise the functions of the President
during the absence or disability of the President and shall have such powers and
such duties as may be assigned to him from time to time by the Board of
Directors.
4. The SECRETARY shall issue notices for all meetings as required by
the By-Laws, shall keep a record of the minutes of the proceedings of the
meetings of the Stockholders and Directors, shall have charge of the corporate
books, and shall make such reports and perform such other duties as are incident
to his office, or properly required of him by the Board of Directors. He shall
be responsible that the corporation complies with Section 78.105 of the Nevada
Corporation Laws and supplies to the Nevada Resident Agent or Registered Office
in Nevada, any and all amendments to the Corporation's Articles of Incorporation
and any and all amendments or changes to the By-Laws of the Corporation. In
compliance with Section 78.105, he will also supply to the Nevada Resident Agent
or Registered Office in Nevada, and maintain, a current statement setting out
the name of the custodian of the stock ledger or duplicate stock ledger, and the
present and complete Post Office address, including street and number, if any,
where such stock ledger or duplicate stock ledger specified in the section is
kept.
5. The TREASURER shall have the custody of all monies and securities of
the corporation and shall keep regular books of account. He shall disburse the
funds of the corporation in payment of the just demands against the corporation,
or as may be ordered by the Board of Directors, making proper vouchers for such
disbursements and shall render to the Board of Directors, from time to time, as
may be required of him, an account of all his transactions as Treasurer and of
the financial condition of the corporation. He shall perform all duties incident
to his office or which are properly required of him by the Board of Directors.
5
<PAGE>
6. The RESIDENT AGENT shall be in charge of the corporation's
registered office in the State of Nevada, upon whom process against the
corporation may be served and shall perform all duties required of him by
statute.
7. The salaries of all officers shall be fixed by the Board of
Directors and may be changed from time to time by a majority vote of the Board.
8. Each of such officers shall serve for a term of one (1) year or
until their successors are chosen and qualified. Officers may be re-elected or
appointed for successive annual terms.
9. The Board of Directors may appoint such other officers and agents,
as it shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
ARTICLE V INDEMNIFICATION OF OFFICERS AND DIRECTORS
- --------- -----------------------------------------
1. The corporation shall indemnify any and all of its Directors and
Officers, and its former Directors and Officers, or any person who may have
served at the Corporations request as a Director or Officer of another
corporation in which it owns shares of capital stock or of which it is a
creditor, against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit or proceeding in which they, or
any of them, are made parties, or a party, by reason of being or having been
Director(s) or Officer(s) of the corporation, or of such other corporation,
except, in relation to matters as to which any such Director or Officer or
former Director or Officer or person shall be adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the performance of duty.
Such indemnification shall not be deemed exclusive of any other rights to which
6
<PAGE>
those indemnified may be entitled, under By-Law, agreement, vote of stockholders
or otherwise.
ARTICLE VI AMENDMENTS
- ---------- ----------
1. Any of these By-Laws may be amended by a majority vote of the
stockholders at any annual meeting or at any special meeting called for that
purpose.
2. The Board of Directors may amend the By-Laws or adopt additional
By-Laws, but shall not alter or repeal any By-Laws adopted by the stockholders
of the company.
********************************************************************************
CERTIFIED TO BE THE BY-LAWS OF:
PACIFIC SANDS, INC.
BY: /S/ Mr. James
----------------------
Secretary
7
PACIFIC SANDS, INC.
BY-LAWS
ARTICLE I MEETINGS OF STOCKHOLDERS
- --------- ------------------------
1. Stockholders' Meetings shall be held in the office of the
corporation, at Carson City, NV, or at such other place or places as the
Directors shall from time to time determine.
2. The annual meeting of the stockholders of this corporation shall be
held at 11:00 a.m., on the 7th day of July of each year beginning in 1995, at
which time there shall be elected by the stockholders of the corporation a Board
of Directors for the ensuing year, and the stockholders shall transact such
other business as shall properly come before them.
3. A notice signed by any officer of the corporation or by any person
designated by the Board of Directors, which sets forth the place of the annual
meeting, shall be personally delivered to each of the stockholders of record, or
mailed postage prepaid, at the address as appears on the stock book of the
company, or if no such address appears in the stock book of the company, to his
last known address, at least ten (10) days prior to the annual meeting.
Whenever any notice whatever is required to be given under any article
of these ByLaws, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time of the meeting of the
stockholders, shall be deemed equivalent to proper notice.
1
<PAGE>
(C) Shall have power to have succession by its corporate name for the
period limited in its certificate or articles of incorporation, and when no
period is limited, perpetually, or until dissolved and its affairs wound up
according to law.
(D) Shall have power to sue and be sued in any court of law or equity.
(E) Shall have power to make contracts.
(F) Shall have power to hold, purchase and convey real and personal
estate and to mortgage or lease any such real and personal estate with its
franchises. The power to hold real and personal estate shall include the power
to take the same by devise or bequest in the State of Nevada, or in any other
state, territory or country.
(G) Shall have power to appoint such officers and agents as the
affairs of the corporation shall require, and to allow them suitable
compensation.
(H) Shall have power to make By-Laws not inconsistent with the
constitution or laws of the United States, or of the State of Nevada, for the
management, regulation and government of its affairs and property, the transfer
of its stock, the transaction of its business, and the calling and holding of
meetings of its stockholders.
(I) Shall have power to wind up and dissolve itself, or be wound up or
dissolved.
(J) Shall have power to adopt and use a common seal or stamp, and
alter the same at pleasure. The use of a seal or stamp by the corporation on any
corporate documents is not necessary. The corporation may use a seal or stamp,
if it desires, but such use or nonuse shall not in any way affect the legality
of the document.
(K) Shall have power to borrow money and contract debts when necessary
for the transaction of its business, or for the exercise of its corporate
rights, privileges or franchises, or for any other lawful purpose of its
2
<PAGE>
incorporation; to issue bonds, promissory notes, bills of exchange, debentures,
and other obligations and evidences of indebtedness, payable at a specified time
or times, or payable upon the happening of a specified event or events, whether
secured by mortgage, pledge or otherwise, or unsecured, for money borrowed, or
in payment for property purchased, or acquired, or for any other lawful object.
(L) Shall have power to guarantee, purchase, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of the shares of the capital
stock of, or any bonds, securities or evidences of the indebtedness created by,
any other corporation or corporations of the State of Nevada, or any other state
or government, and, while owners of such stock, bonds, securities or evidences
of indebtedness, to exercise all the rights, powers and privileges of ownership,
including the right to vote, if any.
(M) Shall have power to purchase, hold, sell and transfer shares of
its own capital stock, and use therefor its capital, capital surplus, surplus,
or other property or fund.
(N) Shall have power to conduct business, have one or more offices,
and hold, purchase, mortgage and convey real and personal property in the State
of Nevada, and in any of the several states, territories, possessions and
dependencies of the United States, the District of Columbia, and any foreign
countries.
(O) Shall have power to do all and everything necessary and proper for
the accomplishment of the objects enumerated in its certificate or articles of
incorporation, or any amendment thereof, or necessary or incidental to the
protection and benefit of the corporation, and, in general, to carry on any
lawful business necessary or incidental to the attainment of the objects of the
3
<PAGE>
corporation, whether or not such business is similar in nature to the objects
set forth in the certificate or articles of incorporation of the corporation, or
any amendment thereof.
(P) Shall have power to make donations for the public welfare or for
charitable, scientific or educational purposes.
(Q) Shall have power to enter into partnerships, general or limited,
or joint ventures, in connection with any lawful activities.
FOURTH. That the total number of voting common stock
authorized that may be issued by the Corporation is TWENTY MILLION (20,000,000)
shares of stock with a par value of $0.001 per share and no other class of stock
shall be authorized. Said shares may be issued by the corporation from time to
time for such considerations as may be fixed by the Board of Directors.
FIFTH. The governing board of this corporation shall be known
as directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the By-Laws of this
Corporation, providing that the number of directors shall not be reduced to
fewer than one (1).
The name and post office address of the first Board of Directors shall
be one (1) in number and listed as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Betty J. Elpern 2533 North Carson Street
Carson City, Nevada 89706
SIXTH. The capital stock, after the amount of the
subscription price, or par value, has been paid in, shall not be subject to
assessment to pay the debts of the corporation.
4
<PAGE>
SEVENTH. The name and post office address of the Incorporator
signing the Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Betty J. Elpern 2533 North Carson Street
Carson City, Nevada 89706
EIGHTH. The resident agent for this corporation shall be:
LAUGHLIN ASSOCIATES, INC.
The address of said agent, and, the registered or statutory address of this
corporation in the state of Nevada, shall be:
2533 North Carson Street
Carson City, Nevada 89706
NINTH. The corporation is to have perpetual existence.
TENTH. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
Subject to the By-Laws, if any, adopted by the Stockholders,
to make, alter or amend the By-Laws of the Corporation.
To fix the amount to be reserved as working capital over and
above its capital stock paid in; to authorize and cause to be executed,
mortgages and liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to designate
one (1) or more committees, each committee to consist of one or more of the
Directors of the Corporation, which, to the extent provided in the resolution,
or in the By-Laws of the Corporation, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of the
5
<PAGE>
Corporation. Such committee, or committees, shall have such name, or names, as
may be stated in the By-Laws of the Corporation, or as may be determined from
time to time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the
Stockholders holding stock entitling them to exercise at least a majority of the
voting power given at a Stockholders meeting called for that purpose, or when
authorized by the written consent of the holders of at least a majority of the
voting stock issued and outstanding, the Board of Directors shall have power and
authority at any meeting to sell, lease or exchange all of the property and
assets of the Corporation, including its good will and its corporate franchises,
upon such terms and conditions as its board of Directors deems expedient and for
the best interests of the Corporation.
ELEVENTH. No shareholder shall be entitled as a matter of
right to subscribe for or receive additional shares of any class of stock of the
Corporation, whether now or hereafter authorized, or any bonds, debentures or
securities convertible into stock, but such additional shares of stock or other
securities convertible into stock may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
TWELFTH. No director or officer of the Corporation shall be
personally liable to the Corporation or any of its stockholders for damages for
breach of fiduciary duty as a director or officer involving any act or omission
of any such director or officer; provided, however, that the foregoing provision
shall not eliminate or limit the liability of a director or officer (i) for acts
or omissions which involve intentional misconduct, fraud or a knowing violation
of law, or (ii) the payment of dividends in violation of Section 78.300 of the
Nevada Revised Statutes. Any repeal or modification of this Article by the
6
<PAGE>
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or
officer of the Corporation for acts or omissions prior to such repeal or
modification.
THIRTEENTH. This Corporation reserves the right to amend,
alter, change or repeal any provision contained in the Articles of
Incorporation, in the manner now or hereafter prescribed by statute, or by the
Articles of Incorporation, and all rights conferred upon Stockholders herein are
granted subject to this reservation.
7
<PAGE>
I, THE UNDERSIGNED, being the Incorporator hereinbefore named
for the purpose of forming a Corporation pursuant to the General Corporation Law
of the State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set my hand this 23rd day of June, 1994.
/S/ Betty J. Elpern
-------------------
Betty J. Elpern
STATE OF NEVADA )
) SS:
CARSON CITY )
On this 23rd day of June, 1994, in Carson City, Nevada,
before me, the undersigned, a Notary Public in and for Carson City, State of
Nevada, personally appeared.
Betty J. Elpern
Known to me to be the person whose name is subscribed to the foregoing document
and acknowledged to me that he executed the same.
/S/ Becky L. Butler [NOTARY SEAL HERE]
-------------------
Notary Public
I, Laughlin Associates, Inc. hereby accept as Resident Agent for the previously
named Corporation.
6/23/94 /S/ Betty J. Elpern
- --------------------------------------------------
Date Service Coordinator
8
DEBENTURE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY SECTION 3(b) OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE
"1933 ACT"), AND RULE 504 OF REGULATION D PROMULGATED THEREUNDER.
A-001 US $300,000
PACIFIC SANDS. INC.
-------------------
8% SERIES A SENIOR SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURE
DUE SEPTEMBER 16, 2001
THIS DEBENTURE of Pacific Sands, Inc., a corporation duly organized and
existing under the laws of Nevada ("COMPANY"), designated as its 8% Series A
Senior Subordinated Convertible Redeemable Debentures Due September 16, 2001, in
an aggregate principal face amount not exceeding Three Hundred Thousand Hundred
Dollars (U.S. $300,000), which Debentures are being purchased at 100% of the
face amount of such Debentures.
FOR VALUE RECEIVED, the Company promises to pay to BVH Holdings, L.L.C.
the registered holder hereof and his authorized successors and permitted assigns
("HOLDER"), the aggregate principal face sum not to exceed Three Hundred
Thousand Dollars (U.S. $300,000) on September 16, 2001 ("MATURITY DATE"), and to
pay interest on the principal sum outstanding, at the rate of 8% per annum
commencing October 16, 1999 and due in full at the Maturity Date pursuant to
paragraph 4(b) herein. Accrual of outstanding principal sum has been made or
duly provided for. The interest so payable will be paid to the person in whose
name this Debenture is registered on the records of the Company regarding
registration and transfers of the Debentures ("DEBENTURE REGISTER"); provided,
however, that the Company's obligation to a transferee of this Debenture arises
only if such transfer, sale or other disposition is made in accordance with the
terms and conditions of the Securities Subscription Agreement dated as of
September 16, 1999 between the Company and BVH Holdings, L.L.C. ("SUBSCRIPTION
AGREEMENT"). The principal of, and interest on, this Debenture are payable at
the address last appearing on the Debenture Register of the Company as
<PAGE>
designated in writing by the Holder hereof from time to time. The Company will
pay the outstanding principal due upon this Debenture before or on the Maturity
Date, less any amounts required by law to be deducted or withheld, to the Holder
of this Debenture by check if paid more than 10 days prior to the Maturity Date
or by wire transfer and addressed to such Holder at the last address appearing
on the Debenture Register. The forwarding of such check or wire transfer shall
constitute a payment of outstanding principal hereunder and shall satisfy and
discharge the liability for principal on this Debenture to the extent of the sum
represented by such cheek or wire transfer. Interest shall be payable in Common
Stock (as defined below) pursuant to paragraph 4(b) herein.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holders surrendering the same, but not less
than U.S. $10,000. No service charge will be made for such registration or
transfer or exchange, except that Holder shall pay any tax or other governmental
charges payable in connection therewith.
2. The Company shall be entitled to withhold from all payments any
amounts required to be withheld under the applicable laws.
3. This Debenture may be transferred or exchanged only in compliance
with the Securities Act of 1933, as amended ("ACT") and applicable state
securities laws. Prior to due presentment for transfer of this Debenture, the
Company and any agent of the Company may treat the person in whose name this
Debenture is duly registered on the Company's Debenture Register as the owner
hereof for all other purposes, whether or not this Debenture be overdue, and
neither the Company nor any such agent shall be affected or bound by notice to
the contrary. Any Holder of this Debenture, electing to exercise the right of
conversion set forth in Section 4(a) hereof, in addition to the requirements set
forth in Section 4(a), and any prospective transferee of this Debenture, are
also required to give the Company written confirmation that the Debenture is
being converted ("NOTICE OF CONVERSION") in the form annexed hereto as EXHIBIT
I.
4. (a) The Holder of this Debenture is entitled, at its option, at any
time immediately following execution of this Agreement and delivery of the
Debenture hereof, to convert all or any amount over $10,000 of the principal
face amount of this Debenture then outstanding into shares of Common Stock,
$0.01 par value per share, of the Company freely tradeable and without
restrictive legend of any kind ("COMMON STOCK"), at a conversion price
("CONVERSION PRICE") for each share of Common Stock equal to 75% of the closing
bid price of the Common Stock of the Common Stock as reported on the National
Association of Securities Dealers Electronic Bulletin Board ("OTC BULLETIN
BOARD") for the trading day immediately preceding the date of receipt by the
Company of a Notice of Conversion ("CONVERSION SHARES"). If the number of
resultant Conversion Shares would as a matter of law or pursuant to regulatory
authority require the Company to seek
-2-
<PAGE>
shareholder approval of such issuance, the Company shall, as soon as
practicable, take the necessary steps to seek such approval. Such conversion
shall be effectuated, as provided in a certain Escrow Agreement executed
simultaneously with this Debenture, by the Company delivering the Conversion
Shares to the Holder within 5 business days of receipt by the Company of the
Notice of Conversion. Once the Holder has received such Conversion Shares, the
Escrow Agent shall surrender the Debentures to be converted to the Company,
executed by the Holder of this Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion hereof, and accompanied by proper
assignment hereof in blank. Accrued but unpaid interest shall be subject to
conversion. No fractional shares or scrip representing fractions of shares will
be issued on conversion, but the number of shares issuable shall be rounded to
the nearest whole share.
(b) Interest at the rate of 8% per annum shall be paid by issuing
Common Stock of the Company as follows: Based on the closing bid price of the
Common Stock as reported on the OTC Bulletin Board for the trading day
immediately preceding the date of the monthly interest payment due ("MARKET
PRICE"), the Company shall issue to the Holder shares of Common Stock in an
amount equal to the total monthly interest accrued and due divided by 75% of the
Market Price ("INTEREST SHARES"). The dollar amount of interest payable pursuant
to this paragraph 4(b) shall be calculated based upon the total amount of
payments actually made by the Holder in connection with the purchase of the
Debentures at the time any interest payment is due. If such payment is made by
check, interest shall accrue beginning 10 days from the date the check is
received by the Company. If such payment is made by wire transfer directly into
the Company's account, interest shall accrue beginning on the date the wire
transfer is received by the Company. Common Stock issued pursuant hereto shall
be issued pursuant to Rule 504 of Regulation D in accordance with the terms of
the Subscription Agreement and shall be freely tradeable and without restrictive
legend of any kind.
(c) At any time after 30 days the Company shall have the option to pay
to the Holder 125% of the principal amount of the Debenture, in full, to the
extent conversion has not occurred pursuant to paragraph 4(a) herein, or pay
upon maturity if the Debenture is not converted. The Company shall give the
Holder 5 days written notice and the Holder during such 5 days shall have the
option to convert the Debenture or any part thereof into shares of Common Stock
at the Conversion Price set forth in paragraph 4(a) of this Debenture.
5. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the outstanding
principal of, and interest on, this Debenture at the time, place; and rate, and
in the form, herein prescribed.
6. The Company hereby expressly waives demand and presentment for
payment, notice of non-payment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, and diligence in taking any
action to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereto.
-3-
<PAGE>
7. The Company agrees to pay all costs and expenses, including
reasonable attorneys' fees, which may be incurred by the Holder in collecting
any amount due under this Debenture.
8. If one or more of the following described "Events of Default" shall
occur and continue for 30 days, unless a different time frame is noted below:
(a) The Company shall default in the payment of principal or
interest on this Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate or
financial or other written statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture or the Subscription
Agreement shall be false or misleading in any material respect
at the time made or the Company shall violate any covenants in
the Subscription Agreement including but not limited to Section
5(b) or 10; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of the Company under this Debenture, the
Subscription Agreement or the Escrow Agreement and such failure
shall continue uncured for a period of thirty (30) days after
notice from the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings
for its dissolution; (4) apply for or consent to the appointment
of a trustee, liquidator or receiver for its or for a
substantial past of its property or business; (5) file a
petition for bankruptcy relief, consent to the filing of such
petition or have fried against it an involuntary petition for
bankruptcy relief, all under federal or state laws as
applicable; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within thirty
(30) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody
or control of the whole or any substantial portion of the
properties or assets of the Company; or
-4-
<PAGE>
(g) Any money judgment, writ or warrant of attachment, or similar
process, in excess of One Hundred Thousand ($100,000) Dollars in
the aggregate shall be entered or filed against the Company or
any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of fifteen (15)
days or in any event later than five (5) days prior to tile date
of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings, or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted voluntarily by or involuntarily against the Company;
or
(i) The Company shall have its Common Stock delisted from the
over-the-counter market or other market or exchange on which the
Common Stock is or becomes listed or trading in the Common Stock
shall be suspended for more than 10 consecutive days: or
(j) The Company shall not deliver to the Buyer the Common Stock
pursuant to paragraph 4 herein without restrictive legend within
5 business days.
Then, or at any time thereafter, unless cured, and in each and every such case,
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or (further) notice of any kind (other than notice of
acceleration), all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law.
9. This Debenture represents a prioritized obligation of the Company.
However, no recourse shall be had for the payment of the principal of; or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise. all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
10. In case any provision of this Debenture is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and
-5-
<PAGE>
the validity and enforceability of the remaining provisions of this Debenture
will not in any way be affected or impaired thereby.
11. This Debenture and the agreements referred to in this Debenture
constitute the full and entire understanding and agreement between the Company
and the Holder with respect to the subject hereof. Neither this Debenture nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Holder.
12. This Debenture shall be governed by and construed in accordance
with the laws of Colorado applicable to contracts made and wholly to be
performed within the State of Colorado and shall be binding upon the successors
and assigns of each party hereto. The Holder and the Company hereby mutually
waive trial by jury and consent to exclusive jurisdiction and venue in the
courts of the State of Colorado. This Agreement may be executed in counterparts,
and the facsimile transmission of an executed counterpart to this Agreement
shall be effective as an original.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: September 16, 1999
PACIFIC SANDS, INC
By: /s/ Wade Hanson
--------------------------
Wade Hanson
Title: Chief Executive Officer
-6-
ESCROW AGREEMENT
ESCROW AGREEMENT ("ESCROW AGREEMENT") dated as of September 16, 1999 by
and among PACIFIC SANDS, INC., a Nevada corporation ("PSI"), and BVH HOLDINGS,
L.L.C., a Colorado limited liability company ("PURCHASER"), and EDWARD H.
BURNBAUM, ESQ., having a principal place of business at 300 East 42nd Street,
New York, New York 10017 ("ESCROW AGENT").
WHEREAS:
A. The Purchaser and PSI entered into a Securities Subscription
Agreement dated as of September 16, 1999 ("AGREEMENTS"), in which, INTER ALIA,
the Purchaser agreed to purchase PSI's 8% Series A Senior Subordinated
Convertible Redeemable Debentures ("DEBENTURES");
B. Pursuant to the Agreement, the Debentures are to be delivered to the
Escrow Agent to hold and administer in accordance with the terms and conditions
of this Escrow Agreement.
NOW THEREFORE, in consideration of the respective premises, mutual
covenants and agreements of the parties hereto, and other good and valuable
consideration, the receipt and sufficiency of which we hereby acknowledged, the
parties hereto agree as follows:
1. APPOINTMENT OF ESCROW AGENT. Escrow Agent is hereby appointed as
escrow agent and the Escrow Agent hereby accepts such appointment. The Escrow
Agent shall act in accordance with the instructions set forth in this Escrow
Agreement and any further instructions given to it by written instrument signed
by PSI and Purchaser.
2. INITIAL FUNDING. On the date hereof, the Purchaser shall transfer to
PSI the aggregate sum of USD$l00,000, less any fees which PSI has agreed to pay
by virtue of a separate agreement.
3. Issuance and Delivery of the Debentures
and Resolution to the Escrow Agent.
-----------------------------------
(a) On the date hereof, PSI shall issue in the name of the Purchasers
and deposit with the Escrow Agent the Debentures in the face amount of $300,000,
as provided in the Agreements. If PSI is not paid the full Purchase Price for
the Debentures, as provided in this Escrow Agreement, then the Debenture, or any
portion of the Debentures which is not paid for at the time when payment is due
to be made, shall be canceled by PSI, and the Escrow Agent, upon written notice
of such cancellation from PSI, shall promptly return the Debentures to PSI. Upon
such cancellation and return of the Debentures, the parties shall have no
further obligations or liabilities each to the other under this Escrow
Agreement, the Agreements or the Debentures.
(b) On the date hereof, PSI shall deliver to the Escrow Agent a
resolution in the form annexed hereto as EXHIBIT A ("RESOLUTION"), instructing
PSI's transfer agent, Corporate Stock
<PAGE>
Transfer, 370 17th Street, #2350, Denver, Colorado 80202 ("TRANSFER AGENT") to
issue to Purchaser shares of PSI's common stock registered in the name of
Purchaser, without restrictive legend as provided in Section 5(b) of the
Agreement, in an amount equal up to $300,000, or at some lesser amount as the
Escrow Agent, in his sole discretion may direct the Transfer Agent, at a price
per share which is 75% of the closing bid price of PSI's common stock as
reported on the National Association of Securities Dealers Electronic Bulletin
Board for the trading day immediately preceding the date of receipt of the
Resolution by Transfer Agent, and providing that PSI shall not change its
transfer agent from the Transfer Agent, without the express written consent and
directive of the Escrow Agent. The Resolution may be invoked by the Escrow Agent
on as many occasions as necessary to effectuate the provisions of this Escrow
Agreement. The Resolution may be delivered by the Escrow Agent to the Transfer
Agent in the event that, for any reason whatsoever, PSI fails to honor any
Notice of Conversion as provided in the Debentures and this Escrow Agreement, or
PSI commits a material breach of the Agreements, the Debentures, or this Escrow
Agreement, or in the event that PSI changes or attempts to change its transfer
agent from the Transfer Agent without the express written consent of the
Purchaser. Upon written demand from the Purchaser, Escrow Agent shall deliver
the resolution to the Transfer Agent as provided in this Section 3(b). Delivery
of the Resolution to the Transfer Agent and the issuance of shares by the
Transfer Agent in accordance with the Resolution shall not preclude the
Purchaser from exercising any and all other remedies available to the Purchaser
against PSI for a breach of the Agreements, the Debentures, or this Escrow
Agreement. Escrow Agent shall be entitled to honor any such written demand from
the Purchaser and shall ignore any demand or instructions to the contrary from
PSI.
4. CUSTODY AND DISPOSITION OF THE DEBENTURES. The Escrow Agent shall
hold and dispose of the Debentures only in accordance with the terms of this
Escrow Agreement.
5. CONVERSION OF DEBENTURES.
(a) As provided in paragraph 4 of the Debentures, Purchaser may give
Notice of Conversion of the Debentures to PSI by facsimile to the number set
forth in Section 10 below. Conversion of Debentures may take place at any time
until the Maturity Date of the Debentures, as defined in the Debentures. As
provided in paragraph 4 of the Debentures, within 10 business days of receipt of
a Notice of Conversion, PSI shall deliver to the Purchaser giving such notice,
or to an account designated by such Purchaser in the Notice of Conversion,
certificates representing the shares of common stock to which the Purchaser
shall be entitled by reason of the conversion ("CERTIFICATES"). Notwithstanding
anything to the contrary contained in paragraph 4 of the Debentures, PSI may
demand, in writing, that the Purchaser pay outstanding principal amounts of the
Debentures ("DEMAND") even though Purchasers have not convened all or any amount
of the Debentures into shares of common stock, as provided in subsections (A)
and (B) below. The Demand is a provision for payment of the Debenture only.
Conversions of the Debentures into shares of common stock shall be done in
accordance with paragraph 4 of the Debentures, and may be in an amount which is
no less than $10,000 but not necessarily as much as the Demand: However, a
Demand may only be made in aggregate increments of $100,000, commencing 20
business days from the Closing Date of the purchase of the Debentures, as set
forth in the
2
<PAGE>
Agreement, each Demand being no less than 20 business days from the last Demand,
and provided that the closing bid price of PSI's common stock for the previous 5
consecutive trading days has nor fallen below $.05 per share. On any single
trading day, Purchaser may sell in the aggregate common stock equal to the
greater of (i) 10% of the total trading volume of PSI's common stock at any time
during a day when PSI's common stock trades or (ii) 6,000 shares of common stock
(either (i) or (ii) being "MAXIMUM SALES"). However, in the event that Purchaser
does not accomplish Maximum Sales on any trading day, the difference between the
Maximum Sales and the dollar amount of sales actually done shall cumulate
("CUMULATIVE SALES") and Purchaser may accomplish the Cumulative Sales on any
other trading day even if the Maximum Sales have been done on such day.
(b) if PSI fails to timely deliver Certificates, as provided in Section
5(a) above, then PSI shall pay Purchaser $150 per day for each day late in
delivering Certificates up to and including the 10th late day, and $500 per day
for each day late in delivering the Certificates after the 10th late day
("LIQUIDATED DAMAGES"). Any Liquidated Damages incurred by PSI shall be payable
immediately and in cash upon demand in writing by Purchaser, or its agent, to
PSI. However, such Liquidated Damages may be deducted from any amounts owed to
PSI by Purchaser pursuant to this Section 5. Notwithstanding anything contained
in the Agreement to the contrary, including but not limited to the provisions of
Section 6 regarding the registration of restricted Conversion Shares, Purchaser
shall be required to pay the Liquidated Damages set forth in this Section 5(b).
6. BANKRUPTCY. In the event any proceeding under the Bankruptcy Laws of
the United States or any proceedings under any state laws for the protection of
debtors or creditors, are filed, voluntarily or involuntarily, by or on behalf
of PSI, then the Purchasers shall not be required to make any payment under the
Debenture or to honor any Demand and PSI shall be required nonetheless to honor
all notices of conversion.
7. INDEMNIFICATION Purchaser and PSI agree ,jointly and severally to
indemnify, defend and hold harmless the Escrow Agent from and against any and
all costs (including, without limitation, legal fees and expenses), liabilities,
claims and losses arising out of or in connection with this Escrow Agreement or
any action or failure to act by the Escrow Agent under this Escrow Agreement,
except as provided in paragraph 8 below.
8. CONCERNING THE ESCROW AGENT. To induce the Escrow Agent to act
hereunder, it is further agreed by the undersigned that:
(a) This Escrow Agreement expressly sets forth all the duties of the
Escrow Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations on the part of the Escrow Agent shall be read into this
Escrow Agreement. The Escrow Agent shall not be bound by the provisions of any
agreement among the other parties hereto except this Escrow Agreement.
(b) The Escrow Agent shall not be liable for any action or failure to
act in its capacity as Escrow Agent hereunder unless such action or failure to
act shall constitute willful misconduct on the part of the Escrow Agent, in
which case there shall be no indemnification
3
<PAGE>
obligations.
(c) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness or any fact stated therein or the propriety or validity of' the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume, unless he has actual
knowledge to the contrary, that any person purporting to give notice or receipt
or advice or make any statement or execute any document in Connection with the
provisions hereof has been duly authorized to do so.
(d) The Escrow Agent may act pursuant to the advice of counsel with
respect to any matter relating to this Escrow Agreement and shall not be liable
for any action taken or omitted in accordance with such advice, except as
provided in paragraph 8(b) above.
(e) The Escrow Agent does not have any interest in the Debentures or
Conversion Shares or any other property deposited hereunder but is serving as
escrow holder only and having only possession thereof, and is not charged with
any duty or responsibility to determine the validity or enforceability of any
such documents.
(f) The Escrow Agent (and any successor Escrow Agent) may at any time
resign as such by delivering the Debentures to any successor Escrow Agent,
jointly designated by the other parties hereto in writing, or to any court of
competent jurisdiction, whereupon the Escrow Agent shall be discharged of and
from any and all further obligations arising in connection with this Escrow
Agreement thereafter. The resignation of the Escrow Agent will take effect on
the earlier of (a) the appointment of a successor (including a court of
competent jurisdiction) or (b) the day which is 30 days after the date of
delivery of its written notice of resignation to the other parties hereto. If at
that time the Escrow Agent has not received a designation of a successor Escrow
Agent, the Escrow Agent's sole responsibility after that time shall be to
safekeep the Debentures and not make delivery or disposition thereof until
receipt of' a designation of successor Escrow Agent or a joint written
disposition instruction by the other parties hereto or a final order of a court
of competent jurisdiction.
(g) In the event of any disagreement among the parties hereto resulting
in adverse claims or demands being made in connection with the Debentures, or in
the event that the Escrow Agent otherwise determines that the Debentures should
be retained, then the Escrow Agent shall retain the Debentures until the Escrow
Agent shall have received (i) a final nonappealable order of a court of
competent jurisdiction directing delivery of the Debentures, or (ii) a written
agreement executed by the other parties hereto directing delivery of the
Debentures, in which case the Escrow Agent shall promptly deliver the Debentures
in accordance with such order or agreement. Any court order referred to in (i)
above shall be accompanied by a legal opinion by counsel for the presenting
party reasonably satisfactory to the Escrow Agent to the effect that said court
order is final and nonappealable. The Escrow Agent shall act on such court order
and legal opinion without further question.
(h) This Escrow Agreement shall be binding upon and inure solely to the
benefit
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<PAGE>
of the parties hereto and their respective successors (including successors by
way of merger) and assigns, heirs, administrators and representatives and shall
not be enforceable by or inure to the benefit of any third party except as
provided in paragraph (g) with respect to a resignation by the Escrow Agent.
(i) This Escrow Agreement may be modified by a writing signed by all
the parties hereto, and no waiver hereunder shall be effective unless in a
writing signed by the party to be charged.
(j) PSI acknowledges and agrees that in any dispute involving the
Agreement, Debentures or this Escrow Agreement, that Escrow Agent may represent
Purchaser's interests and shall not have a conflict of interest due to the fact
that Escrow Agent is also acting as an escrow agent pursuant to this Escrow
Agreement and PSI hereby waives any right which it may have had to assert a
conflict of interest in the absence of this Section 8(j).
9. GOVERNING LAW. This Escrow Agreement shall be governed in all
respects by the internal laws of the State of Colorado. The parties agree to
submit to the jurisdiction and venue of any state or federal court in Denver
having subject matter jurisdiction over the matter. Service may be made by
certified mail, return receipt requested, to the parties at the addresses set
forth in paragraph 10 below, but the parties shall not be precluded from making
service in any other manner permitted by law.
10. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be delivered by hand or sent by U.S.
Express Mail, Fedex or some other reliable overnight courier service for next
day delivery. Each such notice or other communication shall for all purposes of
this Escrow Agreement be treated as effective or having been given when
delivered if delivered personally, or, if sent by overnight express mail
service, 1 day after the same has been deposited with the U.S. Postal Service,
Fedex or the overnight courier. All such notices must also be sent by facsimile
on the same day to the parties as fo1lows:
<PAGE>
if to PSI:
Pacific Sands, Inc.
601 W. Shaw Avenue, Suite D
Clovis, California 93612
Attn: Wade Hanson
Fax: 559-228-8127
if to Purchaser:
BVH Holdings. L.L.C.
1550 Larimer Street
Denver, Colorado 80202
Fax: 888-774-7275
If to Escrow Agent:
Edward H. Burnbaum, Esq.
Lynch Rowin Novack Burnbaum & Crystal, P.C.
300 East 42nd Street
New York, New York 10017
Fax: 212-986-2907
11. COUNTERPARTS. This Escrow Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
12. ESCROW AGENT FEES. PSI shall pay the fees and expenses of the
Escrow Agent in performing its obligations and in connection with the
preparation of the transaction documents which shall be $6,000 ("FEE"). The Fee
may be deducted from the Debenture purchase proceeds in equal increments, $2,000
upon the execution of this Escrow Agreement, and $2,000 as each Demand is funded
by the Purchaser.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be duly executed and delivered, as of the day and year first above
written.
PACIFIC SANDS, INC.
By: /s/ Wade Hanson 9/16/99
-----------------------------
Wade Hanson
Chief Executive Officer
BVH HOLDINGS, L.L.C.
By:
----------------------------
As to Escrow Only:
ESCROW AGENT:
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EDWARD H. BURNBAUM, ESQ.
By:
-----------------------------
7
SECURITIES SUBSCRIPTION AGREEMENT
---------------------------------
THIS SECURITIES SUBSCRIPTION AGREEMENT, dated as of September 16, 1999
("AGREEMENT"), is executed in reliance upon the exemption from registration
afforded by Rule 504 promulgated under Regulation D by the Securities and
Exchange Commission (`SEC"), under the Securities Act of 1933, as amended.
Capitalized terms used herein and not defined shall have the meanings given to
them in Rule 504 and Regulation D.
This Agreement has been executed by the undersigned buyer ("BUYER") in
connection with the private placement of 8% Series A Senior Subordinated
Convertible Debentures of Pacific Sands, Inc. a corporation organized under the
laws of Nevada, with its principal executive offices located at 601 W. Shaw,
Suite D, Clovis California 93612 ("SELLER"). Buyer hereby represents and
warrants to, and agrees with Seller:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY SECTION 3(b) OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE
"1933 ACT"), AND RULE 504 OF REGULATION D PROMULGATED THEREUNDER.
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(a) SUBSCRIPTION. The undersigned buyer hereby subscribes for and
agrees to purchase the Seller's 8% Series A Senior Subordinated Convertible
Redeemable Debenture substantially in the form of the Debenture attached as
exhibit A hereto and having an aggregate original principal face amount of three
hundred thousand United States Dollars (U.S.$300,000) (singly, a "DEBENTURE,"
and collectively, the "DEBENTURES"), at an aggregate purchase price of 100% of
the face amount of such Debentures as set forth in subsection (b) herein.
(b) PAYMENT. The Purchase Price for the Debenture shall be three
hundred thousand United States Dollars (U.S. $300,000) ("PURCHASE PRICE"), which
shall be payable at closing, pursuant to paragraph c herein, in accordance with
the terms and conditions of an Escrow Agreement which shall be executed
simultaneously with this Agreement ("ESCROW AGREEMENT").
(c) CLOSING. Subject to the satisfaction of the conditions set forth in
Sections 7 and 8 hereof, the Closing of the transactions contemplated by this
Agreement shall take place when (i) Seller delivers the Debentures to the Escrow
Agent, as defined in an Escrow Agreement among
<PAGE>
Buyer, Seller and the Escrow Agent of even date, (ii) Seller delivers the signed
Escrow Agreement and accompanying documents, and (iii) Buyer pays $100,000
towards the Purchase Price for the Debentures ("CLOSING DATE").
2. Buyer Representations and Covenants;
Access to Information
---------------------
In connection with the purchase and sale of the Debentures, Buyer
represents and warrants to, and covenants and agrees with Seller as follows:
(a) Buyer is not, and on the closing date will not be, an affiliate of
Seller;
(b) Buyer is a Colorado limited liability company, in good standing,
and is an "accredited investor" as defined in Rule 501 of Regulation D
promulgated under the 1933 Act, and is purchasing the Debentures for its own
account and Buyer is qualified to purchase the Shares under the laws of the
State of Colorado;
(c) All offers and sales of any of the Debentures by Buyer shall be
made in compliance with any applicable securities laws of any applicable
jurisdiction and in accordance with Rule 504, as applicable, of Regulation D or
pursuant to registration of securities under the 1933 Act or pursuant to an
exemption from registration;
(d) Buyer understands that the Debentures are not registered under the
1933 Act and are being offered and sold to it in reliance on specific exemptions
from the registration requirements of Federal and State securities laws, and
that Seller is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of Buyer set forth
herein in order to determine the applicability of such exemptions and the
suitability of Buyer and any purchaser from Buyer to acquire the Debentures;
(e) Buyer shall comply with Rule 504 promulgated under Regulation D;
(f) Buyer has the full right, power and authority to enter into this
Agreement and to consummate the transaction contemplated herein. This Agreement
has been duly authorized, validly executed and delivered on behalf of Buyer and
is a valid and binding agreement in accordance with its terms, subject to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
(g) The execution and delivery of this Agreement and the consummation
of the purchase of the Debentures and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Buyer of
any of the terms or provisions of, or constitute a default under, the articles
of incorporation or by-laws (or similar constitutive documents) of Buyer or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Buyer
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<PAGE>
is a party or by which it or any of its properties or assets are bound, or any
existing applicable law, rule or regulation of the United States or any State
thereof or any applicable decree, judgment or order of any Federal or State
court, Federal or State regulatory body, administrative agency or other United
States governmental body having jurisdiction over buyer or any of its properties
or assets;
(h) All invitations, offers and sales of or in respect of, any of the
Debentures, by Buyer and any distribution by Buyer of any documents relating to
any invitation, offer or sale by it of any of the Debentures will be in
compliance with applicable laws and regulations, will be made in such a manner
that no prospectus need be filed and no other filing need be made by Seller with
any regulatory authority or stock exchange in any country or any political
sub-division of any country, and Buyer will make no misrepresentations nor
omissions of material fact in the invitation, offer or resale of the Debentures;
(i) The Buyer (or others for whom it is contracting hereunder) has been
advised to consult its own legal and tax advisors with respect to applicable
resale restrictions and applicable tax considerations and it (or others for whom
it is contracting hereunder) is solely responsible (and the Seller is not in any
way responsible) for compliance with applicable resale restrictions and
applicable tax legislation;
(j) Buyer understands that no Federal or State or foreign government
agency has passed on or made any recommendation or endorsement of the
Debentures;
(k) Buyer has had an opportunity to receive and review all material
information and financial data and to discuss with the officers of Seller, all
matters relating to the Debentures, financial condition, operations and
prospects of Seller and any questions raised by Buyer have been answered to
Buyer's satisfaction.
(l) Buyer acknowledges that the purchase of the Debentures involve a
high degree of risk. Buyer has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
purchasing the Debentures. Buyer understands that the Debentures are not being
registered under the 1933 Act, or under any state securities laws, and
therefore, Buyer must bear the economic risk of this investment for an
indefinite period of time;
(m) Buyer is not a "10-percent Shareholder" (as defined in Section
871(h)(3)(B) of the U.S. Internal Revenue Code) of Seller; and
(n) Buyer acknowledges and agrees that the transactions contemplated by
this Agreement have taken place solely and exclusively within the State of
Colorado.
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<PAGE>
3. SELLER REPRESENTATIONS AND COVENANTS.
(a) Seller is a corporation duly organized and validly existing under
the laws of the State of Nevada, and is in good standing under such laws. The
Seller has all requisite corporate power and authority to own, lease and operate
its properties and assets, and to carry on its business as presently conducted.
The Seller is qualified to do business as a foreign corporation in each
jurisdiction in which the ownership of its property or the nature of its
business requires such qualification, except where failure to so quality would
not have a material adverse effect on the Seller.
(b) There are 20,000,000 shares of Seller's common stock, no par value
per share ("COMMON STOCK"), authorized and approximately 8,000,000 as of August
31, 1999 outstanding. The Common Stock is quoted on National Association of
Securities Dealers OTC Electronic Bulletin Board under the symbol "PFSD". All
issued and outstanding shares of Common Stock have been authorized and validly
issued and are fully paid and non-assessable.
(c) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or to a loss of a material benefit, under, any provision of
the Articles of incorporation, and any amendments thereto, By-Laws, Stockholders
Agreements and any amendments thereto of the Seller or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law ordinance, rule or
regulation applicable to the Seller, its properties or assets. There is no
action, suit or proceeding pending, or to the knowledge of the Seller,
threatened against the Seller, before any court or arbitrator or any government
body, agency or official, which would have a material adverse affect on Seller's
operations or financial condition.
(d) The Seller is not subject to the reporting requirements of Sections
13 or 15(d) of the Securities and Exchange Act, is not an investment company or
a developmental stage company that either has no specific business plan or
purpose. The Shares when issued, will be issued in compliance with all
applicable U.S. federal and state securities laws. The Seller understands and
acknowledges that, in certain, circumstances, the issuance of the Shares could
dilute the ownership interests of other stockholders of the Seller. The
execution and delivery by the Seller of this Agreement and the issuance of the
Debentures will not contravene or constitute a default under any provision of
applicable law or regulation. The Seller is in compliance with and conforms to
all statutes, laws, ordinances, rules, regulations, orders, restrictions and all
other legal requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its businesses
or the ownership of its properties.
(e) There is no fact known to the Seller that has not been publicly
disclosed by the Seller or disclosed in writing to the Buyer which could
reasonably be expected to have a material
-4-
<PAGE>
adverse effect on the condition (financial or otherwise) or in the earnings,
business affairs, properties or assets of the Seller, or could reasonably be
expected to materially and adversely affect the ability of the Seller to perform
its obligations pursuant to this Agreement. The information furnished by the
Seller to Buyer for purposes of or in connection with this Agreement or any
transaction contemplated hereby, does not contain any untrue statement of
material fact or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they are
made, not misleading.
(f) No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Seller
is required in connection with the valid execution and delivery of this
Agreement, or the offer, sale or issuance of the Debentures or Common Stock, or
the consummation of any other transaction contemplated hereby, except the filing
with the SEC of Form D.
(g) There is no action, proceeding or investigation pending, or to the
Seller's knowledge, threatened, against the Seller which might result either
individually or in the aggregate, in any material adverse change in the
business, prospects, conditions, affairs or operations of the Seller. The Seller
is not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit proceeding or investigation by the Seller currently pending
or which the Seller intends to initiate. The SEC has not issued any order
suspending trading in the Seller's Common Stock and the Seller is not under
investigation by the SEC or the National Association of Securities Dealers, and
there are no proceedings pending or threatened before either regulatory body.
(h) There are no other material outstanding debt or equity securities
presently convertible into Common Stock other than the Debentures.
(i) The Seller has not sold any securities within the 12 month period
prior to this Agreement in reliance on any exemption under Section 3(b) of the
1933 Act, Regulation D or its rules or in violation of Section 5(a) of the 1933
Act except for offerings of securities which do not aggregate more than
$300,000.
(j) The issuance, sale and delivery of the Debentures have been duly
authorized by all required corporate action on the part of the Seller, and when
issued, sold and delivered in accordance with the terms hereof and thereof for
the consideration expressed herein and therein, will be duly and validly issued,
fully paid and non-assessable. The Common Stock issuable upon conversion of the
Debenture has been duly and validly reserved for issuance and upon issuance in
accordance with the terms of the Debentures, shall be duly and validly issued,
fully paid, and non-assessable. There are no pre-emptive rights of any
shareholder of Seller.
(k) This Agreement has been duly authorized, validly executed and
delivered on behalf of Seller and is a valid and binding agreement in accordance
with its terms, subject to general
-5-
<PAGE>
principles of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally. The Seller has all requisite right, power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Seller, its directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement and the Debentures has
been taken. Upon their issuance to the Buyer and delivery to the Escrow Agent,
as defined in and pursuant to the Escrow Agreement, the Debentures will be
validly issued and nonassessable, and will be free of any liens or
encumbrances.
(l) Setter acknowledges and agrees that the transactions contemplated
by this the Agreement have taken place solely and exclusively within the State
of Colorado.
4. EXEMPTION; RELIANCE ON REPRESENTATIONS. Buyer understands that the
offer and sale of the Securities are not being registered under the 1933 Act.
Seller and Buyer are relying on the rules governing offers and sales made
pursuant to Rule 504 promulgated under Regulation D. The offer and sale of the
Shares are made solely within the State and jurisdiction of Colorado in reliance
upon an exemption under Colorado law.
5. TRANSFER AGENT INSTRUCTIONS.
(a) DEBENTURES. Upon the conversion of the Debentures, the Buyer or
holder shall give a notice of conversion to the Seller and the Seller shall
instruct its transfer agent to issue one or more Certificates representing that
number of shares of Common Stock into which the Debenture or Debentures are
convertible in accordance with the provisions regarding conversion set forth in
Exhibit A. The Seller shall act as Debenture Registrar and shall maintain an
appropriate ledger containing the necessary information with respect to each
Debenture. There shall be no need for the Purchaser to surrender the original
Debentures to the Seller until the Debentures have been paid by the Seller or
converted into Common Stock, as the case may be.
(b) COMMON STOCK TO BE ISSUED WITHOUT RESTRICTIVE LEGEND. Upon the
conversion of any Debenture, Seller shall instruct Seller's transfer agent to
issue Stock Certificates up to the total of the "Conversion Amount" (as defined
in the Debenture) and any "Interest Shares" (as defined in the Debenture)
without restrictive legend in the name of the Buyer (or its nominee) and in such
denominations to be specified at conversion representing the number of shares of
Common Stock issuable upon such conversion, as applicable. The Common Stock
shall be immediately freely transferable on the books and records of Seller.
Seller shall also instruct its attorney to issue and render any legal opinion
which is required at any time by Seller's transfer agent to permit Seller's
transfer agent to issue any and all Stock Certificates without a restrictive
legend as required by this Agreement.
6. REGISTRATION. If upon conversion of the Debentures effected by the
Buyer pursuant to the terms of this Agreement or payment of interest pursuant to
the Debenture the Seller fails to issue certificates for shares of Common Stock
issuable upon such conversion ("UNDERLYING
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<PAGE>
SHARES") or the Interest Shares to the Buyer bearing no restrictive legend for
any reason, then the Seller shall be requited, at the request of the Buyer and
at the Seller's expense, to effect the registration of the Underlying Shares
and/or Interest Shares issuable upon conversion of the Debentures and payment of
interest under the Act and relevant Blue Sky laws as promptly as is practicable.
The Seller and the Buyer shall cooperate in good faith in connection with the
furnishings of information required for such registration and the taking of such
other actions as may be legally or commercially necessary in order to effect
such registration. The Seller shall file such a registration statement within 30
days of Buyer's demand and shall use its good faith diligent efforts to cause
such registration statement to become effective as soon as practicable
thereafter. Such good faith diligent efforts shall include, but not be limited
to, promptly responding to all comments received from the staff of the SEC,
providing Buyer's counsel with a contemporaneous copy of all written
communications from and to the staff of the SEC with respect to such
registration statement and promptly preparing and filing amendments to such
registration statement which are responsive to the comments received from the
staff of the SEC. Once declared effective by the SEC, the Seller shall cause
such registration statement to remain effective until the earlier of (i) the
sale by the Buyer of all Underlying Shares registered or (ii) 120 days after the
effective date of such registration statement.
7. DELIVERY INSTRUCTIONS. The Debentures being purchased hereunder, and
the Purchase Price, shall be delivered to the Escrow Agent pursuant to the
Escrow Agreement.
8. CONDITIONS TO SELLER'S OBLIGATION TO SELL. Seller's obligation to
sell the Debentures is conditioned upon:
(a) The receipt and acceptance by Seller of this Agreement as executed
by Buyer.
(b) All of the representations and warranties of the Buyer contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date. The Buyer shall have
performed or complied with all agreements and satisfied all conditions on its
part to be performed, complied with or satisfied at or prior to the Closing
Date.
(c) No order asserting that the transactions contemplated by this
Agreement are subject to the registration requirements of the Act shall have
been issued, and no proceedings for that purpose shall have been commenced or
shall be pending or, to the knowledge of the Seller, be contemplated. No stop
order suspending the sale of the Debentures or Common Stock shall have been
issued, and no proceedings for that purpose shall have been commenced or shall
be pending or, to the knowledge of the Seller, be contemplated.
9. CONDITIONS TO BUYER'S OBLIGATION TO PURCHASE. Buyers obligation to
purchase the Debentures is conditioned upon:
-7-
<PAGE>
(a) The confirmation of receipt and acceptance by Seller of this
Agreement as evidenced by execution of this Agreement of the duly authorized
officer of Seller.
(b) Delivery of the Debentures and the Escrow Agreement to the Escrow
Agent.
(c) The receipt of an opinion from counsel for the Seller that the laws
of the State of Colorado properly govern this transaction and that reliance on
the exemption from registration under Colorado law relied upon by the Seller is
proper in all respects.
10. NO SHAREHOLDER APPROVAL AND NO DILUTION.
(a) Seller hereby agrees that from the Closing Date until the issuance
of Common Stock upon the conversion of the Debentures, Seller will not take any
action which would require Seller to seek shareholder approval of such issuance
unless such shareholder approval is required by law or regulatory body
(including but not limited to the NASDAQ Stock Market, Inc.) as a result of the
issuance of the Debentures or Common Stock hereunder.
(b) Provided the Debentures, or any Seller Debentures from a series
which predate the Debentures remain outstanding and unpaid, at if there is any
portion of any such Debentures which have not been converted into the Seller's
Common Stock, then the Seller shall not split nor reverse split the Common
Stock, nor consolidate the outstanding number of shares of Common Stock into a
small number of shares, nor otherwise take any action, directly or indirectly,
which would have a material adverse effect on the value of the Debentures or the
trading price of the Common Stock.
11. MISCELLANEOUS.
(a) This Agreement together with the Debentures and Escrow Agreement,
constitutes the entire agreement between the parties, and neither party shall be
liable or bound to the other in any manner by any warranties, representations or
covenants except as specifically set forth herein. Any previous agreement among
the parties related to the transactions described herein is superseded hereby.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the restrictive successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
{b) Buyer is an independent contractor and is not the agent of Seller.
Buyer is not authorized to bind Seller or to make any representation or
warranties on behalf of Seller.
(c) All representations and warranties contained in this Agreement by
Seller and Buyer shall survive the closing of the transactions contemplated by
this Agreement.
-8-
<PAGE>
(d) This Agreement shall be construed in accordance with the laws of
Colorado applicable to contacts made and whol1y to be performed within the State
of Colorado and shall be binding upon the successors and assigns of each party
hereto. Buyer and Seller hereby mutually waive trial by jury and consent to
exclusive jurisdiction and venue in the courts of the State of Colorado. City of
Denver. This Agreement may be executed in counterparts, and the facsimile
transmission of an executed counterpart to this Agreement shall be effective as
an original.
(e) Seller agrees to indemnify and hold Buyer harmless from any and all
claims, damages and liabilities arising from Seller's breach of its
representations and/or covenants set forth herein.
(f) Buyer agrees to indemnify and hold Seller harmless from any and all
claims, damages and liabilities arising from Buyer's breach of its
representations and warranties set forth in this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK}
-9-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the date first set forth above.
Official Signatory of Seller:
-----------------------------
PACIFIC SANDS, INC.
By: /s/ Wade A. Hanson
-----------------------------
Wade A. Hanson
Accepted this 16th day of September, 1999 Title: Chief Executive Officer
Official Signatory of Buyer:
----------------------------
BVH HOLDINGS, L.L.C.
By:
----------------------------
-10-
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
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0
0
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