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
                  March
      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.      Yes x            
No  ̈
  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  ̈            
No Q
  The
numbers of shares outstanding of each of the issuer's classes of common equity,
as of May 13 2009, are as follows:
  Class
      of Securities
                  
                  Shares
      OutstandingCommon
      Stock, $0.001 par value
                  
                  41,653,925
 
  TABLE OF CONTENTS
 
   PagePART IFINANCIAL
      INFORMATIONItem
      1.
                    Financial Statements
                    3Balance Sheet as of March 31, 2009 (unaudited) and June 30,
      2008
                    3Statements of Operations for the Three and Nine Months
      Ended March 31, 2009 and 2008 (unaudited)
                    4Statements of Cash Flows for the Nine Months
      Ended March 31, 2009 and 2008 (unaudited)
                    5Notes to Financial Statements
(unaudited)
                    7Item
      2.
                    Management Discussion and Analysis of Financial Condition and
      Results of Operation
                    17Item
      3.
                    Quantitative and Qualitative Disclosers About Market
      Risk
                    22Item
      4.
                    Controls and Procedures
                    23PART IIOTHER
      INFORMATIONItem
      1.
                    LEGAL PROCEEDINGS
                    24Item
      2.
                    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
                    24Item
      3.
                    DEFAULTS UPON SENIOR SECURITIES
                    24Item
      4.
                    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                    24Item
      5.
                    OTHER INFORMATION
                    24Item
      6.
                    EXHIBITS
                    25SIGNATURES
                    25EX-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
    SHEETSMARCH 31, 2009 AND JUNE 30,
      2008ASSETSMarch 31,
    2009
                                                                                                
                                                                                                
                                                                                                June 30,
    2008Current
    assets:
                                                                                                
                                                                                                (Unaudited)Cash and cash
      equivalents
                                                                                                
                                                                                                $
                                                                                                5,042
                                                                                                
                                                                                                
                                                                                                $
                                                                                                7,487Trade receivables, net of
      allowances for doubtful accounts of $30,602 and
    $13,602
                                                                                                
                                                                                                
                                                                                                183,011
                                                                                                
                                                                                                
                                                                                                
                                                                                                256,427Inventories
                                                                                                
                                                                                                
                                                                                                133,152
                                                                                                
                                                                                                
                                                                                                
                                                                                                135,282Prepaid
      expenses
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                948Other current
      assets
                                                                                                
                                                                                                
                                                                                                8,338
                                                                                                
                                                                                                
                                                                                                
                                                                                                2,268Total Current
      Assets
                                                                                                
                                                                                                
                                                                                                329,543
                                                                                                
                                                                                                
                                                                                                
                                                                                                402,412Property and equipment,
      net
                                                                                                
                                                                                                
                                                                                                64,792
                                                                                                
                                                                                                
                                                                                                
                                                                                                78,311Other
    assets:Security
      deposits
                                                                                                
                                                                                                
                                                                                                816
                                                                                                
                                                                                                
                                                                                                
                                                                                                816Goodwill
                                                                                                
                                                                                                
                                                                                                877,854
                                                                                                
                                                                                                
                                                                                                
                                                                                                861,862878,670
                                                                                                
                                                                                                
                                                                                                
                                                                                                862,678Total
Assets
                                                                                                
                                                                                                $
                                                                                                1,273,005
                                                                                                
                                                                                                
                                                                                                $
                                                                                                1,343,401LIABILITIES AND STOCKHOLDERS'
      DEFICITCurrent
      liabilities:Accounts
      payable
                                                                                                
                                                                                                $
                                                                                                195,525
                                                                                                
                                                                                                
                                                                                                $
                                                                                                331,824Current maturities of capital
      lease obligations
                                                                                                
                                                                                                
                                                                                                14,623
                                                                                                
                                                                                                
                                                                                                
                                                                                                21,598Accrued
      expenses
                                                                                                
                                                                                                
                                                                                                100,888
                                                                                                
                                                                                                
                                                                                                
                                                                                                154,469Deferred
      compensation
                                                                                                
                                                                                                
                                                                                                -
                                                                                                
                                                                                                
                                                                                                
                                                                                                139,732Current portion of notes
      payable
                                                                                                
                                                                                                
                                                                                                196,776
                                                                                                
                                                                                                
                                                                                                
                                                                                                361,221Total Current
      Liabilities
                                                                                                
                                                                                                
                                                                                                507,812
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,008,844Capital leases, less current
      portion
                                                                                                
                                                                                                
                                                                                                24,212
                                                                                                
                                                                                                
                                                                                                
                                                                                                33,215Notes payable - net of
      discount of $44,910 and $78,601, less current
    portion
                                                                                                
                                                                                                
                                                                                                983,284
                                                                                                
                                                                                                
                                                                                                
                                                                                                522,558Total
      Liabilities
                                                                                                
                                                                                                
                                                                                                1,515,308
                                                                                                
                                                                                                
                                                                                                
                                                                                                1,564,617Stockholders'
      deficitCommon stock (50,000,000 shares
      authorized, 48,263,112 and 45,308,958 shares issued, and 41,653,925 and
      38,699,771 shares outstanding)
                                                                                                
                                                                                                
                                                                                                48,264
                                                                                                
                                                                                                
                                                                                                
                                                                                                45,309Additional paid in
      capital
                                                                                                
                                                                                                
                                                                                                4,096,010
                                                                                                
                                                                                                
                                                                                                
                                                                                                3,898,363Treasury stock, at
      cost
                                                                                                
                                                                                                
                                                                                                (132,030
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (132,030
                                                                                                )Accumulated
      deficit
                                                                                                
                                                                                                
                                                                                                (4,254,547
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (4,032,858
                                                                                                )Total Stockholders'
      Deficit
                                                                                                
                                                                                                
                                                                                                (242,303
                                                                                                )
                                                                                                
                                                                                                
                                                                                                (221,216
                                                                                                )Total Liabilities and
      Stockholders' Deficit
                                                                                                
                                                                                                $
                                                                                                1,273,005
                                                                                                
                                                                                                
                                                                                                $
                                                                                                1,343,401




See accompanying
notes.





Return to Table of Contents
 3




PACIFIC SANDS,
      INC.STATEMENTS OF
      OPERATIONSFOR THE THREE AND NINE MONTHS
      ENDED MARCH 31, 2009 AND 2008(UNAUDITED)Three months
      ended
                                                                                                                            
                                                                                                                            
                                                                                                                            Nine months
      endedMarch 31,
                                                                                                                            
                                                                                                                            
                                                                                                                            March 31,2009
                                                                                                                            
                                                                                                                            
                                                                                                                            2008
                                                                                                                            
                                                                                                                            
                                                                                                                            2009
                                                                                                                            
                                                                                                                            
                                                                                                                            2008Net sales
                                                                                                                            
                                                                                                                            $
                                                                                                                            328,070
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            243,145
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            857,875
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            576,187Cost of
    sales
                                                                                                                            
                                                                                                                            
                                                                                                                            126,636
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            73,078
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            408,998
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            204,522Gross
profit
                                                                                                                            
                                                                                                                            
                                                                                                                            201,434
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            170,067
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            448,877
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            371,665Selling and administrative
      expenses
                                                                                                                            
                                                                                                                            
                                                                                                                            217,740
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            251,319
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            673,525
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            661,080Loss from
      operations
                                                                                                                            
                                                                                                                            
                                                                                                                            (16,306
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (81,252
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (224,648
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (289,415
                                                                                                                            )Other
    expenseInterest
      expense
                                                                                                                            
                                                                                                                            
                                                                                                                            (18,893
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (8,992
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (56,504
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (17,870
                                                                                                                            )Other
income
                                                                                                                            
                                                                                                                            
                                                                                                                            59,463
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            5,096
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            59,463
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            10,096Earnings (loss) before income
      taxes
                                                                                                                            
                                                                                                                            
                                                                                                                            24,264
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            (85,148
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (221,689
                                                                                                                            )
                                                                                                                            
                                                                                                                            
                                                                                                                            (297,189
                                                                                                                            )Income
taxes
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            -Net earnings
      (loss)
                                                                                                                            
                                                                                                                            $
                                                                                                                            24,264
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (85,148
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            (221,689
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            (297,189
                                                                                                                            )Basic and diluted earnings (loss)
      per share:
                                                                                                                            
                                                                                                                            $
                                                                                                                            0.001
                                                                                                                            
                                                                                                                            
                                                                                                                            $
                                                                                                                            (0.002
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            (0.006
                                                                                                                            )
                                                                                                                            
                                                                                                                            $
                                                                                                                            (0.008
                                                                                                                            )Basic and diluted weighted average
      shares outstanding:
                                                                                                                            
                                                                                                                            
                                                                                                                            40,551,236
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            37,503,493
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            39,961,808
                                                                                                                            
                                                                                                                            
                                                                                                                            
                                                                                                                            35,382,982









Return to Table of Contents
 4




PACIFIC SANDS,
      INC.STATEMENTS OF CASH
      FLOWSFOR THE NINE MONTHS ENDED MARCH
      31, 2009 AND 2008(UNAUDITED)2009
                                                            
                                                            
                                                            2008Cash flows from operating
      activitiesNet loss
                                                            
                                                            $
                                                            (221,689
                                                            )
                                                            
                                                            $
                                                            (297,189
                                                            )Adjustments to reconcile net loss
      to net cash used in operating activities -Depreciation and
      amortization
                                                            
                                                            
                                                            18,165
                                                            
                                                            
                                                            
                                                            10,180Amortization of debt
      discount
                                                            
                                                            
                                                            35,206
                                                            
                                                            
                                                            
                                                            -Common shares issued for
      services  and compensation
                                                            
                                                            
                                                            32,950
                                                            
                                                            
                                                            
                                                            73,350Changes in assets and liabilities
      -Trade accounts
      receivable
                                                            
                                                            
                                                            61,425
                                                            
                                                            
                                                            
                                                            (85,774
                                                            )Inventories
                                                            
                                                            
                                                            2,130
                                                            
                                                            
                                                            
                                                            7,002Prepaid
      expenses
                                                            
                                                            
                                                            948
                                                            
                                                            
                                                            
                                                            9,899Other
assets
                                                            
                                                            
                                                            (6,070
                                                            )
                                                            
                                                            
                                                            (5,077
                                                            )Accounts payable and other current
      liabilities
                                                            
                                                            
                                                            1,883
                                                            
                                                            
                                                            
                                                            108,963Net Cash Used in Operating
      Activities
                                                            
                                                            
                                                            (75,052
                                                            )
                                                            
                                                            
                                                            (178,646
                                                            )Cash flows from investing
      activitiesAcquisition of Natural Choices -
      initial payment
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (60,000
                                                            )Purchases of
      equipment
                                                            
                                                            
                                                            (4,645
                                                            )
                                                            
                                                            
                                                            -Net Cash Used in Investing
      Activities
                                                            
                                                            
                                                            (4,645
                                                            )
                                                            
                                                            
                                                            (60,000
                                                            )Cash flows from financing
      activitiesProceeds from common stock
      issued
                                                            
                                                            
                                                            49,801
                                                            
                                                            
                                                            
                                                            167,000Proceeds from notes
      payable
                                                            
                                                            
                                                            149,576
                                                            
                                                            
                                                            
                                                            140,864Repayment of notes payable and
      long term obligations
                                                            
                                                            
                                                            (122,125
                                                            )
                                                            
                                                            
                                                            (65,443
                                                            )Deferred compensation
      payments
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (15,798
                                                            )Net Cash Provided by Financing
      Activities
                                                            
                                                            
                                                            77,252
                                                            
                                                            
                                                            
                                                            226,623Net decrease in cash and cash
      equivalents
                                                            
                                                            
                                                            (2,445
                                                            )
                                                            
                                                            
                                                            (12,023
                                                            )Cash and cash
      equivalents:Beginning of
      period
                                                            
                                                            
                                                            7,487
                                                            
                                                            
                                                            
                                                            13,969End of
    period
                                                            
                                                            $
                                                            5,042
                                                            
                                                            
                                                            $
                                                            1,946
    Return to Table of Contents
 5
  PACIFIC SANDS,
      INC.STATEMENTS OF CASH
      FLOWSFOR THE NINE MONTHS ENDED MARCH
      31, 2009 AND 2008(UNAUDITED)Supplemental disclosures of cash
      flow information:2009
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                2008Cash paid during the period
      for:Interest
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                16,359
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                5,973Income
taxes
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -Supplemental disclosure of non
      cash financing and investing activitiesConversion of debt to
      equity
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                50,000
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                41,048Conversion of accrued salaries to
      equity
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                49,676
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -Conversion of deferred
      compensation to notes payable
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                285,693
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -Convertible notes discount with
      corresponding increase to paid in capital for
      value of the beneficial conversion
      feature
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                18,174
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -Deposit on acquisition utilizing
      common stock
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                50,000Capital lease
      obligations
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                8,892Common stock issued as down
      payment for machinerypurchased under capital
      lease
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                4,108Reclassification of settlement
      obligation (previouslyrecorded as deferred
      compensation)
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                100,000Debt obligation incurred upon
      acquisition ofthe assets of Natural Choices
      Home Safe Products,net of
      discount
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                -
                                                                                                                                                                
                                                                                                                                                                
                                                                                                                                                                $
                                                                                                                                                                647,814









Return to Table of Contents
 6


FORM
      10-Q
              MARCH 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-KSB for the year ended June 30, 2008.  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 2008 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.
  Return to Table of Contents
 7
 
 FORM 10-Q
              MARCH 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 $18,165 and $10,180 during the nine months ended
March 31, 2009 and 2008, respectively.
 
 Revenue Recognition - Revenue
is recognized when the related products are shipped.
 
 Advertising and Promotional
Costs - Advertising and promotion costs are expensed as
incurred.  During the nine months ended March 31, 2009 and 2008
advertising and promotion costs totaled $3,982 and $12,547,
respectively.
 
 Income Taxes - The Company accounts for income taxes
under Statement of Financial Accounting Standards No. 109, “Accounting for
Income Taxes”.  Under Statement No. 109, the asset and liability
method is used in accounting for income taxes.  Deferred taxes are
recognized for temporary differences between the bases of assets and liabilities
for financial statement and income tax purposes.  The temporary
differences relate primarily to net operating loss carryforwardsand 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.
 
 In addition, the Company follows the provisions ofFASB Interpretation No.
48,"Accounting for Uncertainty in Income Taxes," an interpretation of FASB
Statement No.109 ("FIN 48"). FIN 48 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. Review
of theCompany’s possible
tax for 2009 and 2008did
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 $30,602 is adequate as of March 31,
2009.
 
 Basic and Diluted Net Loss Per
Share - Net loss per share is calculated in accordance with Statement of
Financial Accounting Standards 128, Earnings Per Share ("SFAS
128").  Basic net loss per share is based upon the weighted average
number of common shares outstanding.  Diluted
net loss per share is based on the assumption that all dilutive convertible
shares and stock options were converted or exercised.  Dilution is
computed by applying the treasury stock method.  Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the
period.
  Return to Table of Contents
 8
 
 FORM 10-Q
              MARCH 31,
    2009
 
 PACIFIC SANDS, INC
 NOTES TO FINANCIAL
STATEMENTS
 
 
 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 - The following is a summary of recent authoritative
pronouncements that affect accounting, reporting and disclosure of financial
information by the Company.
 
 In
September 2006 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS
No. 157 provides enhanced guidance for using fair value to measure assets
and liabilities. SFAS No. 157 applies whenever other standards require or
permit assets or liabilities to be measured at fair value. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. In
February 2008, the FASB issued FASB Staff Position
(“FSP”) No. 157-2, Effective Date of FASB Statement
No. 157, which defers the effective date of SFAS No. 157 for
one year for non-financial assets and liabilities, except for items that are
recognized or disclosed at fair value in an entity’s financial statements on a
recurring basis (at least annually). In October 2008, the FASB issued FSP
No. 157–3, Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active, which clarifies the application of SFAS No. 157 in a market
that is not active. On July 1, 2008, the Company adopted the provisions of SFAS
No. 157 for financial assets and liabilities recognized or disclosed at
fair value on a recurring and non–recurring basis and the provisions FSP
No. 157-3. The adoption of SFAS 157 did not have a material
impact on the Company’s financial statements.  Consistent with the
provisions of FSP No. 157–2, the Company elected to defer the adoption of
SFAS No. 157 for non–financial assets and liabilities measured at fair
value on a non–recurring basis. The Company is in the process of evaluating
these portions of the standard and therefore has not yet determined the impact
that the adoption will have on its financial statements.
 
 In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159).  SFAS 159
allows entities to voluntarily choose to measure certain financial assets and
liabilities at fair value (“fair value option”).  The fair value option may
be elected on an instrument-by-instrument basis and is irrevocable, unless a new
election date occurs.  If the fair value option is elected for an
instrument, SFAS 159 specifies that unrealized gains and losses for that
instrument be reported in earnings at each subsequent reporting date. 
SFAS 159 was effective for the Company on July 1, 2008.  The
Company did not apply the fair value option to any of its outstanding
instruments and, therefore, SFAS 159 did not have an impact on the
Company’s financial statements.
  Return to Table of Contents
 9
 
 FORM 10-Q
              MARCH 31,
    2009
 
 PACIFIC SANDS, INC
 NOTES TO FINANCIAL
STATEMENTS
  
 In December 2007, the FASB issued SFAS
No. 141(R),Business
Combinations–Revised, that improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. To accomplish that, this statement establishes principles and
requirements how the acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree, recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase, and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business combination. The changes to current
practice resulting from the application of SFAS No. 141(R) are effective for
financial statements issued for fiscal years beginning after December 15, 2008.
The adoption of SFAS No. 141(R) before December 15, 2008 is prohibited. The
Company has not determined the effect, if any, that may result from the adoption
of SFAS No. 141(R) on its financial statements.
 
 In March 2008, the FASB issued FASB
Statement No. 161Disclosures about
Derivative Instruments and Hedging Activities an amendment of FASB Statement No.
133(“SFAS No. 161”), which
changes the disclosure requirements for derivative instruments and hedging
activities.  Pursuant to SFAS No.161, Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008 with early application encouraged. SFAS No.
161 encourages but does
 not require disclosures for earlier
periods presented for comparative purposes at initial adoption.  In
years after initial adoption, this Statement requires comparative disclosures
only for periods subsequent to initial adoption.  The Company does not
expect the adoption of SFAS No. 161 to have a material impact on the financial
results of the Company.
 
 In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets. FSP 142-3 amends the factors an entity should consider
in developing renewal or extension assumptions used in determining the useful
life of recognized intangible assets under SFAS 142, Goodwill and Other Intangible
Assets, and adds certain disclosures for an entity’s accounting policy of
the treatment of the costs, period of extension, and total costs
incurred.  FSP 143-3 must be applied prospectively to intangible
assets acquired after January 1, 2009.  The Company is currently
evaluating the impact that FSP 142-3 will have on its financial position or
results of operations.
 In May
2008, the Financial Accounting Standards Board (the “FASB”) issued FAS No. 162,
The Hierarchy of Generally
Accepted Accounting Principles (“FAS 162”). This statement identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in accordance with GAAP. With the issuance of this statement, the
FASB concluded that the GAAP hierarchy should be directed toward the entity and
not its auditor, and reside in the accounting literature established by the FASB
as opposed to the American Institute of Certified Public Accountants (AICPA)
Statement on Auditing Standards No. 69, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. This statement is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The adoption of
FAS 162 is not expected to have a material impact on the Company’s results from
operations or financial position.
 Return to Table of Contents
 10
 
 FORM 10-Q
              MARCH 31,
    2009
 
 PACIFIC SANDS, INC
 NOTES TO FINANCIAL
STATEMENTS
 
 
 Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
 
 
 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 March 31, 2009,
the Company has incurred cumulative losses of $4,254,547.  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 March 31, 2009 and June 30, 2008 consisted of the following:
 
 March
      31, 2009
                            
                            
                            June
      30, 2008Raw
      materials
                            
                            $
                            103,803
                            
                            
                            $
                            106,862Finished
      goods
                            
                            
                            29,349
                            
                            
                            
                            28,420Total
                            
                            $
                            133,152
                            
                            
                            $
                            135,282
 
 
 5.       
     PROPERTY AND EQUIPMENT
 
 Property
and equipment at March 31, 2009 and June 30, 2008 consisted of the
following:
 
 March
      31, 2009
                                
                                
                                June
      30, 2008Furniture
      and office equipment
                                
                                $
                                33,596
                                
                                
                                $
                                30,450Manufacturing
      equipment
                                
                                
                                63,104
                                
                                
                                
                                61,604Leasehold
      improvements
                                
                                
                                3,035
                                
                                
                                
                                3,035Computer
      software
                                
                                
                                15,277
                                
                                
                                
                                15,277115,012
                                
                                
                                
                                110,366Less
      accumulated depreciation and amortization
                                
                                
                                (50,220
                                )
                                
                                
                                (32,055
                                )Property
      and equipment, net
                                
                                $
                                64,792
                                
                                
                                $
                                78,311
  Return to Table of Contents
 11
 
 FORM 10-Q
              MARCH 31,
    2009
 
 PACIFIC SANDS, INC
 NOTES TO FINANCIAL
STATEMENTS
 
 
 6.       
     ACCRUED EXPENSES
 
 Accrued
expenses at March 31, 2009 and June 30, 2008 consisted of the
following:
 
 March
      31, 2009
                          
                          
                          June
      30, 2008Accrued
      compensation
                          
                          $
                          32,722
                          
                          
                          $
                          71,484Accrued
      payroll withholding taxes
                          
                          
                          44,991
                          
                          
                          
                          33,497Accrued
      professional fees
                          
                          
                          14,250
                          
                          
                          
                          38,964Accrued
      other
                          
                          
                          8,925
                          
                          
                          
                          10,524Total
                          
                          $
                          100,888
                          
                          
                          $
                          154,469
 
 
 7.           
 NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
 
 Notes
payable at March 31, 2009 and June 30, 2008 consisted of the
following:
 
 March
      31, 2009
                            
                            
                            June
      30, 2008Dell
      Financial Services – line of credit
                            
                            $
                            14,304
                            
                            
                            $
                            10,632J.P.
      Morgan Chase –  business line of credit
                            
                            
                            99,992
                            
                            
                            
                            99,589Notes
      payable – stockholders and directors
                            
                            
                            36,481
                            
                            
                            
                            25,000Notes
      payable – settlement obligation
                            
                            
                            56,500
                            
                            
                            
                            80,500Notes
      payable – acquisition, net of discount
                            
                            
                            620,235
                            
                            
                            
                            668,058Convertible
      notes payable – net of discount
                            
                            
                            66,855
                            
                            
                            
                            --Notes
      payable – executive officers
                            
                            
                            285,693
                            
                            
                            
                            --1,180,060
                            
                            
                            
                            883,779Less
      current maturities
                            
                            
                            196,776
                            
                            
                            
                            361,221$
                            983,284
                            
                            
                            $
                            522,558
  On October 1, 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 principalbalance in cash. Pursuant to a Stock
Pledge Agreement dated October 1, 2008, each 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 per
share.
 The Company allocated the proceeds
received to the principal amount of the Notes and the beneficial conversion
feature based upon the relative fair value which was determined using a Black
Scholes pricing model. The fair value of the beneficial conversion feature has
been recorded as debt discount and additional paid in capital.  The
debt discount recorded of $18,174 is being amortized over the three-year term of
the note and the carrying amount is presented net of the unamortized
discount.
  Return to Table of Contents
 12
 
 FORM 10-Q
              MARCH 31,
    2009
 
 PACIFIC SANDS, INC
 NOTES TO FINANCIAL
STATEMENTS
 
 
 On March 31, 2009, the Company converted
$285,693 of deferred compensation due two executive officers into two notes
payable.  The notes are due on March 31, 2012 and accrue interest at
4% per annum.
 
 On March 31, 2009, the Company and the
former member owners of Natural Choices Home Safe Products, LLC (the “Members”),
executed an amendment to the Asset Purchase Agreement dated February 8, 2008
(the “Amendment”).  Pursuant to the Amendment, the Company shall pay
the Members the remaining principal balance of $650,000 as
follows:
 o
              $10,000 due May 1,
      2009.
 o
              $640,000 due on or before March
      31, 2012
 In addition, the Company shall make
monthly cash interest payments to the Members on the outstanding balance at a
rate of 4% per annum.
  At March 31, 2009, the Company had
capital lease obligations totaling $38,835 of which $14,623 wasincluded in current liabilities and
$24,212 was non-current.At March 31, 2008, the
Company had capital lease obligations totaling $54,813 of which $21,598 was
included in current liabilities and $33,215 was non-current.
 The
scheduled annual maturities for notes payable and capital lease obligations were
as follows at March 31,
 
 2010
                      
                      $
                      211,3992011
                      
                      
                      115,6762012
                      
                      
                      936,4302013
                      
                      
                      300
 
 
 8.       
    STOCKHOLDERS’ EQUITY
 
 On August 5, 2008, the Company issued
100,000 shares of its common stock to a consultant for services performed. The
fair market value of the shares on the date issued was $0.0725 per share. The
Company recorded consulting fee expense of $7,250 related to the issuance of
these shares.
 
 On August 5, 2008 the Company issued
80,000 shares of its common stock to its four directors and 40,000 shares of its
common stock to a director for consulting services provided to the Company. The
fair market value of the shares on the date issued was $0.075 per
share.  The Company recorded compensation expense of $8,700 related to
the issuance of these shares.
 
 On August 5, 2008, the Company issued
625,000 shares of its common stock as partial payment of the note payable for
the purchase price for the acquisition of Natural Choices Home Safe Products,
LLC. The shares had a value of $50,000 on the date they were
issued.
 
 On September 30, 2008, the Company
issued 372,724 shares of its common stock to an unrelated investor for a cash
investment of $26,863.
  Return to Table of Contents
 13
 
 FORM 10-Q
              MARCH 31,
    2009
 
 PACIFIC SANDS, INC
 NOTES TO FINANCIAL
STATEMENTS
 
 
 On September 30, 2008, the Company
issued 198,687 shares of its common stock to an employee for a cash investment
of $14,305.
 
 On December 31, 2008, the Company issued
80,000 shares of its common stock to its four directors and 40,000 shares of its
common stock to a director for consulting services provided to the Company. The
fair market value of the shares on the date issued was $0.02 per
share.  The Company recorded compensation expense of $2,400 related to
the issuance of these shares.
 
 On March 12, 2009, the Company issued
80,000 shares of its common stock to its four directors and 40,000 shares of its
common stock to a director for consulting services provided to the Company. The
fair market value of the shares on the date issued was $0.02 per
share.  The Company recorded compensation expense of $2,400 related to
the issuance of these shares.
 
 On March 12, 2009, the Company issued
200,000 shares of its common stock to two consultants for services performed.
The fair market value of the shares on the date issued was $0.02 per share. The
Company recorded consulting fee expense of $4,000 related to the issuance of
these shares.
 
 On March 12, 2009, the Company issued
287,743 shares of its common stock to an unrelated investor for a cash
investment of $8,632.
 
 On March 12, 2009, the Company issued
410,000 shares of its common stock to employees. The fair market value of the
shares on the date issued was $0.02 per share.  The Company recorded
compensation expense of $8,200 related to the issuance of these
shares.
 
 On March 12, 2009, the Company converted
$49,676 of accrued salaries and wages due two employees into 400,000 shares of
its common stock.
 
 
 9.         
   LEASE COMMITTMENTS
 
 The Company entered into a twoyear operating lease expiring March 31,
2010 for approximately 12,000 square feet ofoffice and warehouse space for
$3,750per
month.  The Company is responsible for insuring the
premises.  Rent expense was approximately$29,450 and $22,200 for the nine months
ended March 31, 2009 and 2008, respectively.
 
 Minimum future annual payments under
operating leases through March 31, 2010 are $45,000.
  Return to Table of Contents
 14
 
 FORM 10-Q
              MARCH 31,
    2009
 
 PACIFIC SANDS, INC
 NOTES TO FINANCIAL
STATEMENTS
 
 
 10. 
        OTHER INCOME – DEBT
SETTLEMENTS
 
 During
the three and nine months ended March 31, 2009, the Company recorded other
income of $59,463 resulting from the settlement of certain accounts payable
obligations with three vendors.
 
 o
              On
      February 26, 2009, the Company and a vendor agreed to a debt settlement of
      an outstanding payable due the vendor.  Pursuant to the terms of
      the settlement, the Company agreed to pay the vendor $9,880 immediately
      and the vendor agreed to forgive the remaining balance due of
      $23,675.  The settled accounts payable amounts related to
      inventory purchases made in April
2008.
 
 o
              On
      March 6, 2009, the Company and a vendor agreed to a debt settlement of an
      outstanding payable due the vendor.  Pursuant to the terms of
      the settlement, the Company agreed to pay the vendor $12,632 over four
      equal monthly payments of $3,109 starting March 31, 2009 with the final
      payment due June 30, 2009. The vendor agreed to forgive the remaining
      balance due of $33,800.  The settled accounts payable amounts
      related to inventory purchases made between March and July
      2008.
 
 o
              During
      the three months ended March 31, 2009, the legal firm representing the
      Company in a settlement involving the Company and its former CEO, agreed
      to waive all finance charges that had accrued on outstanding invoices. The
      total amount waived approximated
$2,000
 
 
 11.  
       LOSS PER SHARE
  Basic
earnings (loss) per common share is based on the weighted average number of
common shares outstanding in each period and net earnings
(loss).  Diluted earnings per common share assumes that outstanding
common shares were increased by shares issuable upon exercise of those stock
options for which market price exceeds exercise price, less shares which could
have been purchased by the Company with related
proceeds.
 The
      following table sets forth the computation of basic and diluted earnings
      per share.
 Three
      Months Ended
                                
                                
                                Nine
      Months EndedMarch
      31, 2009
                                
                                
                                March
      31, 2008
                                
                                
                                March
      31, 2009
                                
                                
                                March
      31, 2008Numerator:Basic
      and diluted earnings (loss)
                                
                                $
                                24,264
                                
                                
                                $
                                (85,148
                                )
                                
                                $
                                (221,689
                                )
                                
                                $
                                (297,189
                                )Denominator:Basic
      and diluted per share data - weighted average shares
                                
                                
                                40,551,236
                                
                                
                                
                                37,503,493
                                
                                
                                
                                39,961,808
                                
                                
                                
                                35,382,982Basic
      and diluted earnings (loss) per share
                                
                                $
                                0.001
                                
                                
                                $
                                (0.002
                                )
                                
                                $
                                (0.006
                                )
                                
                                $
                                (0.008
                                )
  Outstanding
stock options were not included in the computation of diluted earnings per
common share for the three and nine month periods ended March 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:
 
 March
      31, 2009
                      
                      
                      March
      31, 2008Stock
      options
                      
                      
                      3,000,000
                      
                      
                      
                      3,000,000
  Return to Table of Contents
 15
 
 FORM 10-Q
              MARCH 31,
    2009
 
 PACIFIC SANDS, INC
 NOTES TO FINANCIAL
STATEMENTS
 
 
 12.   
       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 March 31, 2009 and June 30, 2008 are as
follows:
 
 March
      31, 2009
                          
                          
                          June
      30, 2008Net
      operating loss carryforwards
                          
                          $
                          1,302,000
                          
                          
                          $
                          1,242,000Deferred
      compensation
                          
                          
                          144,000
                          
                          
                          
                          92,000Accounts
      receivable allowance
                          
                          
                          13,000
                          
                          
                          
                          6,000Valuation
      allowance
                          
                          
                          (1,459,000
                          )
                          
                          
                          (1,340,000
                          )Net
      deferred tax asset
                          
                          $
                          --
                          
                          
                          $
                          --
 
 At March 31, 2009, the Company has net
operating loss carryforwards for Federal tax purposes of approximately
$3,101,000 which, if unused to offset future taxable income, will expire in
years beginning in 2018.
 
 
 13.      
   RELATED PARTY TRANSACTION
 
 Two of
the current officers of the Company have agreed to defer a substantial portion
of their salaries until such time as it may be paid.  As of March 31,
2009, the deferred compensation for these two officers was approximately
$274,200.  In addition, prior to accepting the position as an officer
of the Company, one of the current officers agreed to defer $11,500 of his
professional consulting services which was unpaid on March 31, 2009.  On
March 31, 2009, the Company and the two officers executed notes payable for all
compensation owed totaling approximately $285,700.  The notes are due
March 31, 2012 and accrue interest at 4% per annum.
 
 For the
three months ended March 31, 2009 and 2008, compensation expense accrued and
unpaid for the two officers was $47,000 and $15,000,
respectively.  For the nine months ended March 31, 2009 and 2008,
compensation expense accrued and unpaid for the two officers was $93,000 and
$47,000, respectively.
 
 
 14.     
    CONCENTRATIONS
 
 For the nine months ended March 31, 2009
and 2008, onecustomer
accountedfor approximately
12% and 25%of the Company's sales, respectively.  At
March 31, 2009 and 2008, this customer’s balance represented approximately 30%
and 31% of the Company’s trade receivables, respectively.  This
customer has not purchased from the Company since September 2008 and as of March
31, 2009 its entire balance due the Company of approximately $60,000 was over 90
days past due. The Company increased the allowance for doubtful accounts due to
the uncertainty of collection.  Management does not expect the loss of
sales to this customer will have a significant long term impact on the
Company.
 
  Return to Table of Contents
 16
  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-KSB FOR THE YEAR
ENDED JUNE 30, 2008 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 Safes
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.
  Return to Table of Contents
 17
 
 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 March 31, 2009 compared to the three months ending
March 31, 2008.
 
 For the
three months ended March 31, 2009, net sales were $328,070, an increase of 35%
over net sales of $243,145 for the same period in fiscal 2008. The increase is
due to increased sales volume from the addition of the Natural Choices products.
Sales from these products approximated $149,000 during the three months ended
March 31, 2009.  Sales for the three months ended March 31, 2008
included approximately $65,000 of sales of Natural Choices products which
represent sales subsequent to February 8, 2008, the date of
acquisition.
  Return to Table of Contents
 18
 
 For the
three months ended March 31, 2009, cost of goods sold was $126,636 compared to
$73,078 for the same period in the previous fiscal year.  The
Company’s gross margin decreased from 70% for the three months ended March 31,
2008 to 61% for the current fiscal quarter. During the three months ended March
31, 2008, the Company recorded one time cost of goods adjustments resulting from
packaging changes.  These adjustments resulted in higher than usual
gross profit margins. The current fiscal quarter’s gross profit margin is more
typical of the Company’s historical margins.  The Company’s gross
margin for its most recent fiscal year end was 59%.
 
 For the
three months ended March 31, 2009 and 2008, selling and general administrative
expenses were $217,740 and $251,319, respectively. The decrease in operating
expenses is explained in large part by a decrease in accounting and professional
fees. Overall, these expenses decreased by approximately $24,000 for the three
months ended March 31, 2009 compared to the three months ended March 31,
2008.  Accounting and consulting fees charged by independent
contractors were higher in 2008 in part due to additional time required for the
integration of the Natural Choices business into the Company’s following the
acquisition.
 
 Interest
expense for the three months ended March 31, 2009 was $18,893 compared to $8,992
for the three months ended March 31, 2008.  During the three months
ended March 31, 2009, the Company amortized $9,937 of the discount of the note
payable recorded upon the acquisition of Natural Choices in February 2008 and
amortized an additional $1,515 of debt discount for convertible notes. The
Company also recorded interest expense of $2,400 for the convertible notes,
which is payable quarterly.
 
 During
the three months ended March 31, 2009, the Company recorded other income of
$59,463 resulting from the settlement of certain accounts payable obligations
with three vendors.  Under the settlement agreements, the Company
agreed to pay the vendors an aggregate amount of approximately $22,500 by the
end of its fiscal year and the vendors agreed to forgive the balance of the
Company’s obligations.  At March 31, 2009, the Company had paid
$13,000 of the settlement amounts with the balance due in three equal monthly
installments beginning on April 30, 2009.
 
 The
Company recorded net earnings of $24,264 or $0.001 per share for the three
months ended March 31, 2009 as compared to a net loss of $85,148 or $(0.002) per
share for the three months ended March 31, 2008.
 
 Results for the nine months
ending March 31, 2009 compared to the nine months ending March 31,
2008
  For the
nine months ended March 31, 2009 net sales were $857,875 compared to net sales
of $576,187 for the same period in 2008. The sales increase of 49% is
attributable to the additional sales recorded as a result of the acquisition of
Natural Choices.  Sales of Natural Choices products totaled
approximately $380,000 during the nine months ended March 31,
2009.  Sales for the nine months ended March 31, 2008 included
approximately $65,000 of sales of Natural Choices products which represent sales
subsequent to February 8, 2008, the date of acquisition.
 Gross
profit for the nine months ended March 31, 2009 was $448,877 or 52% compared to
$371,665 or 65% for the nine months ended March 31, 2008.  The
decrease of 13% is due in part to lower gross margins recognized on the products
acquired from Natural Choices.  This is particularly true of many of
the private label products which constitute a significant portion of the Natural
Choices product sales.   Prior to the acquisition, Natural
Choices manufactured the majority of their liquid and powder cleaning and
laundry products through contract manufacturers, adding significantly to the
cost of manufacturing those products. In the fourth quarter of fiscal 2008, the
Company made significant capital expenditures, including building an in-house
powder filling facility, and is in the process of moving away from contract
manufacturers.  Although during the nine months ended March 31, 2009,
several products were manufactured by third parties, thus contributing to the
margin decrease, the overall gross margin continues to increase as more of these
product are manufactured in-house.  Management expects that this trend
will continue as the Company moves away from utilizing contract
manufacturers.
  Return to Table of Contents
 19
 
 For the
nine months ended March 31, 2009, selling and general administrative expenses
were $673,525 compared to $661,080 for the nine months ended March 31, 2008.
During the nine months ended March 31, 2009 salaries charged to operations were
approximately $380,000 compared to $304,000 for the same period last
year.  A significant amount of the salary increase comes from the
addition of the two former officers of Natural Choice Home Products who became
employees of the Company upon the acquisition in February of 2008.  In
addition, the Company hired additional personnel after the acquisition to
accommodate the additional sales volume.  Salary increases were
largely offset by a decrease in legal and professional fees which dropped nearly
$75,000 during the nine months ended March 31, 2009 compared to the same period
last year. Operating expenses during the nine months ended March 31, 2008
included legal fees incurred for litigation involving the Company’s former CEO
which was settled in December 2007 and non-direct acquisition related accounting
and consulting fees incurred upon the acquisition of Natural
Choices.
 
 Interest
expense of $56,504 for the nine months ended March 31, 2009 includes $32,176 of
discount amortization for the note payable recorded upon the acquisition of
Natural Choices in February 2008 and an additional $3,030 of amortized debt
discount for the convertible notes. The Company also recorded interest expense
of $4,800 for the convertible notes, which is payable
quarterly.  Interest expense for the nine months ended March 31, 2008
was $17,870.
 
 During
the nine months ended March 31, 2009, the Company recorded other income of
$59,463 resulting from the settlement of certain accounts payable obligations
with three vendors (See discussion under three month comparison). During the
nine months ended March 31, 2008, the Company recorded other income of $5,000
for the reversal of accrued interest on deferred compensation owed to a former
officer. The accrued interest was reduced by $5,000 in December 2007 pursuant to
the terms of a settlement agreement between the Company and the former
officer.
 
 Net loss
for the nine months ended March 31, 2009 was $221,689 or $(0.006) per share
compared to a net loss of $297,189 or $(0.008) per share for the same period in
fiscal 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, 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.
 Return to Table of Contents
 20
 
 At March
31, 2009, the Company had current assets of $329,543 and total assets of
$1,273,005, compared to June 30, 2008 when current assets were $402,412 and
total assets were $1,343,401. The decrease in current assets is attributable
primarily to decreases in accounts receivable from $256,427 at June 30, 2008 to
$183,011 at March 31, 2009.  The Company increased its allowance for
doubtful accounts by approximately $17,000, contributing to the overall decrease
in accounts receivable.  Management felt an increase in the reserve
was necessary to address the over 90 day balance of its largest customer, which
totals nearly $61,000.  The customer, whose purchases represent 12% of
the Company’s revenues, has not placed an order since September 2008. Management
believes that the customer is going through organizational restructuring and
that there may be uncertainty surrounding collection. Non current assets include
goodwill resulting from the acquisition of Natural Choices in the amount of
$877,854 which increased from $861,862 at June 30, 2008 as a result of
adjustments to purchase price allocations during the nine months ended March 31,
2009.
 
 Current
liabilities at March 31, 2009 were $507,812. Current liabilities include
accounts payable, capital lease obligations and accrued expenses totaling
approximately $306,000. At March 31, 2009, the Company had outstanding line of
credit balances with banks totaling $114,000. Current liabilities also include
$36,000 in payments due to a former officer pursuant to a settlement agreement
executed in December 2007. On
March 12, 2009, the Company converted $49,676 of accrued salaries and wages due
two employees into 400,000 shares of its common stock. In addition, on March 31,
2009, the Company converted $285,693 of deferred compensation due two executive
officers into two notes payable.  The notes are due on March 31, 2012
and accrue interest at 4% per annum.
 
 On March 31, 2009, the Company and the
former member owners of Natural Choices Home Safe Products, LLC (the “Members”),
executed an amendment to the Asset Purchase Agreement dated February 8, 2008
(the “Amendment”).  Pursuant to the Amendment, the Company shall pay
the Members the remaining outstanding principal balance of $650,000 as
follows:
 o
              $10,000 due May 1,
      2009.
 o
              $640,000 due on or before March
      31, 2012
 In addition, the Company shall make
monthly cash interest payments to the Members on the outstanding balance at a
rate of 4% per annum.
  In
addition to those items discussed above, long term liabilities at March 31, 2009
include amounts due pursuant to the settlement agreement involving the Company’s
former CEO of $20,500. Additionally, on October 1, 2008, the Company executed
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 principal balance in cash. Pursuant to a Stock Pledge Agreement dated
October 1, 2008, each 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 per share. The Company used the proceeds from the debt to fund
current operations.Long-term capital lease obligations were $24,212 at
March 31, 2009.
  Return to Table of Contents
 21
 
 Net cash
used in operating activities during the nine months ended March 31, 2009 was
$75,052 compared to $178,646 used in operating activities during the nine months
ended March 31, 2008. The increase in operating cash flow is due in large part
to cash being provided by accounts receivable in the amount of approximately
$44,000 (net of increase in allowance for doubtful accounts) during the nine
months ended March 31, 2009 as compared to approximately $86,000 of cash being
used during the same period last year.
 
 Net cash
used in investing activities was $4,645 during the nine months ended March 31,
2009, all of which was used for the purchase of equipment.  During the
nine months ended March 31, 2008 the Company used $60,000 for the initial
payment of the purchase price for Natural Choices.
 
 Net cash
provided by financing activities was $77,252 and $226,623 for the nine months
ended March 31, 2009 and 2008, respectively. During the nine months ended March
31, 2009, the Company issued restricted common stock for cash totaling $49,801
compared to $167,000 in 2008, and also received proceeds from borrowings in the
amount of $149,576 and $140,864 during the nine months ended March 31, 2009 and
2008, respectively. Proceeds from financing activities were used to fund
operations and to meet current obligations of notes payable.
 
 OnMarch 31, 2009the Company had an accumulated deficit
of$4,254,547andtotal stockholders’deficit of$242,303.
 
 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.
  
 Item3.          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.
  Return to Table of Contents
 22
  THE COMPANY HAS EXPERIENCED LOSSES FROM
OPERATIONS SINCE COMMENCING OPERATIONS:
 With the exception ofthe current quarter and the4thquarters 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.
  
 Item4.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.
 
 Changes
in Internal Control over Financial Reporting
  Return to Table of Contents
 23
 
 As
reported in our Annual Report on Form 10-KSB for the year ended June 30, 2008,
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,
2008.
 
 There
have not been any changes in the Company's internal control over financial
reporting during the quarter ended March 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
 
 Item1 – LEGAL PROCEEDINGS
 
 None
 
 
 Item2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  On September 30, 2008, the Company
issued 372,724 shares of its common stock to an unrelated investor for a cash
investment of $26,863.
 
 On September 30, 2008, the Company
issued 198,687 shares of its common stock to an employee for a cash investment
of $14,305.
 
 On March 12, 2009, the Company issued
287,743 shares of its common stock to an unrelated investor for a cash
investment of $8,632.
 
 Item3 – DEFAULTS UPON SENIOR SECURITIES
 
 None
 
 
 Item4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 None
 
 
 Item5 – OTHER INFORMATION
 
 None
 
  Return to Table of Contents
 24
 
 Item6 – 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:May 13, 2009
                    By:
                    /s/ Michael
      WynhoffMichael
    WynhoffChief Executive
      OfficerDated:May 13,
2009
                    By:
                    /s/ Michael
      MichieMichael
    MichieChief Financial
      Officer
 
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 25