UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)


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




For the quarterly period ended
            December
      31, 2009


OR





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





For the
transition period from ___________________________ to
___________________________





Commission
file number 000-29483





Pacific
Sands, Inc.





(Exact
Name of Registrant as specified in its charter)





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











1509
      Rapids Drive
              Racine,
      WI
            53404(Address
      of Principal Executive Offices)
            (Zip
      Code)





Issuer’s
Telephone Number, Including Area Code:  (262) 619-3261





N/A


(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.      Yesx              
No ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   
Yes o
   No o





Indicate
by check mark whether the registrant is a larger accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one)





Large
      accelerated filer o
            Accelerated
      filer  oNon-accelerated
      filer o
            Smaller
      reporting company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes ̈            
NoQ





The
numbers of shares outstanding of each of the issuer's classes of common equity,
as of March 5, 2010 are as follows:





Class
      of Securities
            
            Shares
      OutstandingCommon
      Stock, $0.001 par value
            
            43,581,940








TABLE OF CONTENTS











PagePART I  FINANCIAL
      INFORMATIONItem
      1.
            Financial
      Statements
            3Balance
      Sheet as of  December 31 2009 (unaudited) and June 30,
      2009
            3Statements
      of Operations for the Three and Six  Months Ended December
      31, 2009 and 2008 (unaudited)
            4Statements
      of Cash Flows for the Six Months Ended December 31, 2009 and
      2008 (unaudited)
            5Notes
      to Financial Statements (unaudited)
            6Item
      2.
            Management
      Discussion and Analysis of Financial Condition and Results of
      Operations
            13Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            17Item
      4.
            Controls
      and Procedures
            18PART II  OTHER
      INFORMATIONItem
      1.
            LEGAL
      PROCEEDINGS
            19Item
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            19Item
      3.
            DEFAULTS
      UPON SENIOR SECURITIES
            19Item
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            19Item
      5.
            OTHER
      INFORMATION
            20Item
      6.
            EXHIBITS
            20SIGNATURES
            20EX-31.1
      (Certifications required under Section 302 of the Sarbanes-Oxley Act of
      2002)EX-31.2
      (Certifications required under Section 302 of the Sarbanes-Oxley Act of
      2002)EX-32.1
      (Certifications required under Section 906 of the Sarbanes-Oxley Act of
      2002)EX-32.2
      (Certifications required under Section 906 of the Sarbanes-Oxley Act of
      2002)










PACIFIC
      SANDS, INC.BALANCE
      SHEETSDECEMBER
      31, 2009 AND JUNE 30, 2009ASSETSDecember
      31, 2009
            
            
            June
      30, 2009Current
      assets:
            
            (Unaudited)Cash
      and cash equivalents
            
            $
            1,277
            
            
            $
            7,144Trade
      receivables, net of allowances for doubtful accounts of $9,373 and
      $70,000
            
            
            155,354
            
            
            
            137,412Inventories
            
            
            119,408
            
            
            
            108,803Other
      current assets
            
            
            4,549
            
            
            
            1,257Total
      Current Assets
            
            
            280,588
            
            
            
            254,616Property
      and equipment, net
            
            
            48,111
            
            
            
            59,663Other
      assets:Goodwill
            
            
            -
            
            
            
            877,854-
            
            
            
            877,854Total
      Assets
            
            $
            328,699
            
            
            $
            1,192,133LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable
            
            $
            178,022
            
            
            $
            152,022Accrued
      expenses
            
            
            164,585
            
            
            
            125,660Current
      portion of notes payable and capital leases
            
            
            182,304
            
            
            
            223,330Total
      Current Liabilities
            
            
            524,911
            
            
            
            501,012Notes
      payable and capital leases - net of discount of $17,679 and $33,946, less
      current portion
            
            
            1,045,790
            
            
            
            989,285Total
      Liabilities
            
            
            1,570,701
            
            
            
            1,490,297Stockholders'
      deficitCommon
      stock (50,000,000 shares authorized, 50,191,127 and 49,196,090 shares
      issued, and 43,581,940 and 42,586,903 shares outstanding)
            
            
            50,192
            
            
            
            49,196Additional
      paid in capital
            
            
            4,173,367
            
            
            
            4,134,561Treasury
      stock, at cost
            
            
            (132,030
            )
            
            
            (132,030
            )Accumulated
      deficit
            
            
            (5,333,531
            )
            
            
            (4,349,891
            )Total
      Stockholders' Deficit
            
            
            (1,242,002
            )
            
            
            (298,164
            )Total
      Liabilities and Stockholders' Deficit
            
            $
            328,699
            
            
            $
            1,192,133See
      accompanying notes.


3




PACIFIC
      SANDS, INC.STATEMENTS
      OF OPERATIONSFOR
      THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2009 AND
    2008(UNAUDITED)Three
      months ended
                December
      31,
              
              
              Six
      months ended
                December
      31,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      sales
              
              $
              265,878
              
              
              $
              176,999
              
              
              $
              519,423
              
              
              $
              529,805Cost
      of sales
              
              
              127,187
              
              
              
              120,411
              
              
              
              233,373
              
              
              
              282,361Gross
      profit
              
              
              138,691
              
              
              
              56,588
              
              
              
              286,050
              
              
              
              247,444Selling
      and administrative expenses
              
              
              161,806
              
              
              
              216,105
              
              
              
              353,226
              
              
              
              455,785Impairment
      of intangible asset
              
              
              877,854
              
              
              
              -
              
              
              
              877,854
              
              
              
              -Loss
      from operations
              
              
              (900,969
              )
              
              
              (159,517
              )
              
              
              (945,030
              )
              
              
              (208,341
              )Other
      expenseInterest
      expense
              
              
              (17,354
              )
              
              
              (21,522
              )
              
              
              (38,610
              )
              
              
              (37,610
              )Loss
      before income taxes
              
              
              (918,323
              )
              
              
              (181,039
              )
              
              
              (983,640
              )
              
              
              (245,951
              )Income
      taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              $
              (918,323
              )
              
              $
              (181,039
              )
              
              $
              (983,640
              )
              
              $
              (245,951
              )Basic
      and diluted loss per share:
              
              $
              (0.021
              )
              
              $
              (0.005
              )
              
              $
              (0.023
              )
              
              $
              (0.006
              )Basic
      and diluted weighted average shares outstanding:
              
              
              43,581,940
              
              
              
              40,117,486
              
              
              
              43,544,085
              
              
              
              39,673,500See
      accompanying notes.


4




PACIFIC
      SANDS, INC.STATEMENTS
      OF CASH FLOWSFOR
      THE SIX MONTHS ENDED DECEMBER 31, 2009 AND 2008(UNAUDITED)2009
            
            
            2008Cash
      flows from operating activitiesNet loss
            
            $
            (983,640
            )
            
            $
            (245,951
            )Adjustments to reconcile net loss to net cash used in operating
      activities -Depreciation and amortization
            
            
            12,852
            
            
            
            13,085Amortization of debt discount
            
            
            16,267
            
            
            
            23,755Impairment
      of intangible asset
            
            
            877,854
            
            
            
            -Common shares issued for services and compensation
            
            
            2,000
            
            
            
            18,350Changes in assets and liabilities -Trade accounts receivable
            
            
            (17,942
            )
            
            
            36,661Inventories
            
            
            (10,605
            )
            
            
            1,094Prepaid expenses
            
            
            -
            
            
            
            948Other assets
            
            
            (3,292
            )
            
            
            (9,836
            )Accounts payable and other current liabilities
            
            
            64,925
            
            
            
            73,300Net Cash Used in Operating Activities
            
            
            (41,581
            )
            
            
            (88,594
            )Cash
      flows from investing activitiesPurchases of equipment
            
            
            (1,300)
            
            
            
            (3,146
            )Security deposits
            
            
            -
            
            
            
            (4,525
            )Net Cash Used in Investing Activities
            
            
            (1,300)
            
            
            
            (7,671
            )Cash
      flows from financing activitiesProceeds from common stock issued
            
            
            8,930
            
            
            
            41,169Proceeds from notes payable
            
            
            72,170
            
            
            
            135,201Repayment of notes payable and long term obligations
            
            
            (44,086
            )
            
            
            (87,592
            )Net Cash Provided by Financing Activities
            
            
            37,014
            
            
            
            88,778Net
      decrease in cash and cash equivalents
            
            
            (5,867
            )
            
            
            (7,487)Cash
      and cash equivalents:Beginning of period
            
            
            7,144
            
            
            
            7,487End of period
            
            $
            1,277
            
            
            $
            -





Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
            
            $
            18,288
            
            
            $
            8,242Income taxes
            
            $
            -
            
            
            $
            -Supplemental
      disclosure of non cash financing and investing activitiesConversion of debt to equity
            
            $
            28,871
            
            
            $
            50,000Convertible notes discount with corresponding increase to paid in capital
      for value of  beneficial conversion feature
            
            $
            -
            
            
            $
            18,174See
      accompanying notes.


5


FORM
      10-Q
            DECEMBER
      31, 2009





PACIFIC
SANDS, INC


NOTES TO
FINANCIAL STATEMENTS








1.     
  BASIS OF PRESENTATION





The
accompanying unaudited interim financial statements of Pacific Sands, Inc., have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
(“SEC”), and should be read in conjunction with the audited financial statements
and notes thereto contained in Pacific Sands, Inc’s Annual Report filed with the
SEC on Form 10-K for the year ended June 30, 2009.  In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected
herein.  The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full
year.  Notes to the financial statements which would substantially
duplicate the disclosure contained in the audited financial statements for
fiscal 2009 as reported elsewhere in this Form 10-Q have been
omitted.




2.     
  DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES





Nature of Business - Pacific
Sands, Inc. with the right to do business as Natural Water Technologies (the
"Company" or “Pacific Sands”) was incorporated in Nevada on July 7,
1994.  Pacific Sands develops, manufactures, markets and sells a range
of nontoxic, environmentally friendly cleaning and water-treatment products
based on proprietary blended botanical, nontoxic and natural chemical
technologies. The Company’s products have applications ranging from water
maintenance (spas, swimming pools, fountains, decorative ponds) to cleaning
(nontoxic household and industrial) and pet care.





In
February of 2008, the Company acquired Natural Choices Home Safe Products, LLC
(“Natural Choices”), a developer and manufacturer of environmentally friendly
cleaning and laundry products. The acquisition added dozens of new products to
the Pacific Sands portfolio of earth, health, pet and kid-friendly offerings,
including Oxy-BoostTM an oxygen-bleach based, chlorine-free bleach alternative.
The Company now has a large selection of oxygen- bleach based formulations
available both for retail distribution under its ecoone®, e-2 elemental earth®
and Natural ChoicesTM brands as well as for contract manufacturing and
re-label.





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





Inventories - Inventories are
stated at the lower of cost or market on the first-in, first-out (FIFO)
basis.


6


FORM
      10-Q
            DECEMBER
      31, 2009





PACIFIC
SANDS, INC


NOTES TO
FINANCIAL STATEMENTS





Depreciation and Amortization
- For financial reporting purposes, depreciation and amortization of property
and equipment has been computed over estimated useful lives of two to seven
years primarily using the straight-line method.  Depreciation and
amortization charges totaled $12,852 and $13,085 during the six months ended
December 31, 2009 and 2008, respectively.





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





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





The
income tax accounting process for uncertainty in income taxes prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. A company must determine whether it is "more-likely-than-not" that a
tax position will be sustained upon examination, including resolution of any
related appeals or litigation procedures, based on the technical merits of the
position.  Once it is determined that a position meets the
more-likely-than-not recognition threshold, the position is measured to
determine the amount of benefit to recognize in the financial statements.
Management's review of the Company’s possible tax for the three and six months
ended December 31, 2009 and 2008 did not result in any positions requiring
disclosure.  Should the Company need to record interest and/or
penalties related to uncertain tax positions, or other tax authority
assessments, it would classify such expenses as part of the income tax
provision.




Accounts Receivable - The
Company makes judgments as to the collectibility of trade and other accounts
receivable based on historic trends and future
expectations.  Management estimates an allowance for doubtful
receivables, which reflects its current assessment of the collectibility of the
receivables.  Management believes that the current specific and
general receivable reserves aggregating $9,373 is adequate as of December 31,
2009.


Impairment of long lived
assets - Periodically, the Company evaluates the carrying value of its
plant and equipment, and long-lived assets, which includes patents and other
intangible assets, by comparing the anticipated future net cash flows associated
with those assets to the related net book value.  If impairment is
indicated as a result of such reviews, the Company would remove the impairment
based on the fair market value of the assets, using techniques such as projected
future discounted cash flows or third party valuations.
 
 In
accordance with guidance for Goodwill and Other Intangible
Assets, goodwill and certain intangible assets are deemed to have
indefinite lives and are no longer amortized, but are reviewed at least annually
for impairment. Other identifiable intangible assets are amortized over their
estimated useful lives. The guidance requires that goodwill be tested for
impairment annually, utilizing the “fair value” methodology. The Company has
adopted December 31st as the date of the annual impairment test for
goodwill.
  Goodwill
impairment is determined using a two-step process. The first step of the
goodwill impairment test is used to identify potential impairment by comparing
the fair value of a reporting unit with the net book value (or carrying amount),
including goodwill. If the fair value of the reporting unit exceeds the carrying
amount, goodwill of the reporting unit is considered not impaired and the second
step of the impairment test is unnecessary. If the carrying amount of the
reporting unit exceeds the fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment loss, if any.
The second step of the goodwill impairment test compares the implied fair value
of the reporting unit's goodwill with the carrying amount of that goodwill. If
the carrying amount of the reporting unit's goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to
that excess. The implied fair value of goodwill is determined in the same manner
as the amount of goodwill recognized in a business combination. Accordingly, the
fair value of the reporting unit is allocated to all of the assets and
liabilities of that unit as if the reporting unit had been acquired in a
business combination and the fair value of the reporting unit was the purchase
price paid to acquire the reporting unit.
  In
performing the first step of the fiscal 2010 intangible asset or goodwill
impairment test, management determined there was an indicator of impairment in
the intangible asset recorded for the acquisition of Natural Choices because the
carrying value of the reporting unit exceeded its estimated fair
value.
 
 In
performing the second step of the impairment test, the Company performed a
discounted cash flow model using management's current business plan projected
for expected cash flows and determined that the intangible was fully impaired.
Based on the Company’s annual review of goodwill on December 31, 2009, the
Company recorded an impairment charge of $877,854, for the intangible asset
recorded for the acquisition of Natural Choices which represented the entire
intangible asset balance.


7


FORM
      10-Q
            DECEMBER
      31, 2009





PACIFIC
SANDS, INC


NOTES TO
FINANCIAL STATEMENTS





Basic and Diluted Net Loss Per
Share - Basic net loss per share is based upon the weighted average
number of common shares outstanding.  Dilutive convertible shares and
stock options are not included in the compensation of the weighted average
number of shares outstanding for dilutive net loss per common share, as the
effect would be antidilutive.
 
 Use of Accounting Estimates -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from these
estimates.


Statement of Cash Flows - For
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with an initial maturity of three months or
less to be cash equivalents.





Recent Accounting
Pronouncements -


Management
does not believe that any recently issued, but not yet effective accounting
pronouncements, if adopted, would have a material effect on the accompanying
financial statements.







8


FORM
      10-Q
            DECEMBER
      31, 2009





PACIFIC
SANDS, INC


NOTES TO
FINANCIAL STATEMENTS





3.      
 GOING CONCERN





The
accompanying financial statements have been presented assuming that the Company
will continue as a going concern.  This basis of accounting
contemplates the recovery of the Company's assets and the satisfaction of its
liabilities in the normal course of business.  Through December 31,
2009, the Company has incurred cumulative losses of $5,333,531.  The
Company's successful transition to attaining profitable operations is dependent
upon obtaining financing adequate to fulfill its development, marketing and
sales activities and achieving a level of revenues adequate to support the
Company's cost structure.  Management's plan of operations anticipates
that the cash requirements of the Company for the next twelve months will be met
by obtaining capital through the sale of common stock, debt financings and from
current operations.  However, there is no assurance that the Company
will be able to fully implement its plan in order to generate the funds needed
on a going concern basis.




4.   
    INVENTORIES





Inventories
at December 31, 2009 and June 30, 2009 consisted of the following:





December
      31,
              2009
            
            
            June
      30,
              2009Raw
      materials
            
            $
            97,403
            
            
            $
            94,484Finished
      goods
            
            
            22,005
            
            
            
            14,319Total
            
            $
            119,408
            
            
            $
            108,803




5.      
 PROPERTY AND EQUIPMENT





Property
and equipment at December 31, 2009 and June 30, 2009 consisted of the
following:





December
      31,
              2009
            
            
            June
      30,
              2009Furniture
      and office equipment
            
            $
            33,596
            
            
            $
            33,596Manufacturing
      equipment
            
            
            63,104
            
            
            
            63,104Leasehold
      improvements
            
            
            3,035
            
            
            
            3,035Computer
      software
            
            
            16,577
            
            
            
            15,277116,312
            
            
            
            115,012Less
      accumulated depreciation and amortization
            
            
            (68,201
            )
            
            
            (55,349
            )Property
      and equipment, net
            
            $
            48,111
            
            
            $
            59,663




9


FORM
      10-Q
            DECEMBER
      31, 2009





PACIFIC
SANDS, INC


NOTES TO
FINANCIAL STATEMENTS





6.        
ACCRUED EXPENSES




Accrued
expenses at December 31, 2009 and June 30, 2009 consisted of the
following:





December
      31, 2009
            
            
            June
      30, 2009Accrued
      compensation
            
            $
            87,951
            
            
            $
            55,894Accrued
      payroll withholding taxes and penalties
            
            
            44,011
            
            
            
            39,525Accrued
      professional fees
            
            
            15,275
            
            
            
            18,766Accrued
      interest
            
            
            13,871
            
            
            
            9,897Accrued
      other
            
            
            3,477
            
            
            
            1,578Total
            
            $
            164,585
            
            
            $
            125,660




7.   
    NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS





Notes
payable at December 31, 2009 and June 30, 2008 consisted of the
following:





December
      31, 2009
            
            
            June
      30, 2008Dell
      Financial Services – line of credit
            
            $
            11,491
            
            
            $
            13,652J.P.
      Morgan Chase –  business line of credit
            
            
            87,009
            
            
            
            94,992Notes
      payable - stockholders and directors
            
            
            38,056
            
            
            
            59,652Notes
      payable – settlement obligation
            
            
            26,500
            
            
            
            44,500Notes
      payable – acquisition, net of discount
            
            
            642,922
            
            
            
            629,684Convertible
      notes payable – net of discount
            
            
            127,899
            
            
            
            68,370Notes
      payable – executive officers
            
            
            271,443
            
            
            
            274,443Capital
      leases
            
            
            22,774
            
            
            
            27,3221,228,094
            
            
            
            1,212,615Less
      current maturities
            
            
            182,304
            
            
            
            223,330$
            1,045,790
            
            
            $
            989,285





The
scheduled annual maturities for notes payable and capital lease obligations are
as follows for the years ending December 31,





2010
            
            $
            182,3042011
            
            
            92,4212012
            
            
            971,048





On
October1, 2008, the Company executed convertible notes payable (the “Notes”) to
eight investors for a total of $82,000. Interest accrues at a rate of 12% per
annum and is payable quarterly.   The Notes mature on October 1,
2011 at which time all outstanding principal is payable in full in the form of
freely tradable common stock of the Company at an agreed upon conversion price
of $0.10 (ten cents) per share.  The Company shall have the right, but
not the obligation, to pay up to one half of the principle balance in cash. On
November 1, 2009, the Company executed new convertible notes payable (the “New
Notes”) in the amount of $56,500 to the same investors under the same terms as
the Notes. The New Notes mature on November 1, 2012. Pursuant to a Stock Pledge
Agreement dated October 1, 2008, each Note and each New Note is secured by the
number of shares of common stock of the Company necessary to satisfy the entire
principal amount at the agreed upon price of $0.10 (ten cents)  per
share.





8.       
STOCKHOLDERS’ EQUITY





On July
7, 2009, the Company issued 50,000 shares of its common stock to a consultant
for services performed. The fair market value of the shares on the date issued
was $0.04 per share. The Company recorded consulting fee expense of $2,000
related to the issuance of these shares.


10


FORM
      10-Q
            DECEMBER
      31, 2009





PACIFIC
SANDS, INC


NOTES TO
FINANCIAL STATEMENTS





On July
7, 2009, the Company issued 150,000 shares of its common stock to an unrelated
investor for a cash investment of $6,000.





On July
7, 2009, the Company issued 73,259 shares of its common stock to an employee for
a cash investment of $2,930.





On July
7, 2009, the Company issued 721,778 shares of its common stock to a related
party shareholder as settlement of a note payable in the amount of
$28,871.  On July 7, 2009 the Company’s common stock had a fair market
value of $0.04 per share.




9.    
    LOSS PER SHARE






Basic
loss per common share is based on the weighted average number of common shares
outstanding in each period and net loss.





The
following table sets forth the computation of basic and diluted earnings per
share.


Three
      months ended
              
              
              
              Six
      months endedDecember
      31,
              
              
              
              December
      31,2009
              
              
              
              2008
              
              
              
              2009
              
              
              
              2008Numerator:Basic
      and diluted loss
              
              $
              (918,323
              )
              
              $
              (181,039
              )
              
              $
              (983,640
              )
              
              $
              (245,951
              )Denominator:Basic
      and diluted per share data - weighted average shares
              
              
              43,581,940
              
              
              
              40,117,486
              
              
              
              43,544,085
              
              
              
              39,673,500Basic
      and diluted loss per share
              
              $
              (0.021
              )
              
              $
              (0.005
              )
              
              $
              (0.023
              )
              
              $
              (0.006
              )




Outstanding
stock options were not included in the computation of diluted loss per common
share for the six month periods ended December 31, 2009 and 2008 since their
inclusion would have resulted in an antidilutive effect.





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





December
      31, 2009
            December
      31, 2008Stock
      options
            3,000,000
            3,000,000




11


FORM
      10-Q
            DECEMBER
      31, 2009





PACIFIC
SANDS, INC


NOTES TO
FINANCIAL STATEMENTS





10.  
    INCOME TAXES





The
Company recognizes deferred tax assets and liabilities for temporary differences
between the financial reporting and tax bases of its assets and
liabilities.  Deferred assets are reduced by a valuation allowance
when deemed appropriate.





The tax
effects of existing temporary differences that give rise to significant portions
of deferred tax assets at December 31, 2009 and June 30, 2009 are as
follows:





December
      31, 2009
            
            
            June
      30, 2009Net
      operating loss carryforwards
            
            $
            1,387,000
            
            
            $
            1,342,000Deferred
      compensation
            
            
            125,000
            
            
            
            134,000Accounts
      receivable allowance
            
            
            4,000
            
            
            
            30,000Valuation
      allowance
            
            
            (1,516,000
            )
            
            
            (1,506,000
            )Net
      deferred tax asset
            
            $
            --
            
            
            $
            --





At
December 31, 2009, the Company has net operating loss carryforwards for Federal
tax purposes of approximately $3,302,000 which, if unused to offset future
taxable income, will expire in years beginning in 2018.


12





Item
      2.
            Management
      Discussion and Analysis of Financial Condition and Results of
      Operation






THIS
REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY
UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING
FUTURE EVENTS OR FUTURE PERFORMANCE OF THE COMPANY. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH ARE ONLY
PREDICTIONS AND SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS
USUALLY CONTAIN THE WORDS "ESTIMATE," "ANTICIPATE," "BELIEVE," "EXPECT," OR
SIMILAR EXPRESSIONS, AND ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY REVIEW VARIOUS RISKS AND UNCERTAINTIES IDENTIFIED BELOW, AS WELL AS
THE MATTERS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON 10-K FOR THE YEAR ENDED
JUNE 30, 2009 AND ITS OTHER SEC FILINGS. THESE RISKS AND UNCERTAINTIES COULD
CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN
THE FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE
OR PUBLICLY ANNOUNCE REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT
FUTURE EVENTS OR DEVELOPMENTS.





General





Pacific
Sands, Inc. (the "Company" or "Pacific Sands") was incorporated in the State of
Nevada on July 7, 1994. The Company's fiscal year ends June 30. The Company is a
C-Corporation for federal income tax purposes. The Company does not have
subsidiaries or affiliated entities. The Company also does business as "Natural
Water Technologies", ecoONE Marketing Group and Natural Choices Home Safe
Products (see discussion below).





The
Company develops, manufactures, markets and sells a range of non-toxic,
environmentally friendly cleaning and water-treatment products based on
proprietary blended botanical and nontoxic chemical technologies. The Company's
products have applications ranging from water installation maintenance (spas,
swimming pools, fountains, decorative ponds) to cleaning (non-toxic household
and industrial) and pet care.





The
Company has a mature, actively marketed product line known as the ecoONE® Spa
Treatment system as well as ecoONE® Pool conditioner and the Pacific Sands
All-Purpose Hose Filter. Pacific Sands is also the master distributor for Rain
Forest Blue, an EPA Registered chlorine and bromine free, non irritating, odor
free, bactericide / algaecide alternative for the treatment of pool
water.




13





In mid
February of 2008, the Company acquired Natural Choices Home Safe Products, LLC
(“Natural Choices”), a developer and manufacturer of environmentally friendly
cleaning and laundry products. The acquisition added dozens of new products to
the Pacific Sands portfolio of earth, health, pet and kid-friendly offerings,
including Oxy-BoostTM an oxygen-bleach based, chlorine-free bleach alternative.
The Company now has a large selection of oxygen- bleach based formulations
available both for retail distribution under its ecoone®, e-2 elemental earth®
and Natural ChoicesTM brands as well as for contract manufacturing and
re-label.





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





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





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





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





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





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








RESULTS
OF OPERATIONS





Results for the three months ending
December 31, 2009 compared to the three months ending December 31,
2008.





For the
three months ended December 31, 2009, net sales were $265,878,
an  increase of 50% from net sales of $176,999 for the same period in
fiscal 2008. The increase is due to better economic conditions and an increase
in private label sales.


14





For the
three months ended December 31, 2009, cost of goods sold was $127,187 compared
to $120,411 for the same period in the previous fiscal year.  The
Company’s gross margin increased from 32% for the three months ended December
31, 2008 to 52% for the current fiscal quarter. This large increase is due to
the fact that the Company has begun to recognize significant cost savings from
efficiencies of manufacturing certain products in-house that were previously
manufactured by a third party contract manufacturer.  Additionally,
the Company discontinued a few of their lower margin products.





For the
three months ended December 31, 2009 and 2008, selling and general
administrative expenses were $161,806 and $216,105 respectively. The decrease in
operating expenses is explained in large part by a significant decrease in
salaries and wage expense resulting from layoffs and salary reductions. Salaries
and wage expense for the three months ended December 31, 2009 approximated
$69,000 compared to $125,000 for the three months ended December 31,
2008.





On
December 31, 2009, the Company recorded an impairment charge $877,854
representing the entire amount of the intangible asset recorded for the
acquisition of Natural Choices Home Safe Products in February
2008.  Applying the guidance for Goodwill and Other Intangible Assets,
the Company determined that the carrying amount of the intangible asset exceeded
the fair value, and further determined that the entire value of the intangible
asset should be written off.





Interest
expense for the three months ended December 31, 2009 was $17,354 compared to
$21,522 for the three months ended December 31, 2008.  During the
three months ended December 31, 2009, the Company amortized $7,567 of discounts
of notes payable compared to $12,430 during the three months ended December 31,
2008.





The
Company recorded a net loss of $918,323 or $0.021 per share for the three months
ended December 31, 2009 as compared to a net loss of $181,039 or $0.005 per
share for the three months ended December 31, 2008.




Results for the six months ending
December 31, 2009 compared to the six months ending December 31,
2008.





For the
six months ended December 31, 2009 and 2008, net sales were $519,423 and
529,805, respectively.




15





For the
six months ended December 31, 2009, cost of goods sold was $233,373 compared to
$282,361 for the same period in the previous fiscal year.  The
Company’s gross margin increased from 47% for the six months ended December 31,
2008 to 55% for the six months ended December 31, 2009. This increase is due to
cost savings from efficiencies of manufacturing certain products in-house that
were previously manufactured by a third party contract
manufacturer.  Additionally, the Company discontinued some of their
lower margin products.





For the
six months ended December 31, 2009 and 2008, selling and general administrative
expenses were $353,226 and $455,785 respectively. The decrease in operating
expenses is explained in large part by a significant decrease in salaries and
wage expense resulting from layoffs and salary reductions. Salaries and wage
expense for the six months ended December 31, 2009 approximated $151,000
compared to $271,000 for the six months ended December 31, 2008.


On
December 31, 2009, the Company recorded an impairment charge $877,854
representing the entire amount of the intangible asset recorded for the
acquisition of Natural Choices Home Safe Products in February
2008.  Applying the guidance for Goodwill and Other Intangible Assets,
the Company determined that the carrying amount of the intangible asset exceeded
the fair value, and further determined that the entire value of the intangible
asset should be written off.


Interest
expense for the six months ended December 31, 2009 was $38,610 compared to
$37,610 for the six months ended December 31, 2008.  During the six
months ended December 31, 2009, the Company recorded notes payable discount
amortization $16,267 compared to $23,755 during the three months ended December
31, 2008.  During the six months ended December 31, 2009, the Company
also recorded interest expense of $13,000 pursuant to the amended note payable
for the acquisition of Natural Choices. The note was amended in March
2009.




The
Company recorded a net loss of $983,640 or $0.023 per share for the six months
ended December 31, 2009 as compared to a net loss of $245,951 or $0.006 per
share for the six months ended December 31, 2008.


LIQUIDITY
AND CAPITAL RESOURCES





Management
believes that the Company is positioned for sales growth but will require
additional funding to continue operations. The Company's ability to achieve its
objectives is dependent upon its ability to sustain and enhance its current
revenue stream and to continue to raise funds through loans, vendor credit and
the private placement of restricted securities until such time as the Company
sustains fiscal profitability. To date, the Company has funded operations and
expansion through a combination of revenues from the sale of its products,
established credit with vendors, deferred salaries (subsequently converted to
notes payable to officers), debt financings and the sale of rule 144 stock
through private placement. The Company's failure to continue to raise adequate
financing to fund planned expansion may jeopardize its plans for
growth.
 
 At
December 31, 2009, the Company had current assets of $280,588 and total assets
of $328,699, compared to June 30, 2009 when current assets were $254,616 and
total assets were $1,192,133. Accounts receivable increased to $155,354 at
December 31, 2009 from $137,412 at June 30, 2009. The increase is attributed in
part to customers paying slower than in previous periods.
 
 Current
liabilities at December 31, 2009 were $524,911. Current liabilities include
accounts payable, notes payable and capital lease obligations and accrued
expenses. At December 31, 2009, the Company had outstanding line of credit
balances with banks totaling approximately $99,000. Accrued liabilities also
include $26,000 in payments due to a former officer pursuant to a settlement
agreement executed in December 2007.




16




Noncurrent
liabilities include notes payable due for the acquisition of Natural Choices for
approximately $633,000, net of discount. Noncurrent liabilities also include
$138,000 of convertible debt and $272,000 of notes payable due the Company’s two
executive officers.





Net cash
used in operating activities during the six months ended December 31, 2009 was
$41,581 compared to $88,594 used in operating activities during the six months
ended December 31, 2008.





For the
six months ended December 31, 2009, net cash used in investing activities was
$1,300, representing the purchase of property and equipment. Net cash used in
investing activities during the six months ended December 31, 2008 was $7,671
and included $3,146 of equipment purchases and an increase in security deposits
of $4,525.





Net cash
provided by financing activities was $37,014 and $88,778 for the six months
ended December 31, 2009 and 2008, respectively. During the six months ended
December 31, 2009, the Company issued restricted common stock for cash totaling
$8,930 compared to $41,169 in 2008, and also received proceeds from borrowings
in the amount of $72,170 and $135,201 during the six months ended December 31,
2009 and 2008, respectively. Those proceeds included amounts received from
issuing convertible notes payable in amounts of $56,500 and $82,000 in fiscal
2010 and 2009, respectively. Proceeds from financing activities were used to
fund operations and to meet current obligations of notes payable.




On
December 31, 2009 the Company had an accumulated deficit of $5,333,531and total
stockholders’ deficit of $1,242,002.


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





The
Company has no material commitments for capital expenditures at this time. The
Company has no “off balance sheet” source of liquidity
arrangements.








Item
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk





An
investment in the common stock of the Company involves a high degree of risk. In
addition to the other information in this report, the following risk factors
should be considered carefully in evaluating the Company and its business. This
Report contains forward-looking statements. All forward-looking statements are
inherently uncertain as they are based on current expectations and assumptions
concerning future events or future performance of the Company. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
are only predictions and speak only as of the date hereof. Forward-looking
statements usually contain the words "estimate," "anticipate," "believe,"
"plan," "expect," or similar expressions, and are subject to numerous known and
unknown risks and uncertainties. In evaluating such statements, prospective
investors should review carefully various risks and uncertainties identified in
this report, including the matters set below and in the Company's other SEC
filings. These risks and uncertainties could cause the Company's actual results
to differ materially from those indicated in the forward-looking statements. The
Company undertakes no obligation to update or publicly announce revisions to any
forward-looking statements to reflect future events or
developments.


17





THE
COMPANY HAS EXPERIENCED LOSSES FROM OPERATIONS SINCE COMMENCING
OPERATIONS:


With the
exception of the 3rd
quarter of fiscal 2009 and the 4th quarters of fiscal 2007 and
2006, the Company since commencing operations, has not been profitable on an
annual or quarterly basis. The Company cannot guarantee that recent quarterly
profitability will continue on a quarter by quarter basis. The Company may not,
in the future, generate sufficient revenues to achieve sustainable
profitability.





POSSIBLE
DIFFICULTY FINANCING PLANNED GROWTH:


The
Company's present plans require an amount of expenditure and working capital. In
the future the Company will require financing in addition to the cash generated
from operations to fund planned growth. If additional resources are unavailable
the Company may be unable to grow according to its present plan.





MANAGEMENT'S
ASSUMPTIONS REGARDING THE FUTURE MARKET MAY BE FAULTY:


Management
assumes there will be a continuing and increased desirability in the retail
market for nontoxic, environment and health friendly products for cleaning and
water treatment use. Should management's assumptions as to this increased
desirability be faulty, the Company may have difficulty achieving its planned
growth.





THE LOSS
OF KEY PERSONNEL COULD ADVERSELY AFFECT THE COMPANY:


The
Company is run by a small number of key personnel. Should the Company experience
a loss of these key people due to their inability or unwillingness to continue
in their present positions, the Company's business and financial results could
be adversely affected.








Item
      4.
            Controls
      and Procedures





Evaluation
of Disclosure Controls and Procedures




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




Preparation
of the filing ending on December 31, 2009 required evaluation of the goodwill
from the acquisition of Natural Choices. Management elected to take extra time
to carefully evaluate the impairment. Management believes the resulting late
filing to be a necessary but rare event.


18




Changes
in Internal Control over Financial Reporting





As
reported in our Annual Report on Form 10-K for the year ended June 30, 2009,
management is aware that there is a significant deficiency in our internal
control over financial reporting. The significant deficiency relates to a lack
of segregation of duties due to the small number of employees involvement with
general administrative and financial matters. However, management believes that
compensating controls are in place to mitigate the risks associated with the
lack of segregation of duties. Compensating controls include outsourcing certain
financial functions to an independent contractor. Management concluded that
internal controls over financial reporting were effective as of June 30,
2009.





There
have not been any changes in the Company's internal control over financial
reporting during the quarter ended December 31, 2009 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting








PART
II OTHER INFORMATION





Item
1 – LEGAL PROCEEDINGS





None





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





On July
7, 2009, the Company issued 50,000 shares of its common stock to a consultant
for services performed. The fair market value of the shares on the date issued
was $0.04 per share. The Company recorded consulting fee expense of $2,000
related to the issuance of these shares.





On July
7, 2009, the Company issued 150,000 shares of its common stock to an unrelated
investor for a cash investment of $6,000.





On July
7, 2009, the Company issued 73,259 shares of its common stock to an employee for
a cash investment of $2,930.





On July
7, 2009, the Company issued 721,778 shares of its common stock to a shareholder
as settlement of a note payable in the amount of $28,871.





Item
3 – DEFAULTS UPON SENIOR SECURITIES





None





Item
4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None


19





Item
5 – OTHER INFORMATION





None





Item
6 – EXHIBITS





(a)
            Exhibit
      IndexExhibit
            Description
      of the Exhibit31.1
            Chairman
      of the Board Certification of Periodic Financial Report Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.31.2
            Chief
      Financial Officer Certification of Periodic Financial Report Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.32.1
            Chairman
      of the Board Certification Pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
            Chief
      Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes Oxley Act of
      2002.











SIGNATURES





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








PACIFIC
      SANDS, INC.Dated:
      March 5, 2010
            By:
            /s/ Michael
      WynhoffMichael
      WynhoffChief
      Executive OfficerDated:
      March 5, 2010
            By:
            /s/ Michael
      MichieMichael
      MichieChief
      Financial Officer(principal
      accounting officer)









20