UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-QSB
 
 (Mark
One)
 
 [ X
      ]
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
quarterly period ended December 31, 2007
 
 [   
      ]
              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 small business issuer as specified in its charter)
  Nevada
              88-0322882State
      or other jurisdiction of incorporation or organization)
              (IRS
      Employer Identification No.)
 
 1509 Rapids Drive, Racine,
WI 53404
 (Address
of principal executive offices)
 
 (262)
619-3261
 (Issuer's
telephone number)
 
  Not
Applicable
 (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 of 1934 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 ____
  As of
February 18, 2008, the Company had 38,417,441 shares outstanding of its
$.001 par value common stock.
 
 
 Transitional
Small Business Disclosure Format (check one):
 
 Yes 
____   No X
 
 
 
 
 
 
 
 
  
  Table
of Contents
 
 
 
 PART
      I   FINANCIAL INFORMATIONPageItem
      1.
              Financial
      StatementsBalance
      Sheet as of December 31,2007  (unaudited)
              3Statements
      of Operations for the Three and Six Months Ended December 31,
      2007  and 2006 (unaudited)
              4Statements
      of Cash Flows for the Three and Six Months Ended December 31,
      2007  and 2006 (unaudited)
              5Notes
      to Financial Statements (unaudited)
              7Item
      2.
              Management's
      Discussion and Analysis and Results of Operations
              16Item
      3.
              Quantitative
      and Qualitative Disclosers About Market Risk
              22Item
      4.
              Controls
      and Procedures
              22PART
      II   OTHER 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
              24Signatures
              25
 
 
  2
  PACIFIC SANDS, INC.
 BALANCE
SHEET
 DECEMBER
31, 2007
  ASSETSCURRENT
      ASSETSCash
      and cash equivalents
              
              $
              2,698Trade
      receivables, net of allowance for doubtful accounts of
    $13,602
              
              
              156,128Inventories
              
              
              71,126Prepaid
      expenses
              
              
              12,484Other
      current assets
              
              
              2,014Total
      Current Assets
              
              
              244,450PROPERTY
      AND EQUIPMENTFurniture
      and fixtures & office equipment
              
              
              24,954Manufacturing
      equipment
              
              
              12,204Leasehold
      improvements
              
              
              3,035Computer
      software
              
              
              15,27755,470Less
      accumulated depreciation
              
              
              24,173Property
      and Equipment, net
              
              
              31,297OTHER
      ASSETSSecurity
      deposits
              
              
              816Deposit
              
              
              50,000Other Assets
              
              
              50,816Total
      Assets
              
              $
              326,563LIABILITIES AND
      STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
              
              $
              147,902Current
      maturities of long-term obligations
              
              
              11,490Accrued
      expenses
              
              
              110,838Deferred
      compensation
              
              
              142,732Notes
      payable
              
              
              105,412Notes
      payable - other
              
              
              39,683Notes
      payable - settlement obligation
              
              
              37,500Total
      Current Liabilities
              
              
              595,557Capital
      leases, less current portion
              
              
              6,084Notes
      payable - settlement obligation, less current portion
              
              
              62,500Total
      Liabilities
              
              
              664,141STOCKHOLDERS'
      EQUITYCommon
      stock (50,000,000 shares authorized, 42,752,533 shares issued and
      36,143,346 shares outstanding)
              
              
              42,754Additional
      paid in capital
              
              
              3,683,689Treasury
      stock, at cost
              
              
              (132,030
              )Accumulated
      deficit
              
              
              (3,931,991
              )Total
      Stockholders' Equity
              
              
              (337,578
              )Total Liabilities and Stockholders' Equity
              
              $
              326,563
  
 The
accompanying notes are an integral part of the financial
statements.
 
  3
  PACIFIC
      SANDS, INC.STATEMENTS
      OF OPERATIONSTHREE
      AND SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006Three
      months ended
              
              
              Six
      months endedDecember
      31,
              
              
              December
      31,2007
              
              
              2006
              
              
              2007
              
              
              2006NET
      SALES
              
              $
              153,234
              
              
              $
              106,568
              
              
              $
              333,041
              
              
              $
              226,126COST
      OF SALES
              
              
              68,580
              
              
              
              41,410
              
              
              
              131,443
              
              
              
              106,723GROSS
      PROFIT
              
              
              84,654
              
              
              
              65,158
              
              
              
              201,598
              
              
              
              119,403SELLING
      AND ADMINISTRATIVE EXPENSES
              
              
              241,955
              
              
              
              203,553
              
              
              
              409,761
              
              
              
              537,951LOSS
      FROM OPERATIONS
              
              
              (157,301
              )
              
              
              (138,395
              )
              
              
              (208,163
              )
              
              
              (418,548
              )OTHER
      INCOME (EXPENSE)Interest
      expense
              
              
              (5,910
              )
              
              
              (12,776
              )
              
              
              (8,878
              )
              
              
              (24,707
              )Other
              
              
              5,000
              
              
              
              -
              
              
              
              5,000
              
              
              
              -LOSS
      BEFORE INCOME TAXES
              
              
              (158,211
              )
              
              
              (151,171
              )
              
              
              (212,041
              )
              
              
              (443,255
              )INCOME
      TAXES
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -NET
      LOSS
              
              $
              (158,211
              )
              
              $
              (151,171
              )
              
              $
              (212,041
              )
              
              $
              (443,255
              )BASIC
      AND DILUTED NET LOSSPER SHARE
              
              $
              (0.005
              )
              
              $
              (0.005
              )
              
              $
              (0.006
              )
              
              $
              (0.014
              )BASIC
      AND DILUTED WEIGHTED AVERAGESHARES OUTSTANDING
              
              
              34,830,931
              
              
              
              32,292,193
              
              
              
              34,606,286
              
              
              
              31,752,111
  
 The
accompanying notes are an integral part of the financial
statements.
 
 4
 
 PACIFIC SANDS, INC.STATEMENTS
      OF CASH FLOWSFOR
      THE SIX MONTHS ENDED DECEMBER 31, 2007 AND 20062007
              
              
              2006CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
              
              $
              (212,041
              )
              
              $
              (443,255
              )Adjustments
      to reconcile net loss to net cash used in operating activities -Depreciation
      and amortization
              
              
              7,080
              
              
              
              3,838Deferred
      compensation
              
              
              -
              
              
              
              36,346Compensation
      expenses on stock options
      granted
              
              
              -
              
              
              
              134,211Common
      shares and rights issued forservices
      and compensation
              
              
              51,275
              
              
              
              122,106Changes
      in assets and liabilities -Trade
      accounts receivable
              
              
              (57,479
              )
              
              
              48,999Inventories
              
              
              22,131
              
              
              
              20,996Prepaid
      expenses
              
              
              4,608
              
              
              
              1,272Other
      assets
              
              
              4,145
              
              
              
              (8,694
              )Accounts
      payable and other current liabilities
              
              
              43,829
              
              
              
              (9,692
              )Net
      Cash Used in Operating Activities
              
              
              (136,452
              )
              
              
              (93,873
              )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of equipment
              
              
              -
              
              
              
              (17,154
              )Net
      Cash Used in Investing Activities
              
              
              -
              
              
              
              (17,154
              )CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common stock
              
              
              67,000
              
              
              
              135,900Issuance
      of notes payable
              
              
              119,826
              
              
              
              36,601Repayment
      of notes payable and long term obligation
              
              
              (48,846
              )
              
              
              (38,704
              )Deferred
      compensation payments
              
              
              (12,799
              )
              
              
              -Net
      Cash Provided by Financing Activities
              
              
              125,181
              
              
              
              133,797NET
      (DECREASE) INCREASE IN CASH ANDCASH
      EQUIVALENTS
              
              
              (11,271
              )
              
              
              22,770CASH
      AND CASH EQUIVALENTSBeginning
      of year
              
              
              13,969
              
              
              
              4,977End
      of year
              
              $
              2,698
              
              
              $
              27,747
  The
accompanying notes are an integral part of the financial
statements.
 5
   PACIFIC
      SANDS, INC.STATEMENTS
      OF CASH FLOWSSIX
      MONTHS ENDED DECEMBER 31, 2007 AND 2006SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION2007
              
              
              2006Cash
      paid during the year for:Interest
              
              $
              2,630
              
              
              $
              24,710Income
      taxes
              
              $
              -
              
              
              $
              -SUPPLEMENTAL
      INFORMATION FROM NONCASH INVESTING ACTIVITIESDeposit
              
              $
              50,000
              
              
              $
              -SUPPLEMENTAL
      INFORMATION FROM NONCASH FINANCING ACTIVITIESConversion
      of debt to equity
              
              $
              -
              
              
              $
              38,807Capital
      lease obligations
              
              $
              -
              
              
              $
              3,732Reclassification
      of settlement obligation (previouslyrecorded
      as deferred compensation)
              
              $
              100,000
              
              
              $
              -
         
 The
accompanying notes are an integral part of the financial
statements.
  6
  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,
2007.  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 2007 as reported elsewhere in this Form 10-QSB 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") was incorporated in Nevada on July 7, 1994 with an original
authorized capital stock of 25,000 shares of $0.001 par value which was
increased to 20,000,000 shares in 1997 with the same par value.  On
May 6, 2002, the authorized capital stock was increased to 50,000,000
shares.
 
 The
Company manufactures and distributes nontoxic cleaning and water treatment
products with applications ranging from home spas and swimming pools to cleaning
and pet care.
 
 Inventories - Inventories are
stated at the lower of cost or market on the first-in, first-out (FIFO)
basis.
 
 Depreciation - For financial
reporting purposes, depreciation of property and equipment has been computed
over estimated useful lives of two to seven years primarily using the
straight-line method.  Depreciation charges totaled $7,080 and $3,838
during the six months ended December 31, 2007 and 2006,
respectively.
 
 Revenue Recognition - Revenue
from sales to distributors and resellers is recognized when the related products
are shipped.
 
 Advertising and Promotional
Costs - Advertising and promotion costs are expensed as
incurred.  During fiscal six months ended December 31, 2007 and 2006,
advertising and promotion costs totaled $10,323 and $30,447,
respectively.
 
 Income Taxes - The Company
accounts for income taxes under Statement of Financial Accounting Standards
(SFAS) 109.  Under the asset and liability method of SFAS 109,
deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to
the difference between the financial statement carrying amounts and the tax
basis of existing assets and liabilities.
 
  7
  PACIFIC
SANDS, INC
 NOTES
TO FINANCIAL STATEMENTS
 
 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 $13,602 is adequate as of December 31,
2007.
 
 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.
 
 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 FASB issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements. SFAS No. 157 provides enhanced guidance for using
fair value to measure assets and liabilities. The standard also requires
expanded disclosures about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value and the
effect of fair value measurements on earnings. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. The Company does not expect the
adoption of Statement No. 157 to materially impact the Company’s financial
statements.
 
  8
 
 PACIFIC
SANDS, INC
 NOTES
TO FINANCIAL STATEMENTS
 
 
 In
February 2007, the FASB issued SFAS No. 159 "The Fair Value
Option for Financial Assets and Financial Liabilities". SFAS No. 159 permits
entities to choose, at specified election dates, to measure eligible items at
fair value (the "fair value option"). A business entity shall report unrealized
gains and losses on items for which the fair value option has been elected in
earnings at each subsequent reporting date. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2007. Early adoption is permitted as
of the beginning of a fiscal year that begins on or before November 15, 2007,
provided the entity also elects to apply the provisions of SFAS No. 157, "Fair
Value Measurements". . The Company does not expect the adoption of
Statement No. 157 to materially impact the Company’s 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.
 
 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 December 31,
2007, the Company has incurred cumulative losses of $3,931,991.  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 contributions through the sale of common stock 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.
 
 
 
 
 
  9
 
 PACIFIC
SANDS, INC
 NOTES
TO FINANCIAL STATEMENTS
 
 
 4.
              INVENTORIES
 
 Inventories
at December 31, 2007 consisted of the following:
 
 Raw
      materials
              
              $
              51,278Finished
      goods
              
              
              19,848Total
              
              $
              71,126
 
 5.
              ACCRUED
      EXPENSES
 
 Accrued
expenses at December 31, 2007 consisted of the following:
 
 Accrued
      compensation
              
              $
              50,703Accrued
      taxes
              
              
              42,915Accrued
      professional fees
              
              
              14,125Accrued
      interest
              
              
              2,048Accrued
      other
              
              
              1,047Total
              
              $
              110,838
 
 6.
                LONG
      TERM OBLIGATIONS
 
 Long term
obligations consist of the following capital lease obligations: a four year
agreement for software dated June 20, 2005 with an imputed interest rate of
14.45%;  a three year agreement for computer hardware with an imputed
interest rate of 21.62%, placed in service in August 2005; a three and a half
year agreement for software with an imputed interest rate of 12.64%, placed in
service in January 2006; a two year agreement for computer hardware with an
imputed interest rate of 22.81%, placed in service in
September  2006.   Monthly installment payments are
$691, $93, $312 and $59, respectively with a bargain purchase option at the end
of each lease of $1. All of the above agreements have been accounted for as
capital leases in accordance with generally accepted accounting
principles.
 
 The
scheduled maturities are as follows for the years ending December
31,
 
 2008
              
              $
              11,4902009
              
              
              6,084
 
 7.
                NOTES
      PAYABLE
 
 The
Company received a line of credit from Dell Financial Services for $15,000 with
an imputed interest rate of 27.24% on any outstanding balance.  To
date the Company has used the line of credit to purchase computer hardware to
serve its accounting and e-commerce functions.  As of December 31,
2007, $5,888 was outstanding against the line of credit.
 
  10
 
 PACIFIC
SANDS, INC
 NOTES
TO FINANCIAL STATEMENTS
 
 
 On July
27, 2007, the Company executed a promissory note pursuant to a business line of
credit ("BLOC") with JP Morgan Chase Bank, NA.  Under the term of the
promissory note, the Company may borrow up to $100,000 against the BLOC at the
prime interest rate plus 1.5%.   The Company must pay all accrued
interest on a monthly basis.  The promissory note is secured by the
assets of the Company.  As of December 31, 2007, the amount due on the
line of credit was $99,524.
 
 Notes
payable - other consist of various small unsecured notes to
stockholders/officers at rates fluctuating up to 10%.
 
 Note
payable – settlement obligation is due to a former officer of the Company
pursuant to a settlement of a legal dispute between the Company and the former
officer.  Under the terms of the settlement agreement, the
Company will pay $100,000 over a two and a half year period beginning in
February 2008. The Company has the option to settle the entire obligation if it
pays the officer a total of $80,000 by December 7, 2008. Prior to the settlement
agreement being executed, the Company had accrued $100,000 as deferred
compensation and $5,000 of accrued interest related to this obligation. As a
result of the settlement the Company reduced accrued interest by $5,000 and
recorded the amount as other income.
 
 The
scheduled payments are as follows for the years ending December 31,
 
 2008
              
              $
              37,5002009
              
              
              36,0002010
              
              
              26,500
 
 8.
              STOCKHOLDERS’
      EQUITY
 
 On
September 25, 2007, the Company issued 200,000 shares of its common stock, par
value $0.001 per share, to an investor for $20,000.
 
 On
September 25, 2007, the Company issued 60,000 shares of its common stock, par
value $0.001 per share, to its three directors and 117,500 shares of its common
stock, par value $0.001 per share, to three consultants for services performed.
The fair market value of the shares on the date issued was $0.09 per
share.  The Company recorded compensation expense of $15,975 related
to the issuance of these shares.
 
 On
October 10, 2007, the Company issued 87,500 shares of its common stock, par
value $0.001 per share, to three consultants for services performed. The fair
market value of the shares on the date issued was $0.10 per
share.  The Company recorded compensation expense of $8,750 related to
the issuance of these shares.
 
  11
 
 PACIFIC
SANDS, INC
 NOTES
TO FINANCIAL STATEMENTS
 
 
 On
December 28, 2007, the Company issued 500,000 shares of its common stock, par
value $0.001 per share as earnest money toward the purchase price for the
acquisition of Natural Choices Home Safe Products, LLC (See Note
14).  The fair market value of the shares on the date issued was $0.10
per share. The Company recorded the earnest payment related to the issuance of
the these shares as a prepaid non-current asset.
 
 On
December 31, 2007, the Company issued 522,222 shares of its common stock, par
value $0.001 per share, to an investor for $47,000.
 
 On
December 31, 2007, the Company issued 60,000 shares of its common stock, par
value $0.001 per share, to its three directors and 235,000 shares of its common
stock, par value $0.001 per share, to employees and consultants. The fair market
value of the shares on the date issued was $0.09 per share.  The
Company recorded compensation expense of $26,150 related to the issuance of
these shares.
 
 9.
              LEASE
      COMMITMENTS
 
 The
Company entered into a one and a half year lease expiring July 31, 2007 for
11,000 square feet of office and warehouse space for approximately $2,000 per
month. Subsequent to expiration, the Company is leasing the facility on a month
to month basis under the existing terms.  The Company is responsible
for insuring the premises.  Rent expense was approximately $11,919 and
$11,922 for the six months ended December 31, 2007 and 2006,
respectively.
 
 10.
              LOSS
      PER SHARE
 
 Basic
loss per common share is based on the weighted average number of common shares
outstanding in each period and earnings adjusted for preferred stock dividend
requirements.  Diluted earnings per common share assume that any
dilutive convertible preferred shares outstanding at the beginning of each
period were converted at those dates, with related interest, preferred stock
dividend requirements and outstanding common shares adjusted
accordingly.  It also assumes that outstanding common shares were
increased by shares issuable upon exercise of those stock options and warrants
for which market price exceeds exercise price, less shares which could have been
purchased by the Company with related proceeds.
 
  12
 
 PACIFIC
SANDS, INC
 NOTES
TO FINANCIAL STATEMENTS
  The
      following table sets forth the computation of basic and diluted earnings
      per share.
 
 
 Six
      Months EndedDecember
      31, 2007
              
              
              December
      31, 2006NumeratorBasic
      and diluted loss
              
              $
              (212,041
              )
              
              $
              (443,255
              )DenominatorBasic
      and diluted earnings per share- weighted average shares
      outstanding
              
              
              34,606,286
              
              
              
              31,752,111Basic
      and diluted loss per common share
              
              $
              (0.006
              )
              
              $
              (0.014
              )
 
 
 Outstanding stock options were not
included in the computation of diluted earnings per common share for the six
month periods ended December 31, 2007 and 2006 since it would have resulted in
an antidilutive effect.
 
 Anti-dilutive
securities not included in the net loss per share
calculation:
 
 December
      31,
                2007
              
              
              December
      31,
                2006Stock
      options
              
              
              3,000,000
              
              
              
              3,000,000
 
 11.       
INCOME TAXES
 
 The
Company recognizes deferred tax assets and liabilities for temporary differences
between the financial reporting and tax bases of its assets and
liabilities.  Deferred assets are reduced by a valuation allowance
when deemed appropriate.
 
 The tax
effects of existing temporary differences that give rise to significant portions
of deferred tax assets at December 31, 2007 are as follows:
 
 Net
      Operating Loss Carryforwards
              
              $
              763,000Deferred
      compensation
              
              
              85,000Stock
      Option Compensation
              
              
              65,000Valuation
      Allowance
              
              
              (913,000
              )Net
      deferred Tax Asset
              
              $
              --
 
  13
 
 PACIFIC
SANDS, INC
 NOTES
TO FINANCIAL STATEMENTS
 
 
 At December 31, 2007, the Company has
net operating loss carryforwards for Federal tax purposes of approximately
$2,624,000 which, if unused to offset future taxable income, will expire in
years beginning in 2018.
 
 Effective
July 1 2007, the Company adopted FASB issued FIN No. 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109, which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement No. 109, Accounting for Income
Taxes.The interpretation 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. FIN
No. 48 requires recognition of tax benefits that satisfy a greater than 50%
probability threshold.  The adoption of FIN No. 48 did not have a
material impact on the Company’s financial statements for the six months ended
December 31, 2007.
 
 12.
              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 December
31, 2007, the deferred compensation for these two officers was
$142,700.  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 is still unpaid as of December 31,
2007.  The Company did not charge any deferred compensation to
operations during the six months ended December 31, 2007.  The deferred
compensation charged to operations for the six months ended December 31, 2006
was $36,300.  Payments of deferred compensation of $12,800 were made
by the Company to one of the officers during the six months ended December 31,
2007.
 
 
 13.
              CONTINGENCIES
  The
Company received notice on May 3, 2007 that a lawsuit had been filed against the
Company in US District Court, Eastern District of California by the Company's
former CEO, Stanley Paulus.  The lawsuit demanded payment of $105,000
plus penalties and legal fees for a note that was issued in June of
2006.  The note was based on deferred salaries accrued for Mr. Paulus
during his tenure as CEO of the Company.  On June 7, 2007, the Company
filed a counter-complaint specifying certain allegations against Mr. 
Paulus.  On June 27, 2007, Mr. Paulus filed a motion to dismiss the
Company's counter-complaint.  On August 12, 2007, the Court denied Mr.
Paulus' motion to dismiss, but did order the Company to amend its
counter-complaint which the Company did and filed on September 12,
2007.
 
  14
 
 PACIFIC
SANDS, INC
 NOTES
TO FINANCIAL STATEMENTS
 
 
 On
January 24, 2008 Pacific Sands, Inc. (“Company”) and its former CEO, Stanley
Paulus, entered into a settlement agreement resolving all legal actions between
them, each party being responsible for its own legal expenses. Proceedings
had been pending in the US District Court, Eastern District of
California.  The proceedings involved certain compensation and note
claims alleged by Mr. Paulus, as well as certain allegations by the Company
relating to compensation and performance deficiencies during Mr. Paulus’ tenure
as CEO.  The Company will pay Mr. Paulus $100,000 over a two and a
half year period. Mr. Paulus extended an option to the Company for a pre-payment
discount. Once payment is completed, Mr. Paulus shall file a dismissal with
prejudice within two weeks thereafter.
 
 14.
              CONCENTRATIONS
 
 The
Company distributes water treatment and nontoxic cleaning products to the entire
U.S. market.  For the six months ended December 31, 2007 and 2006, one
customer accounted for approximately 37% and 33% of the Company's
sales.
 
 15.
              SUBSEQUENT
      EVENTS
 
 On
February 8, 2008 Pacific Sands, Inc. (“Company”) entered into an Asset Purchase
Agreement with Franklin, Wisconsin based Natural Choices Home Safe Products, LLC
(“Natural Choices”) to acquire certain assets of Natural Choices for a purchase
price of $890,000.00, plus or minus closing pro-rations, if any, and payable in
cash and shares of Company common stock payable over a three-year
period.  Earnest money of $50,000 in the form of 500,000 shares of
Company’s restricted common stock was paid in December 2007 which is on the
balance sheet as a deposit under other assets.  An additional 500,000
shares of Company’s restricted common stock, as well as $60,000 in cash, was
paid at closing.  The balance will be paid in semi-annual installments
of restricted common shares and cash beginning on August 1, 2008 as
follows:  $50,000 in additional shares of Company’s restricted common
stock, as well as $40,000 in cash, on August 1, 2008; $50,000 in additional
shares of Company’s restricted common stock, as well as $50,000 in cash, on
February 1, 2009; $100,000 in additional shares of Company’s restricted common
stock, as well as $100,000 in cash, on August 1, 2009; $200,000 in cash, on
February 1, 2010; and $140,000 in cash, on August 1, 2010.
 
 On
February 8, 2008, the Company issued 1,125,000 restricted shares of its common
stock, par value $0.001 per share, to an investor for $100,000.
 
 On
February 8, 2008, the Company converted two notes payable plus accrued interest
totaling $31,928 into 399,095 restricted shares of its common stock, par value
$0.001 per share.
       15
 
 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, 2007 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.
 
 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" and ecoONE Marketing Group.
 
 The
Company develops, manufactures, markets and sells a range of non-toxic,
environment 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.
 
  16
  Currently
the Company markets and sells its product lines over the Internet and through
numerous retail outlets in the US, Canada and Europe. The products are also sold
via Pacific Sands distributors, manufacturer's representatives and
internationally established pool and spa industry distribution
networks.
 
 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.
 
 In July
of 2004, management began the implementation of a three year market saturation
strategy for the ecoONE® line of pool and spa products. The strategy has been
very successful to date, resulting in sharp increases in sales, dealer and
distributor outlets and industry recognition.
 
 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 restricted stock through private placement. The Company's
failure to continue to raise adequate financing to fund operations may
jeopardize its existence. (See “Liquidity and Capital Resources”)
 
 Management
knows of no additional trends or uncertainties beyond those discussed that are
reasonably likely to have a material impact on the Company's short or long-term
liquidity.
 
 
 
 RESULTS
OF OPERATIONS
 
 Results
for the three months ending December 31, 2007 compared to the three months
ending December 31, 2006.
 
 For the
three months ending December 31, 2007 net sales were $153,234 an increase of 44%
over net sales of $106,568 for the same period in 2006. The increase in sales is
attributable to a number of factors including a continuing increase in the
higher number of retail outlets carrying the ecoONE® pool and spa treatment
products and increased direct Internet retail sales.
 
 Cost of
Goods Sold was $68,580 or 45% of net sales compared to $41,410 or 39% for the
same period the previous fiscal year.
 
 Gross
profit for the three months ending December 31, 2007 was $84,654 or 55% compared
to $65,158 or 61% for the three months ending December 31, 2006.  The
decrease in gross profit percentage can be attributed to a proportional increase
in sales through distribution and retail outlets rather than direct retail sales
that are at a higher margin.
 
 For the
three months ending December 31, 2007, selling and general administrative
expenses were $241,955 compared to $203,553 for the three months ending December
31, 2006. The overall increase in selling and general administrative is due in
large part to an increase in compensation expense of approximately $30,000
resulting in part from the addition of an employee. Compensation expense for the
three months ended December 31, 2007 includes $12,600 of restricted stock issued
to officers and directors as compared to $8,000 for the same period in
2006.
  
 17
  Interest
expense for the three months ended December 31, 2007 was $5,910 as compared to
$12,776 for the same period in fiscal 2007.  The decrease is
attributed to the reduction of five capital lease obligations for which the
Company makes monthly payments thus reducing the principal owed. In addition,
during the three months ended December 31, 2006 the Company accrued interest of
$5,000 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.  The $5,000 has been recorded as other income on the Statement of
Operations.
   
 Results for the six months
ending December 31, 2007 compared to the six months ending December 31,
2006
 
 For the
six months ending December 31, 2007 net sales were $333,041 compared to net
sales of $226,126 for the same period in 2006. The increase of 47% in net sales
is attributable to a number of factors including a continuing increase in the
number of retail outlets carrying the ecoONE® pool and spa treatment products
and increased direct Internet retail sales.
 
 Gross
profit for the six months ending December 31, 2007 was $201,598 or 61% compared
to $119,403 or 53% for the six months ending December 31, 2006.  The
increase in gross profit percentage can be attributed to changing sales channels
as well as new product introduction and rapid growth.  The seasonal nature
of the Company's sales will also contribute to this variance.
  For the
six months ending December 31, 2007, selling and general administrative expenses
were $409,761 compared to $537,951 for the six months ending December 31, 2006.
During the six months ended December 31, 2006, the Company recorded a charge of
$134,211 for stock based compensation related to stock options issued to two
officers. In addition, during the six months ended December 31, 2006, the
Company recorded $43,160 of stock based compensation expense for restricted
shares of common stock issued to officers and directors as compared to $17,550
for the same period in fiscal 2007.
 
 Interest
expense for the six months ended December 31, 2007 was $8,878 as compared to
$24,707 for the same period in fiscal 2006.  The decrease is
attributed to the reduction of five capital lease obligations for which the
Company makes monthly payments thus reducing the principal owed. In
addition, during the six months ended December 31, 2006 the Company accrued
interest of $5,000 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. The $5,000
has been recorded as other income on the Statement of Operations.
 Net loss
for the six months ended December 31, 2007 was $212,041 or $0.006 per share
compared to a net loss of $443,255 or $0.014 per share for the same period in
fiscal 2007. The larger loss during the six months ended December 31, 2006 is
attributed to significantly higher selling and administrative expenses resulting
from stock based compensation in the form of options issued to officers and
restricted common stock issued to officers and directors.
 
 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 on 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 and the sale of restricted stock through private
placement. The Company's failure to continue to raise adequate financing to fund
planned expansion may jeopardize its plans for growth.
 
  18
  At the
December 31, 2007, the Company had current assets of $244,450 and total assets
of $326,563. Cash and cash equivalents totaled $2,698 on December 31,
2007.
 
 Current
liabilities at December 31, 2007 were $595,557 of which approximately $142,732
is deferred compensation due to two of the Company’s officers. Current
liabilities also include amounts owed on two lines of credit, one being a bank
line of credit with Chase Bank for approximately $99,000 and the other is with
Dell for approximately $6,000.
 
 Net cash
used in operating activities during the six months ended December 31, 2007 was
$136,452 compared to $93,873 used in operating activities during the six months
ended December 31, 2006. A significant increase in trade accounts receivable
resulting from higher sales, contributed to the overall increase in cash used in
operating activities.
 
 The
Company did not use any cash in investing activities for the six months ended
December 31, 2007. During the six months ended December 31, 2006, the Company
purchased capital assets related to the implementation of its new accounting
software amounting to $17,154 which represented its cash used in investing
activities during the period.
 
 Net cash
provided by financing activities was $125,181 and $133,797 for the six months
ended December 31, 2007 and 2006, respectively. In July 2007, the Company
executed a bank line of credit for $100,000. At December 31, 2007 the Company
had a balance due of approximately $99,000. The proceeds were used primarily to
fund operations. Additionally, the Company received $67,000 by issuing 722,222
shares of its common stock to two investors during the six months ended December
31, 2007.
 
 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.
 Natural
Choices Purchase
 
 History
 
 In the
first quarter (ending September 30, 2007) of fiscal year 2008, the Board of
Directors of Pacific Sands, Inc. (the “Company”) directed President and CEO
Michael Wynhoff to identify possible acquisition candidates for Pacific Sands.
The candidates were to meet the following criteria:
 1)
Profitable company
 2)
Similar or complimentary business model
 3)
Financially feasible for Pacific Sands to purchase
 4)
Expandable
 
 After
initial review of a number of companies with earth, health, environment and
kid-friendly business models, Natural Choice Home Safe Products LLC (“Natural
Choices”) became the leading candidate and the companies agreed to the terms
outlined in “Description of Transaction.”
 
 Founded
in 1995 by Catherine and Dr. Marion 'Mack' Myers, Natural Choices makes the
popular "Oxy-Boost" commercial and home cleaning products as well as dozens of
other exceptional quality, environment and health-responsible offerings. Natural
Choices also has a thriving private label and custom formulation business which
designs and manufactures custom-blend, specialty products sold worldwide in both
boutique and 'big box' stores.
 
 Description
of Transaction
 
 On
January 28, 2008 Pacific Sands, Inc. entered into an Asset Purchase Agreement
with Franklin, Wisconsin based Natural Choices Home Safe Products, LLC to
acquire certain assets of Natural Choices for a purchase price of $890,000.00,
plus or minus closing pro-rations, if any, and payable in cash and shares of
Company common stock over a three-year period.  Earnest money of
$50,000 in the form of 500,000 shares of Company’s restricted common stock was
paid in December 2007.
 
 On
February 8, 2008, Pacific Sands finalized the acquisition by paying an
additional $50,000 in the form of 500,000 shares of Company’s restricted common
stock, and $60,000 in cash.
 
 The
balance will be paid in semi-annual installments of restricted common shares and
cash beginning on August 1, 2008 as follows: $50,000 in additional shares of
Company’s restricted common stock, as well as $40,000 in cash, on August 1,
2008; $50,000 in additional shares of Company’s restricted common stock, as well
as $50,000 in cash, on February 1, 2009; $100,000 in additional shares of
Company’s restricted common stock, as well as $100,000 in cash, on August 1,
2009;  $200,000 in cash, on February 1, 2010; and $140,000 in cash, on
August 1, 2010.
   19
 
 What
Are We Buying?:
 Pacific
Sands has purchase all of the assets of Natural Choices including inventory,
formulations, product lines, trademarks, customer databases, etc. and its
consulting and private label businesses. The primary value of the company comes
in the form its product line, revenue stream, its loyal customer base and its
well-established reputation.
 
 Natural
Choices utilized outside contract manufacturers to make most of its products,
consequently it had minimal capital assets.
 Benefits
to Pacific Sands and its Shareholders
 
 Increased
Cash Flow and Liquidity:
 A review
of income statements and balance sheets suggest that Natural Choices has nearly
the same trailing 12 month sales as Pacific Sands at a similar gross profit.
Using these unaudited figures as a basis, management believes that the combined
sales figures of the two companies combined with the cost savings that increased
in-house production as well as other benefits that Pacific Sands provides, will
substantially improve the cash flow of the Company.
 
 Reduced
Overhead for Natural Choices:
 By
merging into Pacific Sands, the operational overhead for Natural Choices is
significantly reduced, thus potentially substantially increasing gross margins
for the Natural Choices products. Natural Choices cost savings include general
overhead such as rent and utilities and employee and accounting
expenses.
 
 Potential
Growth Through In-House Marketing and Sales Support:
 Pacific
Sands has focused its efforts primarily on marketing and sales for the several
years. Consequently, we have a highly qualified marketing and sales staff as
well as internal production ability for new labels, printing, video, internet
and imaging. Natural Choices has placed more focus on new product development.
Consequently, we now have the ability to apply Pacific Sands marketing and sales
staff to a fresh, new line of products that, while achieving relatively
significant sales, has never been aggressively marketed.
 
 Less
Reliance on Narrow Market Channels:
 To Date,
Pacific Sands has achieved the majority of its sales through the sale of its
Ecoone pool and spa water management systems. Since the management transition of
2004, the Company has grown this business in excess of 12 fold. While management
believes that the Company will continue to grow the pool, spa and water
maintenance sections of the business at its current rate or better, the addition
of new sales channels and markets will serve to insulate the Company from
industry-specific slow downs and enhance the overall stability of the Company's
revenue stream.
 
 The
market for environment and health friendly consumer and commercial cleaning
products is still in the very early stages and is expanding rapidly. Management
believes that the acquisition of Natural Choices, which is already
well-established in these markets, places Pacific Sands in an ideal position to
actively compete in the environmental products market place.
 
 Expanded
Business Model to include Relabel and Custom Formulation:
 Natural
Choices achieves a significant portion of its revenue through private and custom
label sales. Pacific Sands will continue to foster and pursue this business
model as it offers the fastest track entre into the 'big box” distribution.
Natural Choices currently sells to approximately 25 relabel and custom label
customers. A number of these are manufacturers who already have established
sales channels of complementary products through national hardware and building
supply chains such as Home Depot, Lowes, etc. For instance, a major paint
manufacture may have a desire to sell a cleaning product to compliment their
paint line but no interest in developing or manufacturing that product. This is
the ideal situation where Natural Choices' broad spectrum of specialty products
can fill a market niche with a built-in distribution channel without having to
expend the marketing and sales dollars generally necessary to gain access to
those markets.
   20
 
 Funding
Strategy
 The
purchase deal as outlined above was designed to have the majority of cash
payments at the back end of the payout schedule. This not only gives Pacific
Sands time before having to accumulate significant amounts of capital to pay for
the business, it also affords us the ability to put eight or more quarters of
significant growth on the books. Management believes that it is possible that
the cash payments for the Natural Choices acquisition due in 2009 and 2010 will
be paid from operating profits.
 
 Initial
Funding:
 The
initial funding for the transaction was provided through the sale of restricted
stock to an individual investor.
 
 Continuing
Funding:
 Management
anticipates that continuing funding will be required to invest additional
capital as needed toward enhancing the Company's internal manufacturing capacity
and improving its marketing and sales efforts.
 
 Lines of
Credit:
 The
Company currently has a line of credit with Chase Bank for $100,000. Management
believes that the Company's ability to raise conventional financing will
continue to improve as it develops a sales history with the combined revenues of
Natural Choices and the Company's existing and growing business.
 
 Additional
Funding Sources:
 Pacific
Sands is currently in discussions with a number of other potential funding
sources contemplating both conventional loan as well as the sale of restricted
stock. Management will continue to pursue funding options that are in the best
interest in the Company and its shareholders.
  Other
than the transaction described above the Company has no material commitments for
capital expenditures at this time. The Company has no “off balance sheet” source
of liquidity arrangements.
 
 The
Company presently has inclusive of the acquistion seven full time and
two part time employees.
 
 
 
  21
  Item
3. Quantitative
and Qualitative Disclosers 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.
  THE
COMPANY HAS EXPERIENCED LOSSES FROM OPERATIONS SINCE COMMENCING
OPERATIONS:
 With the
exception of 4th
quarters of fiscal 2007 and 2006, the Company since commencing operations, has
not been profitable on an annual or quarterly basis. The Company cannot
guarantee that recent quarterly profitability will continue on a quarter by
quarter basis. The Company may not, in the future, generate sufficient revenues
to achieve sustainable profitability.
  POSSIBLE
DIFFICULTY FINANCING PLANNED GROWTH:
 The
Company's present plans require an amount of expenditure and working capital. In
the future the Company will require financing in addition to the cash generated
from operations to fund planned growth. If additional resources are unavailable
the Company may be unable to grow according to its present plan.
  MANAGEMENT'S
ASSUMPTIONS REGARDING THE FUTURE MARKET MAY BE FAULTY:
 Management
assumes there will be a continuing and increased desirability in the retail
market for nontoxic, environment and health friendly products for cleaning and
water treatment use. Should management's assumptions as to this increased
desirability be faulty, the Company may have difficulty achieving its planned
growth.
  THE LOSS
OF KEY PERSONNEL COULD ADVERSELY AFFECT THE COMPANY:
 The
Company is run by a small number of key personnel. Should the Company experience
a loss of these key people due to their inability or unwillingness to continue
in their present positions, the Company's business and financial results could
be adversely affected.
  
 Item
4. Controls
and Procedures
 
 (a)
Evaluation of disclosure controls and procedures
  We
maintain disclosure controls and procedures designed to ensure that financial
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,
summarized, and reported within the required time periods, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
for timely decisions regarding disclosure.
   22
  In
connection with the completion of its audit of, and issuance of its report on,
our financial statements for the year ended June 30, 2007, Frank L. Sassetti
& Co. (“Sassetti”) considered our internal controls in order to determine
their auditing procedures for the purpose of expressing their opinion on the
financial statements and not to provide assurance on our internal controls.
Sassetti identified deficiencies that existed in the design or operation of our
internal controls over financial reporting that it considered to be “significant
deficiencies” or “material weaknesses.” The Public Company Accounting Oversight
Board (“PCAOB”) has defined “significant deficiency” as a control deficiency, or
a combination of control deficiencies, that adversely affects the Company’s
ability to initiate, authorize, record, process, or report external financial
data reliably in accordance with generally accepted accounting principles such
that there is more than a remote likelihood that the misstatement of the
Company’s annual or interim financial statements that is more than
inconsequential will not be detected. The PCAOB has defined a “material
weakness” as a “significant deficiency or combination of significant
deficiencies that results in more than a remote likelihood that a material
misstatement of the annual or interim financial will not be prevented or
detected.”
  Significant
deficiencies or material weaknesses in our internal controls related to
segregation of incompatible duties and controls over inventory and equity
transactions still exist.  We have disclosed those significant
deficiencies and material weaknesses to our Board of Directors. Additional
effort will continue to work with our management and outside advisors with the
goal to implement internal controls over financial reporting that are adequate
and effective.
 Because
of inherent limitations of internal control, errors or fraud may nevertheless
occur and not be detected. Also, projection of any evaluation of the internal
control to future periods is subject to the risk that internal control may
become inadequate because of changes in conditions or that the degree of
compliance may deteriorate. Sassetti noted the following significant
deficiencies that they believe to be material weaknesses: (i) Improve
segregation of incompatible accounting department duties, (ii) Improve
maintenance of accounting records by implementing the use of an accounting
software system and (iii) Implement a Corporate Code of Conduct.
  During
the fourth quarter of fiscal 2007, the Company implemented a new accounting
software system that has and will continue to improve maintenance of accounting
records and enhance controls over financial reporting.
 Based
upon the above evaluation of Management, the Company's Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are not yet effective, but the procedures are as effective as
possible, considering the fact that there is a lack of segregation of duties
which will continue until such time as the Company can support additional
executive personnel to enhance segregation of duties.
  (b)
Changes in internal controls and procedures
  There has
been no change in our internal control over financial reporting that has
materially affected, or is reasonably likely to material affect, our internal
control over financial reporting.
 
 
 
 
 
 
  23
  PART
II OTHER INFORMATION
 
 ITEM
1 – LEGAL PROCEEDINGS
 
 On
January 24, 2008 Pacific Sands, Inc. (“Company”) and its former CEO, Stanley
Paulus, entered into a settlement agreement resolving all legal actions between
them, each party being responsible for its own legal expenses. Proceedings
had been pending in the US District Court, Eastern District of
California.  The proceedings involved certain compensation and note
claims alleged by Mr. Paulus, as well as certain allegations by the Company
relating to compensation and performance deficiencies during Mr. Paulus’ tenure
as CEO.  The Company will pay Mr. Paulus $100,000 over a two and a
half year period.  The
Company had previously accrued $105,000 for this contingent
liability.
 Mr.
Paulus extended an option to the Company for a pre-payment discount. Once
payment is completed, Mr. Paulus shall file a dismissal with prejudice within
two weeks thereafter
   ITEM
2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 On
December 31, 2007, an accredited investor purchased 522,222 shares of restricted
stock $47,000.
  
 ITEM
3 – DEFAULTS UPON SENIOR SECURITIES
 
 None
 
  ITEM
4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None
   ITEM
5 – OTHER INFORMATION
 
 None
 
 
 ITEM
6 – EXHIBITS
 
 (a)
              Exhibit
      Index
 
 Exhibit
              Description
      of the Exhibit
  31.1
              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.
  
 
 
 
 24
 
 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:
      February 18, 2008
              By:
              /s/ Michael
      WynhoffMichael
      WynhoffChief
      Executive OfficerDated:
      February 18, 2008
              By:
              /s/ Michael
      MichieMichael
      MichieChief
      Financial Officer
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 25