PACIFIC SANDS INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - PACIFIC SANDS INC	Financial_Report.xls
EX-32.1 - CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - PACIFIC SANDS INC	pacificexh321.htm
EX-31.1 - CHIEF EXECUTIVE OFFICER CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - PACIFIC SANDS INC	pacificexh311.htm
EX-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. - PACIFIC SANDS INC	pacificexh322.htm
EX-31.2 - CHIEF FINANCIAL OFFICER CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - PACIFIC SANDS INC	pacificexh312.htm

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, 2015

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.)

4611 Green Bay Road Kenosha, WI	53144
(Address of Principal Executive Offices)	(Zip Code)

Issuer’s Telephone Number, Including Area Code: (262) 925-0123

N/A

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

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o

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

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

Large accelerated filer o	Accelerated filer o
Non-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 o No x

The number of shares outstanding of each of the issuer's classes of common equity, as of May 15, 2015 are as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	89,811,292

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements	3

	Balance Sheets as of March 31, 2015 (unaudited) and June 30, 2014	3

	Statements of Operations for the Three and Nine Months Ended March 31, 2015 and 2014 (unaudited)	4

	Statements of Cash Flows for the Nine Months Ended March 31, 2015 and 2014 (unaudited)	5

	Notes to Financial Statements (unaudited)	7

Item 2.	Management Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

Item 4.	Controls and Procedures	21

PART II OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	22

Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	22

Item 3.	DEFAULTS UPON SENIOR SECURITIES	22

Item 4.	MINE SAFETY DISCLOSURES	22

Item 5.	OTHER INFORMATION	22

Item 6.	EXHIBITS	23

SIGNATURES		24

PACIFIC SANDS, INC.
BALANCE SHEETS
MARCH 31, 2015 AND JUNE 30, 2014

ASSETS

	March 31, 2015		June 30, 2014
Current assets:	(Unaudited)
Cash and cash equivalents	$	4,985	$	266,190
Trade receivables, net of allowances for doubtful accounts of $24,435 and $11,425, respectively		223,107		344,562
Inventories		203,561		259,423
Other current assets		130,997		17,835
Total Current Assets		562,650		888,010

Property and equipment, net		220,547		191,255

Other asset		2,290		2,820

Total Assets	$	785,487	$	1,082,085

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	504,858	$	411,313
Accrued expenses		98,883		54,111
Deferred rent expenses		-		8,800
Current portion of notes payable and capital leases, less debt discount		414,582		346,815
Embedded conversion derivative liability		13,100		68,298
Total Current Liabilities		1,031,423		889,337

Notes payable - less current portion		116,165		230,123
Total Liabilities		1,147,588		1,119,460

Stockholders' deficit
Preferred series A stock (1,000,000 shares authorized, 0 shares issued and outstanding)		-		-
Common stock, par value $0.001 per share; (200,000,000 shares authorized, 85,790,953 and 66,811,354 shares issued and outstanding, at March 31, 2015, and June 30, 2014, respectively)		85,790		66,811
Additional paid in capital		6,178,243		5,710,231
Accumulated deficit		(6,626,134)		(5,814,417)
Total Stockholders' Deficit		(362,101)		(37,375)

Total Liabilities and Stockholders' Deficit	$	785,487	$	1,082,085

See accompanying notes.

PACIFIC SANDS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2015, AND 2014
(UNAUDITED)
	Three months ended March 31,				Nine months ended March 31,
	2015		2014		2015		2014
Net sales	$	592,491	$	781,253	$	1,910,213	$	2,046,338
Cost of sales		281,486		474,931		1,083,022		1,223,961

Gross profit		311,005		306,322		827,191		822,377

Selling and administrative expenses		392,270		370,434		1,433,356		926,852

Loss from operations		(81,265)		(64,112)		(606,165)		(104,475)

Other income (expense)
Interest expense		(83,767)		(20,973)		(243,365)		(42,094)
Gain(loss) on derivative liability		22,959		-		31,060		-
Other income (expense)		5,483		1,454		6,753		2,163
Total other expense		(55,325)		(19,519)		(205,552)		(39,931)
Loss before income taxes		(136,590)		(83,631)		(811,717)		(144,406)

Income taxes		-		-		-		-

Net loss	$	(136,590)	$	(83,631)	$	(811,717)	$	(144,406)

Loss per share:
Basic	$	(0.002)	$	(0.001)	$	(0.011)	$	(0.002)
Diluted	$	(0.002)	$	(0.001)	$	(0.011)	$	(0.002)

Weighted average share outstanding:
Basic		76,559,510		64,326,051		72,987,036		64,430,687
Diluted		76,559,510		64,326,051		72,987,036		64,430,687

See accompanying notes.

PACIFIC SANDS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2015, AND 2014
(UNAUDITED)

	2015		2014
Cash flows from operating activities:
Net loss	$	(811,717)	$	(144,406)
Adjustments to reconcile net loss to net cash used in operating activities -
Depreciation and amortization		54,347		48,361
Stock options		63,478		79,348
Common shares issued for services and compensation		99,722		-
Gain (loss) on derivative		(31,060)		-
Accretion of debt discount		119,957		-
Common shares issued for interest		49,153		12,000
Deferred rent		(8,800)		(13,200)
Changes in assets and liabilities:
Trade accounts receivable		121,455		(135,234)
Inventories		55,862		(90,266)
Other assets		(7,314)		7,068
Accounts payable and other current liabilities		138,317		309,104

Net Cash Provided by (Used in) Operating Activities		(156,600)		72,775

Cash flows from investing activities:
Purchases of equipment		(11,185)		(25,073)
Prepaid brand development and other costs		(105,318)		-
Net Cash Used in Investing Activities		(116,503)		(25,073)

Cash flows from financing activities:
Proceeds from common stock issued		-		5,000
Convertible notes payable		70,000		-
Proceeds from notes payable		311,240		220,958
Repayment of notes payable and long term obligations		(369,342)		(331,882)

Net Cash Provided by (Used in) Financing Activities		11,898		(105,924)

Net decrease in cash and cash equivalents		(261,205)		(58,222)

Cash and cash equivalents:
Beginning of period		266,190		90,040

End of period	$	4,985	$	31,818

See accompanying notes.

PACIFIC SANDS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2015, AND 2014
(UNAUDITED)

	2015		2014
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	82,005	$	29,652
Income taxes	$	-	$	-

Supplemental disclosure of non-cash financing and investing activities
Conversion of debt and derivative liability to equity	$	209,638	$	-
Acquisition of stock for notes payable	$	-	$	31,000
Conversion of accrued interest to equity	$	49,153	$	12,000

See accompanying notes.

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Pacific Sands, Inc., have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in Pacific Sands, Inc’s Annual Report filed with the SEC on Form 10-K for the year ended June 30, 2014. 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 2014 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-Boost™ 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 Choices™ 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 products 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.

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 $54,347 and $48,361 during the nine months ended March 31, 2015, and 2014, respectively.

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

The income tax accounting process for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. A company must determine whether it is "more-likely-than-not" that a tax position will be sustained upon examination, including resolution of any related appeals or litigation procedures, based on the technical merits of the position. Once it is determined that a position meets the “more-likely-than-not” recognition threshold, the position is measured to determine the amount of benefit to recognize in the financial statements. Management's review of the Company’s possible tax positions at March 31, 2015, and June 30, 2014, did not result in any positions requiring disclosure. Should the Company need to record interest and/or penalties related to uncertain tax positions, or other tax authority assessments, it would classify such expenses as part of the income tax provision.

The Company’s income tax returns for the years ending June 30, 2012, 2013 and 2014 are subject to examination by the IRS and related states, generally for three years after filed.

Revenue Recognition - Revenue is recognized when the related products are shipped unless the customer is under a “bill and hold” arrangement. Under a “bill and hold” arrangement revenue is recognized when the product is manufactured, invoiced and set aside in a specifically designated finished goods area. Upon invoicing under this arrangement ownership has passed to the buyer with no residual warranty obligation or right of return. All customers under a “bill and hold” arrangement have committed to purchases and have specifically requested they be on a “bill and hold” arrangement. In all cases goods are transferred to a designated finished goods fulfillment location under a fulfillment arrangement and are complete and ready for shipment. These “bill and hold” goods are either privately labeled or set aside exclusively for the customers use.

Customer Deposits – The Company reserves the right to request deposits on product orders. Deposits are requested for new customers or larger-than-normal orders for regular customers. When the Company receives a deposit on a large order then the Company may choose to progress bill for that order.

Accounts Receivable - The Company makes judgments as to the collectability 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 collectability of the receivables. Management believes that the current specific and general receivable reserves aggregating $24,435 are adequate as of March 31, 2015.

Advertising and Promotional Costs - Advertising and promotion costs are expensed as incurred. During the nine months ended March 31, 2015, and 2014, advertising and promotion costs totaled $440,829 and $58,393, respectively.

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

Basic and Diluted Net Loss Per Share - Basic net loss per share is based upon the weighted average number of common shares outstanding. Dilutive shares related to outstanding convertible promissory notes are not included in the computation of the weighted average number of shares outstanding for dilutive net loss per common share, as the effect would be anti-dilutive.

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 – In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.

The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2018.

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

3. GOING CONCERN

The accompanying financial statements have been presented assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business. Through March 31, 2015, the Company has incurred cumulative losses of $6,626,134 and a stockholders’ deficit of $362,101. 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, 2015, and June 30, 2014, consisted of the following:

	March 31, 2015		June 30, 2014
Raw materials	$	154,209	$	219,222
Finished goods		49,352		40,201
Total	$	203,561	$	259,423

5. PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2015, and June 30, 2014, consisted of the following:

	March 31, 2015		June 30, 2014
Furniture	$	35,997	$	35,997
Manufacturing equipment		288,217		210,483
Office Equipment		55,543		54,435
Leasehold improvements		90,116		85,320
Computer software		52,150		52,150
Less accumulated depreciation and amortization		(301,476)		(247,130)
Property and equipment, net	$	220,547	$	191,255

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

6. ACCRUED EXPENSES

Accrued expenses at March 31, 2015, and June 30, 2014, consisted of the following:

	March 31, 2015		June 30, 2014
Accrued compensation	$	92,024	$	37,295
Accrued payroll liabilities		1,514		3,354
Accrued expense		19		386
Accrued interest		5,326		13,076
Total	$	98,883	$	54,111

7. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable at March 31, 2015, and June 30, 2014, consisted of the following:

	March 31, 2015		June 30, 2014
Promissory note – unrelated party		25,000		53,800
Convertible notes (3)		17,500		63,000
Notes payable – stockholder		230,000		304,000
Promissory note – related party				65,000
Notes payable – former executive officer		9,060		55,863
Capital lease (2)		51,630		-
Note payable – Capital Access (1)		124,545		-
Promissory Note – Kenosha Area Business Alliance		78,845		91,065
Debt discount		(5,833)		(55,790)
Total obligations		530,747		576,938
Less current maturities		(414,582)		(346,815)
Total long term liabilities	$	116,165	$	230,123

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

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

2015	$	414,582
2016		67,381
2017		24,692
2018		20,547
2019 and thereafter		3,545

(1) The Company issued a short term note payable for $150,000 to support current operations and payoff an existing higher rate note. This note bears 19% annual interest and matures on April 12, 2016. Under the terms of this agreement daily payments of $540.90 are required.

(2) The Company entered into a capital lease agreement for new manufacturing equipment. The lease has a $1 purchase option upon maturity. The lease agreement was for $72,453. This note requires monthly payments of $2,466. This lease bears 18.4% annual interest and matures on July 7, 2017.

(3) The Company issued two additional convertible notes for $32,500 and $37,500, during the three months ended September 30, 2014, for a total of $130,000 in convertible debt. During the current fiscal year $115,500 of the convertible debt was converted into equity.

The fair value of the conversion features are calculated at the time of issuance and the Company discounts the debt and records a derivative liability for the calculated value using a Black-Scholes option-pricing model. Changes in the fair value of the derivative liability thereafter are recorded in other income (expense) in the statement of operations. Upon conversion of the convertible debt to stock, the Company reclassifies the related embedded conversion derivative liability to paid-in capital. The Company recognizes expense for accretion of the convertible debentures discount over the term of the note. The Company has considered the provision of ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in each debenture could result in the note principal converted to a variable number of the Company’s common shares.

Debt Discount – Costs incurred with parties who are providing short-term financing, which include the fair value of an embedded derivative conversion, are reflected as a debt discount and are amortized over the life of the related debt. When the debt is repaid, the related debt discount is recorded as additional interest expense and the related derivative liability is relieved into additional paid in capital.

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

At March 31, 2015, convertible notes totaled $17,500 of which $5,833 was attributable to the discount on debt. For the period ended March 31, 2015, $119,957 of the debt discount was amortized and recorded as interest expense.

At March 31, 2015, $115,500, $94,138 and $3,820, of the convertible debt, derivative liability and accrued interest, respectively were converted into 13,708,207 shares of common stock. $94,138 is the portion of the derivative that was written off to equity and $9,723 of the remaining debt discount was amortized and recorded as interest expense.

The following table presents the embedded conversion derivative liabilities, the Company’s only financial liabilities measured and recorded at fair value on the Company’s balance sheet on a recurring basis, and their level within the fair value hierarchy as of March 31, 2015:

	Level 1		Level 2		Level 3
Embedded conversion derivative liability:
March 31, 2015	$	-	$	-	$	13,100

The following table reconciles for the period ended March 31, 2015, the beginning and ending balances for financial instruments that are recognized at fair value in the financial statements:

Balance at June 30, 2014	$	68,298
Issued during period ending March 31, 2015		70,000
Reductions in fair value due to conversion of Convertible Debentures into common stock		(94,138	)
Gain on fair value adjustments to embedded conversion derivative liabilities		(31,060	)
Balance of embedded derivative liability as of March 31, 2015	$	13,100

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

8. STOCKHOLDERS’ DEFICIT

Transactions for the nine months ended March 31, 2015, are as follows:

On July 1, 2014, the Company issued 175,000 shares of common stock for $7,000 for payment of interest on a note payable.

On July 4, 2014, the Company issued 500,000 shares of common stock for $15,000 for payment of interest on a note payable.

On July 9, 2014, the Company issued 1,934,400 shares of common stock to an outside consulting company for prepayment of services to be rendered of $77,376.

On July 18, 2014, the Company issued 288,467 shares of common stock to officers of the company for $11,539 for payment of compensation.

On July 31, 2014, the Company issued 120,192 shares of common stock to an officer of the company for $4,808 for payment of compensation.

On August 8, 2014, the Company issued 1,625,000 shares of common stock to a related party for $65,000 to convert a note payable.

On October 1, 2014, the Company issued 120,000 shares of common stock to an employee for $6,000 as payment for compensation.

On October 4, 2014, the Company issued 300,000 shares of common stock for $15,000 as payment of interest on a note payable.

On November 17, 2014, the Company issued 208,333 shares of common stock for $8,333 as payment of interest on a note payable.

On December 31, 2014, the Company issued 600,000 shares of common stock for $12,000 to convert a portion of a convertible note payable.

On January 23, 2015, the Company issued 674,157 shares of common stock for $12,000 to convert a portion of a convertible note payable.

On January 29, 2015, the Company issued 1,034,483 shares of common stock for $15,000 to convert a portion of a convertible note payable.

On February 3, 2015, the Company issued 1,562,500 shares of common stock for $15,000 to convert a portion of a convertible note payable.

On March 4, 2015, the Company issued 1,309,091 shares of common stock for $9,000 to convert a portion of a convertible note payable and $2,520 in lieu of interest.

On March 10, 2015, the Company issued 2,112,676 shares of common stock for $15,000 to convert a portion of a convertible note payable.

On March 19, 2015, the Company issued 3,081,967 shares of common stock for $17,500 to convert a portion of a convertible note payable and $1,300 in lieu of interest.

On March 24, 2015, the Company issued 3,333,333 shares of common stock for $20,000 to convert a portion of a convertible note payable.

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

9. OPTIONS

For all of the Company’s stock-based compensation plans, the fair value of each grant was estimated at the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as the Company has not paid cash dividends to date and does not currently expect to pay cash dividends) and the expected term of the option. Expected volatilities utilized in the model are based mainly on the historical volatility of the Company’s stock price over a period commensurate with the expected life of the share option as well as other factors. The risk-free interest rate is derived from the zero-coupon U.S. government issues with a remaining term equal to the expected life at the time of grant.

On November 1st, 2013, the Company granted certain consultants options to purchase 3,174,000 shares of common stock under an agreement at an exercise price of $0.06 per share. Approximately eight (8) percent of the options vested monthly through October 31, 2014. The Company recorded a total expense of $63,478 related to these options during the nine months ended March 31, 2015.

Expected Life (years)	10
Risk free rate of return	2.710	%
Dividend yield	0
Volatility factor	262	%

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

10. LOSS PER SHARE

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

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

	Three months ended March 31,						Nine months ended March 31,
	2015			2014			2015			2014

Net loss – basic	$	(136,590	)	$	(83,631	)	$	(811,718	)	$	(144,406	)
Interest expense for conversion of promissory note		-			-			-			-
Net loss diluted		(132,770	)		(86,631	)		(807,898	)		(144,406	)
Weighted average shares – basic		76,559,510			64,326,051			72,987,036			64,430,687
Incremental shares outstanding
Assuming the conversion of dilutive
Convertible promissory notes
Weighted average shares – diluted		76,559,510			64,326,051			72,987,036			64,430,687
Loss per share
Basic	$	(0.002	)	$	(0.001	)	$	(0.01	)	$	(0.002	)
Diluted	$	(0.002	)	$	(0.001	)	$	(0.01	)	$	(0.002	)

Convertible promissory notes (and related expenses) were not included in the computation of diluted loss per common share for the three- and nine-month periods ended March 31, 2015 and 2014, since their inclusion would have resulted in an anti-dilutive effect.

PACIFIC SANDS, INC.

NOTES TO FINANCIAL STATEMENTS

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 March 31, 2015, and June 30, 2014, are as follows:

	March 31, 2015		June 30, 2014
Net operating loss carryforwards	$	1,814,000	$	1,476,000
Deferred compensation		4,000		23,000
Deferred rent expense		-		4,000
Accounts receivable allowance		10,000		5,000
Valuation allowance		(1,828,000)		(1,505,000)
Net deferred tax asset	$	--	$	--

At March 31, 2015, the Company has net operating loss carry-forwards for Federal tax purposes of approximately $4,319,000 which, if unused to offset future taxable income, will expire in years beginning in 2018.

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

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS OR FUTURE PERFORMANCE OF THE COMPANY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH ARE ONLY PREDICTIONS AND SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS USUALLY CONTAIN THE WORDS "ESTIMATE," "ANTICIPATE," "BELIEVE," "EXPECT," OR SIMILAR EXPRESSIONS, AND ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW VARIOUS RISKS AND UNCERTAINTIES IDENTIFIED BELOW, AS WELL AS THE MATTERS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON 10-K FOR THE YEAR ENDED JUNE 30, 2013 AND ITS OTHER SEC FILINGS. THESE RISKS AND UNCERTAINTIES COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR PUBLICLY ANNOUNCE REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.

General

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

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).

The Company has a two mature, actively marketed product lines known as the ecoONE® Spa Treatment system as well as ecoONE® Pool conditioner and Natural Choices household cleaning products.

The Company markets and sells its product lines directly, 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 products are sold in numerous retail outlets around the country as well as dozens of the top environmentally-oriented websites. The Company has revamped its own website and has been selling products through the Company’s website.

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

Management believes the Company must continue to provide new and innovative products and branding to the consumer in order to grow its business. Research and product development activities, designed to enable sustained organic growth, continued to carry a high priority during the past fiscal year. While many of the benefits from these efforts will not be realized until future years, management believes these activities demonstrate the Company’s commitment to future growth. The Company has entered into a service agreement with an outside marketing development group in which the outside marketing development group provides the Company with consulting services to assist in enhancing the value of the Company’s current products and facilitate change and innovation for existing products branded by the Company.

Management intends to continue the aggressive marketing and sale of its products through a widening base of retail outlets, distribution centers, OEM arrangements and private label manufacturing 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, issuing convertible debt and the sale of rule 144 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 March 31, 2015, compared to the three months ending March 31, 2014.

For the three months ended March 31, 2015, net sales were $592,491, a decrease of 32% from net sales of $781,253 for the three months ended March 31, 2014. The Company has rebalanced its customer base, reducing the amount of concentration away from a few higher volume low margin customers with less than favorable payment terms to a broader mix of smaller and medium sized companies accepting more favorable payment terms and who have potential to grow with the Company in the future.

For the three months ended March 31, 2015, cost of sales was $281,486 compared to $474,931 for the same period in the previous fiscal year. The Company’s gross margin was 52% for the three months ended March 31, 2015, and 39% for the three months ended March 31, 2014. The Company has conducted a complete and detailed review of all the products offered including re-costing and evaluating the profitability and long term viability of each item. As a result the Company reduced the total number of items being offered by approximately 35%, with only slight impact to our total revenue. As a result the gross margin improved by 13%. These changes have also freed up considerable capacity so the Company is in a position to grow the sales of higher margin items that have more potential for growth in general.

For the three months ended March 31, 2015, and 2014, selling and general administrative expenses were $392,270 and $370,434, respectively. We have made some significant progress in developing some new marketing and branding initiatives that will help us better capitalize on some of our existing product lines as well as to establish our own brands in the market in other categories.

Interest expense for the three months ended March 31, 2015, was $83,767 compared to $20,973 for the three months ended March 31, 2014. During the three months ended March 31, 2015, the Company expensed $48,134 of debt discount to interest expense. The additional increase in interest expense is due to higher rate of financing.

The Company recorded a net loss of $136,590 or $0.002 loss per share for the three months ended March 31, 2015, as compared to a net loss of $83,631 or $0.001 loss per share for the three months ended March 31, 2014.

Results for the nine months ending March 31, 2015 compared to the nine months ending March 31, 2014.

For the nine months ended March 31, 2015, net sales were $1,910,213, a decrease of 7% over net sales of $2,046,338 for the nine months ended March 31, 2014. The decrease in sales is related to the Company rebalancing its customer base from low margin customers to higher margin customers.

For the nine months ended March 31, 2014, cost of sales was $1,083,021 compared to $1,223,961 for the same period in the previous fiscal year. The Company’s gross margin increased from 40% for the nine months ended March 31, 2014, to 43% for the current fiscal year to date. The decreased cost and increased margin is a reflection of the Company working with more customers that allow for a greater gross margin.

For the nine months ended March 31, 2015, and 2014, selling and general administrative expenses were $1,433,357 and $926,852, respectively. This increase is due to the continued investment in marketing and new product development.

Interest expense for the nine months ended March 31, 2015, was $243,366 compared to $42,094 for the nine months ended March 31, 2014. During the nine months ended March 31, 2015, the Company expensed $119,957 of debt discount to interest expense. The remaining increase in interest expense is due to higher cost financing.

The company recorded a net loss of $811,717, or $0.011 loss per share for the nine months ended March 31, 2015. This compares to a net loss of $144,406, or $0.002 per share for the nine months ended March 31, 2014.

LIQUIDITY AND CAPITAL RESOURCES

Management believes that the Company is positioned for sales growth but will require additional funding to continue operations. The Company's ability to achieve its objectives is dependent upon its ability to sustain and enhance its current revenue stream and to continue to raise funds through loans, vendor credit and the private placement of restricted securities until such time as the Company sustains fiscal profitability. To date, the Company has funded operations and expansion through a combination of revenues from the sale of its products, established credit with vendors, deferred salaries (subsequently converted to notes payable to officers), debt financings and the sale of rule 144 stock through private placement. The Company's failure to continue to raise adequate financing to fund planned expansion may jeopardize its plans for growth.

At March 31, 2015, the Company had negative net working capital of $468,773 composed of current assets of $562,650 and current liabilities of $1,031,423. That is compared to the $1,327 at June 30, 2014, when current assets were $888,010 and current liabilities were $889,337. The Company is currently looking for reasonable financing opportunities.

Net cash used in operating activities during the nine months ended March 31, 2015, was $156,600, substantially lower than the $72,775 cash provided by operating activities during the nine months ended March 31, 2014.

To finance the operating activities for the nine months ending March 31, 2015, the Company issued $70,000 in convertible notes and obtained other short term financing. For the nine months ending March 31, 2014, the Company issued $5,000 of common stock and used cash provided by operating activities.

At June 30, 2014, the Company had a stockholders’ deficit of $37,375. At March 31, 2015, the Company had stockholders’ deficit of $362,101.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

THE COMPANY HAS EXPERIENCED LOSSES FROM OPERATIONS SINCE COMMENCING OPERATIONS:

While the Company has not been profitable since commencing operations in 1994, for the quarter ending March 31, 2015, the Company continues to make significant improvements in manufacturing infrastructure. Continued investments in advertising and promotions resulted in Selling and Administrative expenses increasing by 35%.

POSSIBLE DIFFICULTY FINANCING PLANNED GROWTH:

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

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

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

THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT THE COMPANY:

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based upon an evaluation of the effectiveness of disclosure controls and procedures, our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Disclosure controls and procedures are defined as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2015, Judson Just, the CFO, had resigned his position to pursue another career opportunity. The accountant for the Company provides oversight of financial transactions and Michael Michie, the CEO, reviews all financial transactions. The Company believes that while there are acceptable segregation issues as a small company this move will provide some financial benefit to the Company and with the overlapping of oversight the risk will be minimized.

PART II OTHER INFORMATION

Item 1 – LEGAL PROCEEDINGS

None

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

None

Item 3 – DEFAULTS UPON SENIOR SECURITIES

None

Item 4 – MINE SAFETY DISCLOSURES

None

Item 5 – OTHER INFORMATION

None

Item 6 – EXHIBITS

(a)	Exhibit Index

Exhibit	Description of the Exhibit

31.1	Chief Executive Officer 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	Chief Executive Officer 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.

101 INS	XBRL Instance Document*

101 SCH	XBRL Schema Document*

101 CAL	XBRL Calculation Linkbase Document*

101 LAB	XBRL Labels Linkbase Document*

101 PRE	XBRL Presentation Linkbase Document*

101 DEF	XBRL Definition Linkbase Document*

* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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 15, 2015	By:	/s/ Michael Michie
		Michael Michie Chief Executive Officer

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 15, 2015	By:	/s/ Michael Michie
		Michael Michie Chief Financial Officer

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