Summary of PACIFIC SANDS INC

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

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS OR FUTURE PERFORMANCE OF THE COMPANY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH ARE ONLY PREDICTIONS AND SPEAK ONLY AS OF THE DATE HEREOF. FORWARD-LOOKING STATEMENTS USUALLY CONTAIN THE WORDS "ESTIMATE," "ANTICIPATE," "BELIEVE," "EXPECT," OR SIMILAR EXPRESSIONS, AND ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW VARIOUS RISKS AND UNCERTAINTIES IDENTIFIED BELOW, AS WELL AS THE MATTERS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON 10-KSB FOR THE YEAR ENDED JUNE 30, 2008 AND ITS OTHER SEC FILINGS. THESE RISKS AND UNCERTAINTIES COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR PUBLICLY ANNOUNCE REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT FUTURE EVENTS OR DEVELOPMENTS.

General

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

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

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

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In mid February of 2008, the Company acquired Natural Choices Home Safe Products, LLC ("Natural Choices"), a developer and manufacturer of environmentally friendly cleaning and laundry products. The acquisition added dozens of new products to the Pacific Sands portfolio of earth, health, pet and kid-friendly offerings, including Oxy-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 product are sold in numerous retail outlets around the country and in Europe as well as dozens of the top environmentally-oriented websites.

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

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

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

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

RESULTS OF OPERATIONS

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

For the three months ended March 31, 2009, net sales were $328,070, an increase of 35% over net sales of $243,145 for the same period in fiscal 2008. The increase is due to increased sales volume from the addition of the Natural Choices products. Sales from these products approximated $149,000 during the three months ended March 31, 2009. Sales for the three months ended March 31, 2008 included approximately $65,000 of sales of Natural Choices products which represent sales subsequent to February 8, 2008, the date of acquisition.

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For the three months ended March 31, 2009, cost of goods sold was $126,636 compared to $73,078 for the same period in the previous fiscal year. The Company's gross margin decreased from 70% for the three months ended March 31, 2008 to 61% for the current fiscal quarter. During the three months ended March 31, 2008, the Company recorded one time cost of goods adjustments resulting from packaging changes. These adjustments resulted in higher than usual gross profit margins. The current fiscal quarter's gross profit margin is more typical of the Company's historical margins. The Company's gross margin for its most recent fiscal year end was 59%.

For the three months ended March 31, 2009 and 2008, selling and general administrative expenses were $217,740 and $251,319, respectively. The decrease in operating expenses is explained in large part by a decrease in accounting and professional fees. Overall, these expenses decreased by approximately $24,000 for the three months ended March 31, 2009 compared to the three months ended March 31, 2008. Accounting and consulting fees charged by independent contractors were higher in 2008 in part due to additional time required for the integration of the Natural Choices business into the Company's following the acquisition.

Interest expense for the three months ended March 31, 2009 was $18,893 compared to $8,992 for the three months ended March 31, 2008. During the three months ended March 31, 2009, the Company amortized $9,937 of the discount of the note payable recorded upon the acquisition of Natural Choices in February 2008 and amortized an additional $1,515 of debt discount for convertible notes. The Company also recorded interest expense of $2,400 for the convertible notes, which is payable quarterly.

During the three months ended March 31, 2009, the Company recorded other income of $59,463 resulting from the settlement of certain accounts payable obligations with three vendors. Under the settlement agreements, the Company agreed to pay the vendors an aggregate amount of approximately $22,500 by the end of its fiscal year and the vendors agreed to forgive the balance of the Company's obligations. At March 31, 2009, the Company had paid $13,000 of the settlement amounts with the balance due in three equal monthly installments beginning on April 30, 2009.

The Company recorded net earnings of $24,264 or $0.001 per share for the three months ended March 31, 2009 as compared to a net loss of $85,148 or $(0.002) per share for the three months ended March 31, 2008.

Results for the nine months ending March 31, 2009 compared to the nine months ending March 31, 2008

For the nine months ended March 31, 2009 net sales were $857,875 compared to net sales of $576,187 for the same period in 2008. The sales increase of 49% is attributable to the additional sales recorded as a result of the acquisition of Natural Choices. Sales of Natural Choices products totaled approximately $380,000 during the nine months ended March 31, 2009. Sales for the nine months ended March 31, 2008 included approximately $65,000 of sales of Natural Choices products which represent sales subsequent to February 8, 2008, the date of acquisition.

Gross profit for the nine months ended March 31, 2009 was $448,877 or 52% compared to $371,665 or 65% for the nine months ended March 31, 2008. The decrease of 13% is due in part to lower gross margins recognized on the products acquired from Natural Choices. This is particularly true of many of the private label products which constitute a significant portion of the Natural Choices product sales. Prior to the acquisition, Natural Choices manufactured the majority of their liquid and powder cleaning and laundry products through contract manufacturers, adding significantly to the cost of manufacturing those products. In the fourth quarter of fiscal 2008, the Company made significant capital expenditures, including building an in-house powder filling facility, and is in the process of moving away from contract manufacturers. Although during the nine months ended March 31, 2009, several products were manufactured by third parties, thus contributing to the margin decrease, the overall gross margin continues to increase as more of these product are manufactured in-house. Management expects that this trend will continue as the Company moves away from utilizing contract manufacturers.

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For the nine months ended March 31, 2009, selling and general administrative expenses were $673,525 compared to $661,080 for the nine months ended March 31, 2008. During the nine months ended March 31, 2009 salaries charged to operations were approximately $380,000 compared to $304,000 for the same period last year. A significant amount of the salary increase comes from the addition of the two former officers of Natural Choice Home Products who became employees of the Company upon the acquisition in February of 2008. In addition, the Company hired additional personnel after the acquisition to accommodate the additional sales volume. Salary increases were largely offset by a decrease in legal and professional fees which dropped nearly $75,000 during the nine months ended March 31, 2009 compared to the same period last year. Operating expenses during the nine months ended March 31, 2008 included legal fees incurred for litigation involving the Company's former CEO which was settled in December 2007 and non-direct acquisition related accounting and consulting fees incurred upon the acquisition of Natural Choices.

Interest expense of $56,504 for the nine months ended March 31, 2009 includes $32,176 of discount amortization for the note payable recorded upon the acquisition of Natural Choices in February 2008 and an additional $3,030 of amortized debt discount for the convertible notes. The Company also recorded interest expense of $4,800 for the convertible notes, which is payable quarterly. Interest expense for the nine months ended March 31, 2008 was $17,870.

During the nine months ended March 31, 2009, the Company recorded other income of $59,463 resulting from the settlement of certain accounts payable obligations with three vendors (See discussion under three month comparison). During the nine months ended March 31, 2008, the Company recorded other income of $5,000 for the reversal of accrued interest on deferred compensation owed to a former officer. The accrued interest was reduced by $5,000 in December 2007 pursuant to the terms of a settlement agreement between the Company and the former officer.

Net loss for the nine months ended March 31, 2009 was $221,689 or $(0.006) per share compared to a net loss of $297,189 or $(0.008) per share for the same period in fiscal 2008.

LIQUIDITY AND CAPITAL RESOURCES

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

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At March 31, 2009, the Company had current assets of $329,543 and total assets of $1,273,005, compared to June 30, 2008 when current assets were $402,412 and total assets were $1,343,401. The decrease in current assets is attributable primarily to decreases in accounts receivable from $256,427 at June 30, 2008 to $183,011 at March 31, 2009. The Company increased its allowance for doubtful accounts by approximately $17,000, contributing to the overall decrease in accounts receivable. Management felt an increase in the reserve was necessary to address the over 90 day balance of its largest customer, which totals nearly $61,000. The customer, whose purchases represent 12% of the Company's revenues, has not placed an order since September 2008. Management believes that the customer is going through organizational restructuring and that there may be uncertainty surrounding collection. Non current assets include goodwill resulting from the acquisition of Natural Choices in the amount of $877,854 which increased from $861,862 at June 30, 2008 as a result of adjustments to purchase price allocations during the nine months ended March 31, 2009.

Current liabilities at March 31, 2009 were $507,812. Current liabilities include accounts payable, capital lease obligations and accrued expenses totaling approximately $306,000. At March 31, 2009, the Company had outstanding line of credit balances with banks totaling $114,000. Current liabilities also include $36,000 in payments due to a former officer pursuant to a settlement agreement executed in December 2007. On March 12, 2009, the Company converted $49,676 of accrued salaries and wages due two employees into 400,000 shares of its common stock. In addition, on March 31, 2009, the Company converted $285,693 of deferred compensation due two executive officers into two notes payable. The notes are due on March 31, 2012 and accrue interest at 4% per annum.

On March 31, 2009, the Company and the former member owners of Natural Choices Home Safe Products, LLC (the "Members"), executed an amendment to the Asset Purchase Agreement dated February 8, 2008 (the "Amendment"). Pursuant to the Amendment, the Company shall pay the Members the remaining outstanding principal balance of $650,000 as follows:
o $10,000 due May 1, 2009.

o $640,000 due on or before March 31, 2012

In addition, the Company shall make monthly cash interest payments to the Members on the outstanding balance at a rate of 4% per annum.

In addition to those items discussed above, long term liabilities at March 31, 2009 include amounts due pursuant to the settlement agreement involving the Company's former CEO of $20,500. Additionally, on October 1, 2008, the Company executed notes payable (the "Notes") to eight investors for a total of $82,000. Interest accrues at a rate of 12% per annum and is payable quarterly. The Notes mature on October 1, 2011 at which time all outstanding principal is payable in full in the form of freely tradable common stock of the Company at an agreed upon conversion price of $0.10 (ten cents) per share. The Company shall have the right, but not the obligation, to pay up to one half of the principal balance in cash. Pursuant to a Stock Pledge Agreement dated October 1, 2008, each Note is secured by the number of shares of common stock of the Company necessary to satisfy the entire principal amount at the agreed upon price of $0.10 per share. The Company used the proceeds from the debt to fund current operations. Long-term capital lease obligations were $24,212 at March 31, 2009.

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Net cash used in operating activities during the nine months ended March 31, 2009 was $75,052 compared to $178,646 used in operating activities during the nine months ended March 31, 2008. The increase in operating cash flow is due in large part to cash being provided by accounts receivable in the amount of approximately $44,000 (net of increase in allowance for doubtful accounts) during the nine months ended March 31, 2009 as compared to approximately $86,000 of cash being used during the same period last year.

Net cash used in investing activities was $4,645 during the nine months ended March 31, 2009, all of which was used for the purchase of equipment. During the nine months ended March 31, 2008 the Company used $60,000 for the initial payment of the purchase price for Natural Choices.

Net cash provided by financing activities was $77,252 and $226,623 for the nine months ended March 31, 2009 and 2008, respectively. During the nine months ended March 31, 2009, the Company issued restricted common stock for cash totaling $49,801 compared to $167,000 in 2008, and also received proceeds from borrowings in the amount of $149,576 and $140,864 during the nine months ended March 31, 2009 and 2008, respectively. Proceeds from financing activities were used to fund operations and to meet current obligations of notes payable.

On March 31, 2009 the Company had an accumulated deficit of $4,254,547 and total stockholders' deficit of $242,303.

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

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