UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended ~~May~~November 3130, 2009

¨o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT

For the transition period from ______ to ______

Commission File Number: 000-27629

SHEERVISION INC.

(Exact name of small business issuer as specified in its charter)

Delaware	23-2426437
(State of incorporation)	(I.R.S. Employer Identification No.)

4030 Palos Verdes Drive N., Suite 104, Rolling Hills, CA 90274

(Address of principal executive offices)

(310) 265-8918

(Issuer's telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

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

Yes o No x

State the number of shares outstanding of each of the issuer's classes of common equity, as of ~~July~~January 114, ~~2009~~2010: 12,756,023 shares outstanding of the Company’s common stock, par value, $.001

Transitional Small Business Disclosure Format (check one):

Yes o No x

TABLE OF CONTENTS

HEADING		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		1
Item 2. Management's Discussion and Analysis or Plan of Operation		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4T. Controls and Procedures		25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		26
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds		26
Item 3. Defaults upon Senior Securities		26
Item 4. Submission of Matters to a Vote of Securities Holders		26
Item 5. Other Information.		26
Item 6. Exhibits		26
Signatures		27

HEADING	PAGE

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	1

Item 2. Management's Discussion and Analysis or Plan of Operation	2

Item 3. Quantitative and Qualitative Disclosures About Market Risk	7

Item 4T. Controls and Procedures	7

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	8

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds	8

Item 3. Defaults upon Senior Securities	8

Item 4. Submission of Matters to a Vote of Securities Holders	8

Item 5. Other Information.	8

Item 6. Exhibits	8

Signatures	9

ITEM 1. FINANCIAL STATEMENTS

SHEERVISION, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2009

(UNAUDITED)

	Page(s)

Financial Statements:

Consolidated Balance Sheets as of November 30, 2009 (Unaudited) and August 31, 2009 (Audited)	F-2

Consolidated Statements of Operations for the three months ended November 30, 2009 and 2008 (Unaudited)	F-3

Consolidated Statements of Cash Flows for the three months ended November 30, 2009 and 2008 (Unaudited)	F-4

Notes to Consolidated Financial Statements (Unaudited)	F-5 - F-22

F-1

SheerVision, Inc. and Subsidiary

Consolidated Balance Sheets

	May 31, 2009			August 31, 2008
	November 30, 2009			August 31, 2009
	(Unaudited)			(Audited)
Assets
Assets:
Cash	$	~~88,772~~786		$	~~111~~17,~~887~~651
Accounts receivable		~~163~~89,~~720~~268			~~399~~257,~~950~~616
Inventory		~~362~~386,~~704~~316			~~254~~339,~~052~~664
Prepaid expenses and other current assets		90103,~~445~~591			4587,~~387~~653
Total Current Assets		~~705~~579,~~641~~961			~~811~~702,~~276~~584
Property and equipment, net		~~138~~123,~~945~~594			~~141~~134,~~894~~981
					-
Total Assets	$	703,555		$	837,565
Intangible assets, net		7,091			7,520
Total Assets	$	851,677		$	960,690
Liabilities and Stockholders' Deficit
Liabilities:
Accounts payable	$	330,158		$	423,180
Cash overdraft	$	2,606		$	-
Accrued expenses and other current liabilities		115,875			84,269
Accounts payable		276,220			415,838
Accrued dividends - Series A convertible preferred stock		744,896			565,145
Accrued expenses and other current liabilities		115,969			77,184
Line of credit		75,000			150,000
Accrued dividends - Series A convertible preferred stock		863,039			804,813
Total Current Liabilities		1,265,929			1,222,594
Derivative liabilities		29,109			58,568
Line of credit		75,000			75,000
Total Current Liabilities		1,361,943			1,431,404
Stockholders' Deficit:
Preferred stock, Series A, 9% cumulative convertible, ($0.001 par value, $10 per share stated value, liquidation preference of $3,389,106, 350,000 shares authorized, 264,421 and 266,296 issued and outstanding)		264			266
Preferred stock, Series A, 9% cumulative convertible, ($0.001 par value,
Common stock, ($0.001 par value, 90,000,000 shares authorized, 12,756,023 and 12,735,190 shares issued and outstanding)		12,756			12,735
$10 per share stated value, liquidation preference of $3,507,250, 350,000 shares authorized, 264,421 issued and outstanding)		264			264
Additional paid in capital		4,972,954			4,953,839
Common stock, ($0.001 par value, 90,000,000 shares authorized,
Accumulated deficit		(5,400,226	)		(5,228,744	)
12,756,023 issued and outstanding)		12,756			12,756
Total Stockholders' Deficit		(414,252	)		(261,904	)
Additional paid in capital		4,985,343			4,985,343
Total Liabilities and Stockholders' Deficit	$	851,677		$	960,690
Accumulated deficit		(5,656,751	)		(5,592,202	)
Total Stockholders' Deficit		(658,388	)		(593,839	)
Total Liabilities and Stockholders' Deficit	$	703,555		$	837,565

See accompanying notes to financial statements

1F-2

SheerVision, Inc. and Subsidiary

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended May 31,						For the Nine Months Ended May 31,
	For the Three Months Ended November 30,
	2009			2008			~~2009~~			~~2008~~
Sales - net	$	~~841~~561,~~533~~172		$	1,~~119~~172,~~633~~362		$	~~2,885,255~~		$	~~3,070,877~~
Cost of sales		~~283~~119,~~519~~939			~~365~~466,~~882~~476			~~1,089,942~~			~~1,067,756~~
Gross profit		~~558~~441,~~014~~233			~~753~~705,~~751~~886			~~1,795,313~~			~~2,003,121~~
Operating expenses:
General and administrative expenses		~~360~~265,~~056~~629			~~443~~338,~~987~~881			~~1,035,397~~			~~1,239,198~~
Selling and marketing		~~219~~208,~~577~~904			~~305~~297,~~354~~423			~~746,433~~			~~801,567~~
Product development		1,050			35,513			18,542			66,176
Total operating expenses		474,533			636,304
Shipping		36,577			58,583			104,437			121,866
Income (loss) from operations		(33,300	)		69,582
Total operating expenses		617,260			843,437			1,904,809			2,228,807
Other income (expense)
Loss from operations		(59,246	)		(89,686	)		(109,496	)		(225,686	)
Interest income		-			391
Other income (expense)
Interest expense		(1,683	)		(3,366	)
Interest income		55			-			451			1,567
Change in fair value of derivative liability		29,460			-
Other income		-			-			126,797			-
Total other income (expense) - net		27,777			(2,975	)
Interest expense		(1,701	)		(835	)		(7,083	)		-
Income (loss) before provision for income taxes		(5,523	)		66,607
Total other income - net		(1,646	)		(835	)		120,165			1,567
Provision for income taxes		800			800
Income (loss) before provision for income taxes		(60,892	)		(90,521	)		10,669			(224,119	)
Net income (loss)	$	(6,323	)	$	65,807
Provision for income taxes		1,600			-			2,400			1,600
Less: Preferred stock dividends - Series A convertible
Net income (loss)	$	(62,492	)	$	(90,521	)	$	8,269		$	(225,719	)
preferred stock		(58,226	)		(59,917	)
Less: Preferred stock dividends - Series A convertible preferred stock		(59,917	)		(59,917	)		(179,751	)		(180,858	)
Net loss applicable to common shareholders	$	(64,549	)	$	5,890
Net loss applicable to common shareholders	$	(122,409	)	$	(150,438	)	$	(171,482	)	$	(406,577	)
Net loss per common share - basic and diluted	$	(0.01	)	$	0.00
Net loss per share - basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.03	)
Weighted average number of common shares outstanding
Weighted average number of shares outstanding during the period - basic and diluted		12,756,023			12,735,190			12,749,460			12,717,246
during the period - basic and diluted		12,756,023			12,736,335

See accompanying notes to financial statements

2F-3

SheerVision, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended May 31,
	Three Months Ended November 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	8(6,~~269~~323	)	$	~~(225~~65,~~719~~807	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		3211,~~566~~387			2410,~~397~~098
Stock based compensation		19,134			76,472
Changes in operating assets and liabilities:
(Increase) Decrease in:
Accounts receivable		~~236~~168,~~230~~348			~~(225~~191,~~785~~364	)
Inventory		(~~108~~46,652	)		~~41,238~~(278	)
Prepaid expenses and other current assets		(4515,~~058~~938	)		(994,~~690~~732	)
Increase (Decrease) in:
Accounts payable		(93139,~~022~~619	)		28(36,~~463~~161	)
Accrued expenses and other current liabilities		31,606			92,860
Change in fair value of derivative liabilities		(29,459	)		-
Net Cash Provided by (Used in) Operating Activities		81,073			(197,764	)
Accrued expenses and other current liabilities		38,785			42,094
Net Cash Provided by (Used in) Operating Activities		(19,471	)		178,192
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		~~(29,188~~-	)		~~(53,319~~-	)
Net Cash Used in Investing Activities		~~(29,188~~-	)		~~(53,319~~-	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit		-			150,000
Cash overdraft		2,606			-
Repayment on line of credit		(75,000	)		-
Net Cash Provided by Financing Activities		2,606			-
Net Cash Provided by (Used in) Financing Activities		(75,000	)		150,000
Net Increase (Decrease) in Cash		(16,865	)		178,192
Net Decrease in Cash		(23,115	)		(101,083	)
Cash and Cash Equivalents - Beginning of Period		17,651			111,887
Cash and Cash Equivalents - Beginning of Period		111,887			265,262
Cash and Cash Equivalents - End of Period	$	786		$	290,079
Cash and Cash Equivalents - End of Period	$	88,772		$	164,179
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	~~2,400~~800		$	1,600
Interest	$	~~9,987~~-		$	-5,918
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued preferred stock dividends - Series A convertible preferred stock	$	~~179~~58,~~751~~226		$	~~180~~59,~~858~~917
Issuance of common stock in connection with conversion of Series A convertible preferred stock	$	21		$	41
Accrued interest on line of credit	$	-		$	3,366

See accompanying notes to financial statements

3F-4

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

Note 1 Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the full year.

The unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the fiscal year ended August 31, ~~2008~~2009. The interim results for the period ended ~~May~~November 3130, 2009 are not necessarily indicative of the results for the full fiscal year.

Note 2 Organization, Nature of Operations and Summary of Significant Accounting Policies

SheerVision, Inc. (the “Company”), a Delaware corporation, designs and sells surgical loupes, light systems and related optical products for the dental, medical and veterinary markets. Through its exclusive arrangements with manufacturers based in Asia, it can provide these surgical loupes and light systems directly to end-users at substantially lower prices than similar competitors' products. The Company has also recently negotiated favorable terms with multiple United States manufacturers, and is currently manufacturing a number of products domestically.

Principles of Consolidation

All significant intercompany accounts and transactions have been eliminated in consolidation.

Risks and Uncertainties

The Company operates in an industry that is subject to intense competition and rapid technological change and is in a state of fluctuation as a result of the credit crisis occurring in the United States. The Company's operations are subject to significant risk and uncertainties including financial, operational, technological, and regulatory risks including the potential risk of business failure.

Also see Note 32 regarding going concern matters.

F-5

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

November 30, 2009

(Unaudited)

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 the reported amounts of revenues and expenses during the reporting period. ~~Actual results could differ from those estimates.~~

Such estimates and assumptions impact, among others, the following: the estimated useful lives for property and equipment and the fair value of derivative liabilities.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents at November ~~May 31~~30, 2009 or August 31, ~~2008~~2009, respectively.

4The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At November 30, 2009 and August 31, 2009, respectively, the balance did not exceed the federally insured limit.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable represent balances due from customers for the sale of the Company’s products. An allowance for doubtful accounts is provided for those accounts receivable considered to be potentially uncollectible, based upon historical experience and management’s evaluation of outstanding accounts receivable at each reporting period. At November 30, 2009 and August 31, 2009, respectively, there was no allowance required.

F-6

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At May 31, 2009 and August 31, 2008, respectively, the balance did not exceed the federally insured limit.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable represent balances due from customers for the sale of the Company’s products. An allowance for doubtful accounts is provided for those accounts receivable considered to be potentially uncollectible, based upon historical experience and management’s evaluation of outstanding accounts receivable at each reporting period. At May 31, 2009 and August 31, 2008, respectively, there was no allowance required.

Inventory

Inventory is valued at the lower of cost or market, determined on a first-in, first-out basis. At ~~May~~November 3130, 2009 and August 31, ~~2008~~2009, respectively, inventory consisted of finished goods ~~and raw materials~~. AtDue ~~May~~to ~~31, 2009,~~ the ~~Company only purchased inventory as finished goods and no longer carries raw materials as inventory. Because of the~~ technical nature of the products, the Company may be exposed to a number of factors that could result in portions of its inventory becoming either obsolete or in excess of anticipated usage. These factors include, but are not limited to, technological changes in its markets, competitive pressures in products and prices, and the introduction of new product lines. The Company regularly evaluates its ability to realize the value of its inventory based on a combination of factors, including historical usage rates, forecasted sales, product life cycles, and market acceptance of new products. When inventory that is obsolete or in excess of anticipated usage is identified, it is written down to realizable value or an inventory valuation reserve is established.

For the three ~~and nine~~ months ended ~~May~~November 3130, 2009, and ~~for the year ended August 31,~~ 2008, respectively, the Company did not record any write-downs to net realizable value for obsolescence.

Long Lived Assets

In accordance with Statement of Financial Statements SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, the Company carries long-lived assets at the lower of the carrying amount or fair value. Impairment is evaluated by estimating future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected undiscounted future cash flow is less than the carrying amount of the assets, an impairment loss is recognized. Fair value, for purposes of calculating impairment, is measured based on estimated future cash flows, discounted at a market rate of interest. There were no impairment losses recorded during the three and nine months ended May 31, 2009.

Property and Equipment

Property and equipment are stated at cost and are being depreciated using the straight-line method over the estimated useful lives of the related assets, generally five to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the remaining lease terms. The Company follows the practice of charging maintenance renewals and minor repairs to expense as incurred. Renewals and betterments that materially increase the value of the property are capitalized.

5Long Lived Assets

The Company carries long-lived assets at the lower of their carrying amount or their fair value. The Company periodically review the carrying values of our long-lived assets when events or changes in circumstances indicate that it is more likely than not that their carrying values may exceed their fair values, and record an impairment charge when considered necessary.

When circumstances indicate that impairment may have occurred, the Company tests such assets for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of such assets and their eventual disposition to their carrying amounts. If the undiscounted future cash flows are less than the carrying amount of the asset, an impairment loss, measured as the excess of the carrying value of the asset over its estimated fair value, is recognized. Fair value, for purposes of calculating impairment, is measured based on estimated future cash flows, discounted at a market rate of interest. There were no impairment charges taken during the three months ended November 30, 2009 and 2008, respectively.

F-7

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

Warrants and Derivative Liabilities

The Company reviews any common stock purchase warrants and other freestanding derivative financial instruments at each balance sheet date and will classify them on the balance sheet as:

Equity if they (i) require physical settlement or net-share settlement, or (ii) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement), or as

Assets or liabilities if they (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company's control), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).

The Company assesses classification of its common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Fair Value of Financial Instruments

The carrying amounts of the Company’s short-term financial instruments, including ~~accounts~~the ~~receivable,~~Company’s ~~inventory, prepaid expenses and other~~ current assets~~, accounts~~ ~~payable,~~(exclusive ~~accrued~~of ~~expenses~~cash) and ~~other~~ current liabilities, ~~and line of~~ ~~credit,~~ approximate fair value due to the relatively short period to maturity for these instruments.

Revenue Recognition

The Company ~~follows the guidance of the Securities and Exchange Commission~~’s ~~Staff Accounting Bulletin No. 104 for revenue recognition. The Company’s~~ surgical loupes and lighting products need no installation and are ready for use upon receipt by the customer.

The Company records revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) ~~the~~delivery ~~product~~has ~~is installed~~occurred, (3) the sales price to the customer is fixed or determinable, and (4) collectibility is reasonably assured. Products sold are delivered by shipments made through ~~common~~ common carrier and revenue is recognized upon shipment to the customer. Discounts and sales incentives are recognized as a reduction of revenue at the time of sale. The Company offers an unconditional satisfaction guarantee for a 30 day period and permits product returns within 30 days of purchase, at which time returns are accepted and refunds are made. Historically, returns have been minimal. The Company has ~~evaluated~~determined ~~the~~that ~~criteria~~recognition ~~under~~of ~~SFAS~~revenue ~~No. 48,~~on ~~Revenue~~the ~~Recognition~~date ~~when Right~~ of ~~Return~~shipment ~~Exists~~is appropriate, ~~and~~given ~~has determined~~ that ~~recognition~~no ofhistory ~~revenue~~or ~~on the~~material ~~date~~trends ofhave ~~shipment~~developed isassociated with ~~appropriate~~returns. As a result, management has determined that no reserve is required. Shipping charges and special orders are nonrefundable.

F-8

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

November 30, 2009

(Unaudited)

Cost of Sales

Cost of sales represents costs directly related to the production and sale of the Company’s products. Primary costs include ~~raw materials,~~ direct labor, ~~payroll, commissions~~finished ~~and~~goods ~~rental charges~~and supplies.

Advertising

InCosts ~~accordance~~incurred ~~with~~for ~~Accounting~~producing ~~Standards~~and ~~Executive~~communicating ~~Committee~~advertising ~~Statement~~ of ~~Position~~the Company are charged ~~93-7,~~to ~~costs~~operations as incurred. ~~for~~Advertising ~~producing~~expense ~~and~~has ~~communicating~~been ~~advertising~~included in the statement of operations as a component of general and administrative expense. Advertising expense for the ~~Company~~three months ended November 30, ~~are~~ ~~charged~~2009 toand ~~operations~~2008 aswas $5,555 ~~incurred~~and $26,924, respectively.

~~Advertising~~Earnings ~~expense~~per ~~has been included in the statement of operations as selling and marketing expense.~~Share

~~Product~~Basic earnings ~~Development~~per share (“EPS”) is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.

The ~~Company~~computation ~~expenses~~of ~~all~~basic ~~product~~and ~~development~~diluted ~~costs~~loss asper ~~incurred~~share for ~~which~~the ~~there~~three ismonths noended ~~alternative~~November ~~future~~30, ~~use~~2009 and 2008, respectively, excludes the following potentially dilutive securities because their inclusion would be anti-dilutive due to the Company’s net loss during the period.:

Income Taxes

	November 30, 2009		November 30, 2008

Convertible preferred stock		2,938,011		2,938,011

Stock options		386,000		205,500

Stock warrants		977,276		1,488,989

Total common stock equivalents		4,301,287		4,652,500

The Company accounts for income taxes using the asset and liability method in accordance with SFAS No. 109, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and liabilities be recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.F-9

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments. At May 31, 2009, the Company did not record any liabilities for uncertain tax positions.

Earnings per Share

The Company computes net loss per share in accordance with SFAS No. 128, Earnings per Share (“SFAS No. 128”). SFAS No. 128 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise or conversion of stock options, warrant shares and convertible preferred stock. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. As of May 31, 2009, the Company had 977,276 warrant shares, 2,938,011 convertible preferred stock shares, and 386,000 stock options shares that could potentially dilute future earnings (loss) per share; hence, they have been excluded from diluted earnings (loss) per share and diluted earnings (loss) per share is not presented, as the Company reflects a net loss and the effect of considering any common stock equivalents if outstanding would have been anti-dilutive.

Segment Information

~~The~~During ~~Company~~the ~~follows Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information. During~~ fiscal years 2009 and 2008, respectively, the Company only operated in one segment; therefore, segment information has not been presented.

~~Stock-Based~~Share ~~Compensation~~Based Payments

~~All~~Generally, all forms of share-based payments, toincluding ~~employees~~stock ~~are~~option ~~recorded~~grants, ~~and~~restricted stock ~~expensed~~grants inand ~~the~~stock ~~statement~~appreciation ~~of operations~~rights, asare ~~applicable~~measured ~~under~~at ~~SFAS~~their ~~No.~~fair ~~123(R)~~value ~~Share-Based~~on ~~Payment. SFAS~~the ~~No.~~awards’ ~~123(R)~~grant ~~requires~~date, and based on the ~~measurement~~estimated ~~and recognition~~number of ~~compensation~~awards ~~expense~~that ~~for~~are ultimately ~~all~~expected ~~share~~to vest. Share-based payment awards ~~made~~issued to non-employees for ~~and~~services ~~directors~~rendered ~~including~~are ~~grants~~recorded ofat ~~employee~~either ~~stock~~the ~~options~~fair ~~based~~value onof the services ~~estimated~~rendered ~~fair~~or ~~values. The~~the ~~Company~~fair ~~has~~value ~~used~~of the ~~Black~~share-~~Scholes~~based payment, whichever is more readily ~~option-pricing~~determinable. ~~model~~The toexpense ~~estimate~~resulting ~~grant~~from ~~date~~share-based ~~fair~~payments ~~value~~are ~~for~~recorded ~~all~~as ~~option~~a ~~grants~~component of general and administrative expense.

~~Share-based compensation~~Recent ~~expense is based on the value of the portion of share-based payment~~Accounting awards that is ultimately expected to vest during the year, less expected forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary in subsequent periods if actual forfeitures differ from those estimates.Pronouncements

~~Non~~Effective January 1, 2009, the Company adopted an accounting standard update regarding the determination of the useful life of intangible assets. As codified in ASC 350-~~Employee~~30-35, this update amends the factors considered in developing ~~Stock~~renewal ~~Based~~or ~~Compensation~~extension assumptions used to determine the useful life of a recognized intangible asset under intangibles accounting. It also requires a consistent approach between the useful life of a recognized intangible asset under prior business combination accounting and the period of expected cash flows used to measure the fair value of an asset under the new business combinations accounting (as currently codified under ASC 850). The update also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. The adoption did not have a material impact on the Company’s financial statements.

~~Stock-based~~In ~~compensation~~February 2008, ~~awards~~the FASB issued toan accounting standard update that delayed the effective date of fair value measurements accounting for all non-~~employees~~financial assets and non-financial liabilities, except for ~~services~~items that are ~~recorded~~recognized ~~at either~~or ~~the~~disclosed at fair value ofin the ~~services~~financial ~~rendered~~statements oron ~~the~~a ~~instruments~~recurring ~~issued~~basis ~~in exchange~~(at ~~for~~least ~~such services~~annually), ~~whichever~~until isthe ~~more~~beginning ~~readily~~of ~~determinable,~~the ~~using~~first ~~the~~quarter ~~measurement~~of fiscal 2009. These ~~date~~include ~~guidelines~~goodwill ~~enumerated~~and inother ~~Emerging~~non-amortizable ~~Issues~~intangible ~~Task~~assets. ~~Force~~The ~~Issue~~Company adopted ~~EITF~~this ~~No.~~accounting ~~96-18~~standard update effective January 1, ~~Accounting~~ ~~for~~2009. ~~Equity~~The ~~Instruments~~adoption ~~That~~of ~~Are~~this ~~Issued~~update to ~~Other~~non-financial ~~Than~~assets ~~Employees~~and ~~for Acquiring~~liabilities, oras codified in ~~Conjunction~~ASC ~~with Selling~~820-10, ~~Goods~~did ornot ~~Services~~have ~~(“EITF~~a material impact on the Company’s financial ~~96-18”)~~statements.

7F-10

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

~~Recent~~Effective ~~Accounting~~January 1, ~~Pronouncements~~2009, the Company adopted a new accounting standard update regarding business combinations. As codified under ASC 805, this update requires an entity to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred; that restructuring costs generally be expensed in periods subsequent to the acquisition date; and that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. The adoption did not have a material impact on the Company’s financial statements.

InEffective ~~December~~June 30, ~~2007~~2009, the ~~FASB~~Company ~~issued~~adopted ~~SFAS~~three ~~141R,~~accounting ~~Business~~standard ~~Combinations~~updates ~~(“SFAS 141R”),~~ which ~~replaces~~ ~~FASB~~were ~~SFAS~~intended ~~141,~~to ~~Business Combinations. This~~provide ~~Statement~~additional ~~retains~~application ~~the~~guidance ~~fundamental~~and ~~requirements~~enhanced indisclosures ~~SFAS~~regarding ~~141~~fair ~~that~~value ~~the~~measurements ~~acquisition~~and ~~method~~impairments of ~~accounting~~securities. They bealso ~~used~~provide ~~for~~additional ~~all~~guidelines ~~business combinations and~~ for anestimating ~~acquirer~~fair tovalue bein ~~identified~~accordance with ~~for~~fair ~~each~~value ~~business combination~~accounting. ~~SFAS~~ ~~141R~~The ~~defines~~first ~~the~~update, ~~acquirer~~ as ~~the~~codified ~~entity~~in ~~that~~ASC ~~obtains~~820-10-65, provides ~~control~~additional ofguidelines ~~one~~for orestimating ~~more businesses~~fair value in ~~the~~accordance ~~business~~with ~~combination~~fair value ~~and~~accounting. ~~establishes~~The ~~the~~second ~~acquisition~~accounting ~~date~~update, as ~~the~~ ~~date~~codified ~~that~~in ~~the~~ASC ~~acquirer~~320-10-65, changes ~~achieves~~accounting ~~control. SFAS~~requirements ~~141R~~for ~~will require~~other-than-temporary-impairment an(OTTI) for ~~entity~~debt tosecurities ~~record~~by ~~separately~~replacing ~~from~~ the ~~business~~current ~~combination~~requirement ~~the~~that ~~direct costs,~~a ~~where~~holder ~~previously~~have ~~these~~the ~~costs~~positive ~~were~~intent ~~included~~and inability ~~the~~to ~~total~~hold ~~allocated~~an ~~cost~~impaired ofsecurity ~~the~~to ~~acquisition. SFAS~~recovery ~~141R~~in ~~will~~order ~~require an entity~~ to ~~recognize~~conclude ~~the~~an ~~assets acquired,~~impairment ~~liabilities~~was ~~assumed,~~temporary ~~and~~with ~~any~~a ~~non-controlling interest in the acquired~~requirement atthat ~~the~~an ~~acquisition~~entity ~~date,~~conclude atit ~~their~~does ~~fair~~not ~~values~~intend ~~as of that date. This compares~~ to ~~the~~sell ~~cost~~an ~~allocation~~impaired ~~method~~security ~~previously~~and ~~required by SFAS No.~~it ~~141. SFAS 141R~~ will ~~require~~not anbe ~~entity~~required to ~~recognize~~sell asthe ansecurity ~~asset~~before ~~or liability~~the atrecovery ~~fair~~of ~~value~~its ~~for~~amortized cost ~~certain~~basis. ~~contingencies,~~The ~~either~~third ~~contractual~~accounting ~~or non-contractual~~update, ifas ~~certain~~codified ~~criteria~~in ~~are~~ASC ~~met. Finally~~825-10-65, ~~SFAS 141R will~~increases ~~require an entity to recognize contingent consideration at~~ the ~~date~~frequency of ~~acquisition,~~ ~~based on the~~ fair value ~~at that date~~disclosures. ~~This~~ ~~Statement will~~These beupdates were effective for ~~business combinations completed on or after the first~~fiscal ~~annual~~years ~~reporting~~and ~~period~~interim ~~beginning~~periods onended or after ~~December~~ June 15, ~~2008~~ 2009. ~~Early~~ The adoption of ~~this~~these accounting ~~standard~~updates isdid not ~~permitted~~have ~~and~~a ~~the standards~~material ~~are to be applied prospectively only. Upon adoption of this standard, there would be no~~ impact toon the Company’s ~~results of operations and~~ financial ~~condition for acquisitions previously completed. The~~ ~~adoption of SFAS No~~statements. ~~141R is not expected to have a material effect on its financial position, results of operations or cash flows.~~

InEffective June 30, ~~December 2007~~2009, the ~~FASB~~Company ~~issued~~adopted ~~SFAS~~a ~~No.~~new ~~160,~~accounting standard for subsequent ~~Noncontrolling~~events, ~~Interests~~as codified in ~~Consolidated~~ ~~Financial~~ASC ~~Statements,~~855-10. anThe ~~amendment~~update modifies the names of ~~Accounting~~the ~~Research~~two ~~Bulletin~~types Noof ~~51”~~subsequent ~~(“SFAS~~events ~~160”).~~either ~~SFAS~~as ~~160~~recognized ~~establishes~~subsequent ~~accounting~~events ~~and reporting~~(previously ~~standards~~referred ~~for~~to ~~ownership interests~~ in ~~subsidiaries~~practice ~~held~~as byType ~~parties~~I ~~other~~subsequent ~~than~~events) ~~the~~or non-recognized ~~parent,~~subsequent ~~changes~~events (previously referred to in apractice ~~parent’s~~as ~~ownership~~Type ofII asubsequent events). ~~noncontrolling~~In ~~interest~~addition, ~~calculation~~ ~~and~~the ~~disclosure~~standard ofmodifies the ~~consolidated~~definition ~~net~~of ~~income~~subsequent ~~attributable~~events to refer to ~~the parent~~events ~~and~~or ~~the~~transactions ~~noncontrolling~~that ~~interest,~~occur ~~changes~~after inthe abalance ~~parent’s~~sheet ~~ownership~~date, ~~interest~~but ~~while~~before the ~~parent~~financial ~~retains~~statements ~~its~~are ~~controlling~~issued ~~financial~~(for ~~interest~~public ~~and~~entities) ~~fair~~or ~~value~~available to ~~measurement~~be ofissued ~~any~~(for ~~retained~~nonpublic ~~noncontrolling equity investment~~entities). ~~SFAS~~It ~~160~~also ~~is effective~~requires ~~for~~the ~~financial~~disclosure ~~statements~~of ~~issued~~the ~~for fiscal years beginning after~~date ~~December~~through ~~15,~~which ~~2008,~~subsequent ~~and~~events ~~interim~~have ~~periods~~been ~~within~~evaluated. ~~those~~The ~~fiscal~~update ~~years.~~did ~~Early~~not ~~adoption~~result isin ~~prohibited.~~significant ~~The~~changes ~~adoption~~in the practice of ~~SFAS~~subsequent ~~No.~~event ~~160~~disclosures, isand therefore ~~not~~the ~~expected~~adoption todid not have a material ~~effect~~ impact on ~~its~~the ~~financial~~Company’s ~~position, results of operations or cash~~financial ~~flows~~statements.

In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133. (“SFAS 161”). SFAS 161 establishes the disclosure requirements for derivative instruments and for hedging activities with the intent to provide financial statement users with an enhanced understanding of the entity’s use of derivative instruments, the accounting of derivative instruments and related hedged items under Statement 133 and its related interpretations, and the effects of these instruments on the entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company does not expect its adoption of SFAS 161 to have a material impact on its financial position, results of operations or cash flows.F-11

In April 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 142-3, Determination of the Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, and other GAAP. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company does not expect the adoption of SFAS FSP 142-3, to have a material impact on its financial position, results of operations or cash flows.

In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 Accounting for Convertible Debt instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. The Company does not expect the adoption of FSP APB 14-1, to have a material impact on its financial position, results of operations or cash flows.

In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market For That Asset Is Not Active (“FSP FAS 157-3”), with an immediate effective date, including prior periods for which financial statements have not been issued. FSP FAS 157-3 amends FAS 157 to clarify the application of fair value in inactive markets and allows for the use of management’s internal assumptions about future cash flows with appropriately risk-adjusted discount rates when relevant observable market data does not exist. The objective of FAS 157 has not changed and continues to be the determination of the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date. The adoption of FSP FAS 157-3 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP SFAS 157-4, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed, which further clarifies the principles established by SFAS No. 157. The guidance is effective for the periods ending after June 15, 2009 with early adoption permitted for the periods ending after March 15, 2009. The adoption of FSP FAS 157-4 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In May 2009, the FASB issued SFAS No. 165 Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. The Company is evaluating the impact the adoption of SFAS 165 will have on its financial statements.

In June 2009, the FASB issued SFAS No. 166 Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140 (“SFAS 166”). SFAS 166 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. SFAS 166 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of SFAS 166 will have on its financial statements.

In June 2009, the FASB issued SFAS No. 167 Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 improves financial reporting by enterprises involved with variable interest entities and to address (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, as a result of the elimination of the qualifying special-purpose entity concept in SFAS 166, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of SFAS 167 will have on its financial statements.

In June 2009, the FASB issued SFAS No. 168 The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162. The FASB Accounting Standards Codification (“Codification”) will be the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in SFAS 168. All other accounting literature not included in the Codification is non-authoritative. The Codification is not expected to have a significant impact on the Company’s financial statements.

Other accounting standards have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.

In September 2009, the FASB issued Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. The Company is currently assessing the future impact of this new accounting update to its financial statements.

F-12

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

November 30, 2009

(Unaudited)

Reclassifications

Certain amounts in the fiscal year ~~2008~~2009 financial statements have been reclassified to conform to the fiscal year ~~2009~~2010 presentation. The results of these reclassifications did not materially affect financial position, results of operations or cash flows.

Note 32 Going Concern

As reflected in the accompanying financial statements, the Company has a working capital deficit of $~~560~~781,~~288~~982 an accumulated deficit of $5,~~400~~656,~~226~~751 and a stockholders’ deficit of $~~414~~658,~~252~~388 at ~~May~~November 3130, 2009. The Company also had a net loss of $6,323 and net cash used in operations was $19,471, for the three months ended November 30, 2009.

~~For the~~The ~~nine~~Company ~~months~~intends ~~ended~~to ~~May~~fund ~~31,~~operations ~~2009~~through increased sales, ~~the~~which ~~Company~~may ~~reflects~~be insufficient ~~net~~to ~~income~~fund ~~and~~its ~~net~~capital expenditures, working capital or other cash ~~provided~~requirements byfor ~~operating~~the ~~activities;~~year ~~however~~ending August 31, ~~the~~2010. The Company ~~does~~may ~~not~~seek additional ~~yet~~funds ~~have~~to ~~history of~~finance ~~financial~~its ~~stability~~immediate and long-term operations through debt and/or ~~sources~~equity financing. The successful outcome of ~~cash~~future ~~that~~financing ~~can~~activities cannot be ~~relied~~determined ~~upon~~at tothis ~~sustain~~time and there is no assurance that if achieved, ~~operations~~the ~~for~~Company ~~current~~will ~~and~~have ~~expected~~sufficient ~~future~~funds ~~growth~~to execute its intended business plan or generate positive operating results.

The Company intends to fund operations through increased sales, which may be insufficient to fund its capital expenditures, working capital or other cash requirements for the year ending August 31, 2009. The Company may seek additional funds to finance its immediate and long-term operations through debt and/or equity financing. The successful outcome of future financing activities cannot be determined at this time and there is no assurance that if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results.

These factors, among others, raise doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments related to recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

F-13

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

November 30, 2009

(Unaudited)

In response to these problems, management has taken the following actions:

· the Company is expanding its revenue base ~~beyond~~including more direct sales personnel and increased direct sales to OEM and third ~~party sales~~parties;

· the Company is aggressively signing up new international distributors through its International Distributor Program; and

· the Company is seeking third party financing~~; and~~.

·Note ~~the~~3 ~~Company is cutting operating costs.~~Fair Value

~~Note~~The Company 4has categorized its assets and liabilities recorded at fair value based ~~Inventory~~upon the fair value hierarchy specified by GAAP.

~~Inventory~~The ~~consists~~levels of ~~the~~fair ~~following~~value athierarchy ~~May~~are ~~31,~~as ~~2009 and August 31, 2008~~follows:

	May 31, 2009 (unaudited)		August 31, 2008 (audited)
Finished goods	$	362,704	$	249,802
Raw materials		-		4,250
Total	$	362,704	$	254,052

Level 1 inputs utilize unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access;

9· Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals; and

Level 3 inputs are unobservable and are typically based on the Company's own assumptions, including situations where there is little, if any, market activity.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company categorizes such financial asset or liability based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs.

F-14

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

The following are the major categories of liabilities measured at fair value on a nonrecurring basis during the three months November 30, 2009, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):

	Level 1: Quoted Prices in Active Markets for Identical Assets		Level 2: Significant Other Observable Inputs		Level 3: Significant Unobservable Inputs		Total at November 30, 2009
Derivative Liabilities	$	-	$	-	$	29,108	$	29,108
Total	$	-	$	-	$	29,108	$	29,108

There were no instruments requiring a fair value classification at November 30, 2008.

Note 4 Inventory

Inventory consists of the following at November 30, 2009 and August 31, 2009:

	November 30, 2009 (unaudited)		August 31, 2009 (audited)

Finished goods	$	386,316	$	339,663

Note 5 Property and Equipment

At ~~May~~ 31November 30, 2009 and August 31, ~~2008,~~2009 respectively, property and equipment consisted of the following:

	Estimated Useful Lives	~~May~~November 3130, 2009 (unaudited)			August 31. ~~2008~~2009 (audited)
Manufacturing equipment	7 years	$	~~177~~183,~~828~~491		$	~~148~~183,~~640~~491
Office and computer equipment	5 years		4943,~~438~~218			4943,~~438~~218
Leasehold improvement	15 years		7,179			7,179
			234,445			205,257
			233,888			233,888
Less: accumulated depreciation			(95110,~~500~~294	)		(6398,~~362~~907	)
Property and equipment - net		$	~~138~~123,~~945~~594		$	~~141~~134,~~895~~981

Depreciation expense for the three months ended ~~May~~November 3130, 2009 and 2008 ~~amounted~~was to $11,~~330 and $9,024,~~387 ~~respectively~~ and ~~for the nine months ended May 31, 2009 and~~ ~~2008 amounted to~~ $319,~~656 and $24~~955,~~397,~~ respectively.

~~Note 6 Intangible Assets~~F-15

During the year ended August 31, 2007, the Company filed for patent protection with the United States Patent and Trademark Office for certain developed technologies. The Company used this patent to produce a product line for the Company, and as of May 31, 2009, there is no known impairment to this patent.

The cost incurred by the Company was $8,562, which is being amortized on a straight-line basis over a period of 15 years and is stated net of accumulated amortization of $1,471 and $900 at May 31, 2009 and 2008, respectively. Amortization expense for the three months ended May 31, 2009 and 2008 was $143 and $143, respectively and for the nine months ended May 31, 2009 was $910 and $910, respectively.

Note 7 Line of Credit Payable

On March 25, 2008, the Company entered into an agreement with an unrelated shareholder of the Company providing for a line of credit to the Company of up to $300,000 with an interest rate of 9%. The agreement provides that principal and interest on amounts borrowed against the line of credit are due nine months from the date of the execution of the agreement or earlier upon the occurrence of an event of default. The line of credit is secured by a first priority security interest in the Company’s inventory and accounts receivable. Additionally, the lender has an option to receive a warrant exercisable for 150,000 shares of the Company’s common stock at an exercise price of $0.075 per share.

On December 19, 2008, the Company repaid $84,986 of principal and accrued interest due under the Company’s line of credit, reducing the principal due under the line of credit to $75,000.

As of May 31, 2009, the outstanding balance on the line of credit was $78,014, which includes accrued interest of $3,014. On June 3, 2009, the term of the line of credit was extended through September 19, 2009 (see Note 12).

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

Note 86 ~~Commitments~~Line ~~and~~of Credit ~~Contingencies~~Payable

On March 25, 2008, the Company entered into an agreement with an unrelated shareholder of the Company providing for a line of credit to the Company of up to $300,000 with an interest rate of 9%. The agreement provides that principal and interest on amounts borrowed against the line of credit are due nine months from the date of the execution of the agreement or earlier upon the occurrence of an event of default. The line of credit is secured by a first priority security interest in the Company’s inventory and accounts receivable. Additionally, the agreement provides the lender with an option to receive a warrant exercisable for up to 600,000 shares of the Company’s common stock (depending on the amount loaned) at an exercise price of $0.075 per share.

On December 19, 2008, the Company repaid $84,986 of principal and accrued interest due under the Company’s line of credit, reducing the principal due under the line of credit to $75,000.

As of November 30, 2009, the outstanding balance on the line of credit was $81,399, which includes accrued interest of $6,399. At this time, the Company is negotiating a payment plan to retire the line of credit. The line of credit was extended to October 19, 2009, when the Company defaulted on the original agreement and requested negotiations on a new payment plan. To date no agreement has been reached, and the debt remains in default.

Note 7 Commitments and Contingencies

Litigations, Claims and Assessments

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. At this time, there are no pending lawsuits or legal proceedings.

~~In December 2008, the Company received $126,797 from an insurance carrier for a previously settled lawsuit, representing a partial reimbursement of legal fees.~~F-16

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

November 30, 2009

(Unaudited)

Operating Lease

The Company leases office space under a non-cancelable operating lease, expiring in June 2014.

Future minimum rental payments are as follows:

Fiscal Year Ended August 31,

2010	$	58,123
2011		77,497
2012		77,497
2013		77,497
2014		64,581
Total minimum lease payments	$	355,195

Note 9 Stockholders’ Deficit

(A) Common Stock Issuances

During the ~~nine~~year ~~months~~ ended ~~May~~August 31, ~~2008~~2009, ~~3,750~~1875 shares of preferred stock were ~~converted~~ converted into 4120,~~667~~833 shares of ~~Company~~ common stock. The conversion price was determined by taking the stated value of $10 per share and dividing by a conversion price of $0.90 per share. The transaction was accounted for at par value with no resulting gain or loss on conversion.

~~During~~(B) ~~the~~Warrants ~~nine months ended May 31, 2009, 1,875 shares of preferred stock were converted into 20,833 shares of common stock. The conversion price was determined by taking the stated value of $10 per share~~ and ~~dividing~~Derivative ~~by a conversion price of $0.90 per share. The transaction was accounted for at par value with no resulting gain or loss on conversion.~~Liabilities

(B) Warrants

The following is a summary of the Company’s warrant activity:

	Warrants			Weighted Average Exercise Price
Outstanding – August 31, 2007 (audited)		1,488,989		$	0.53
Outstanding – August 31, 2007		1,488,989		$	0.53
Granted		-			-
Exercised		-			-
Forfeited		-			-
Outstanding – August 31, 2008 (audited)		1,488,989		$	0.53
Outstanding – August 31, 2008		1,488,989		$	0.53
Granted		-			-
Exercised		-			-
Forfeited		(511,713	)	$	1.00
Outstanding – May 31, 2009 (unaudited)		977,276		$	0.28
Outstanding – August 31, 2009 and November 30, 2009		977,276		$	0.28
Exercisable –May 31, 2009 (unaudited)		977,276		$	0.28
Exercisable –August 31, 2009 and November 30, 2009		977,276		$	0.28

11F-17

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

Warrants Outstanding							~~Warrants Exercisable~~			Warrants Exercisable
Range of exercise price		~~Number Outstanding~~	~~Weighted~~Number ~~Average Remaining Contractual Life (in years)~~Outstanding		~~Weighted Average Exercise Price~~	Weighted Average Remaining Contractual Life (in years)	~~Number Exercisable~~	Weighted Average Exercise Price	~~Weighted Average Exercise Price~~	Number Exercisable		Weighted Average Exercise Price
$0.28		977,276	1.29 years		$0.28		977,276		$0.28
$	0.28			977,276		0.79 years		$	0.28		977,276	$	0.28

At ~~May~~ 31November 30, 2009 and August 31, ~~2008~~2009, the total intrinsic value of warrants ~~outstanding~~ outstanding and exercisable was $0 and $0, respectively.

The Company issued warrants related to a debt offering in September 2005. The total number of warrants issued was 977,276 inclusive of the 238,128 warrants paid to a placement agent as a direct offering cost. The warrants have a five-year term. The exercise price is $0.28.

The Company also issued 511,213 warrants related to a debt offering in April 2006. These warrants expired on April 27, 2009 and May 7, 2009. As shown in the table above, these warrants have been forfeited and are not exercisable.

In connection with the adoption of EITF 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,” (“EITF 07-05”) on January 1, 2009 (ASC 815-40-15), the Company determined that the embedded conversion feature in the warrants (ratchet down of exercise price based upon lower exercise price in future offerings) is not indexed to the Company’s own stock and, therefore, is an embedded derivative financial liability (the “Embedded Derivative”), which requires bifurcation and to be separately accounted for pursuant to Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (ASC 815-40-25).

The Company measured the fair value of the outstanding September 2005 warrants using a Black-Scholes valuation model based upon the effectiveness of EITF 07-5 (ASC 815-40-15), if effective, would have established a commitment date since these warrants were not indexed to the Company’s own stock.

F-18

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

November 30, 2009

(Unaudited)

Mark to Market

At November 30, 2009, the Company remeasured the outstanding warrants and recorded a fair value of $29,108. As a result of the remeasurement, the Company recorded a change in fair value associated with these warrants as a gain totaling $29,459 for the three months ended November 30, 2009. The following management assumptions were considered:

Exercise price	$	0.28
Expected dividends		0	%
Expected volatility		674.68	%
Risk fee interest rate		2.01	%
Expected life of warrant in years	0.79 years
Expected forfeitures		0	%

The following is a summary of the Company’s derivative financial instruments.

Balance – August 31, 2009	$	58,567
Change in Fair Value of Derivative Liability		(29,459	)
Balance – November 30, 2009	$	29,108

The Company maintains the SheerVision Inc. 2007 Stock Option Plan (the “ Plan ”) and the SheerVision Inc. 2007 Stock Option Plan for Independent and Non-Employee Directors (the “ Directors Plan ”). The maximum number of shares reserved under the Plan and Directors Plan is 3,000,000 and 200,000 shares, respectively. Through ~~February~~November 2830, 2009, the Company has granted options for 661,000 shares and has had cancellations of ~~175~~275,000 option shares under the Plan. As of ~~May~~November 3130, 2009 ~~and 2008,~~ there were no options outstanding under the Directors Plan.

The following is a summary of the Company’s stock option activity:

	Options			Weighted Average Exercise Price
Outstanding – August 31, 2007 (audited)		-		$	-
Outstanding – August 31, 2007		-		$	-
Granted		661,000			0.20
Exercised		-			-
Forfeited		(150,000	)	$	0.20
Outstanding – August 31, 2008 (audited)		511,000		$	0.20
Outstanding – August 31, 2008		511,000		$	0.20
Granted		-			-
Exercised		-			-
Forfeited		(125,000	)	$	0.20
Outstanding – May 31, 2009 (unaudited)		386,000		$	0.20
Outstanding – August 31, 2009		386,000		$	0.20
Exercisable – May 31, 2009 (unaudited)		386,000		$	0.20
Outstanding-November 30, 2009 (unaudited) and Exercisable – November 30, 2009 (unaudited)		386,000		$	0.20
Weighted average fair value of options granted during the period ended May 31, 2009		-		$	-
Weighted average fair value of options granted during the period ended November 30, 2009		-		$	-
Weighted average fair value of options exercisable at May 31, 2009	$	79,000		$	0.20
Weighted average fair value of options exercisable at November 30, 2009	$	79,000		$	0.20

12F-19

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

Options Outstanding
Range of exercise price	Number Outstanding		Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price
$0.20-$0.25		386,000	8.8333 years	$	0.20

Options Exercisable
Range of exercise price	Number Exercisable		Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price
$0.20-$0.25		386,000	8.8333 years	$	0.20

At ~~May~~ 31November 30, 2009 and August 31, ~~2008~~2009, the total intrinsic value of options ~~outstanding~~ outstanding and exercisable was $0 and $0, respectively.

~~The~~At ~~following~~November ~~summarizes~~30, ~~the~~2009 ~~activity~~and August 31, 2009, all of the Company’s ~~stock~~outstanding stock options ~~that~~are ~~have~~fully ~~not~~ vested ~~for the nine months ended May 31, 2009:~~.

	Options			Weighted Average Grant Date Fair Value
Outstanding – August 31, 2007 (audited)		-			-
Granted		661,000		$	0.20
Vested		(205,500	)		0.20
Cancelled or forfeited		(150,000	)		0.20
Outstanding – August 31, 2008 (audited)		305,500		$	0.20
Granted		-			-
Vested		(180,500	)		0.20
Cancelled or forfeited		(125,000	)		0.20
Outstanding –May 31, 2009 (unaudited)		-		$	-

Since August 31, 2009 no new shares have been issued, therefore, all shares that are currently exercisable are vested pursuant to the schedule above. Total unrecognized share-based compensation expense from non-vested stock options at November 30, 2009 was $0.

~~Total unrecognized share~~F-~~based compensation expense from non-vested stock options at May 31, 2009 was $0.~~20

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

(D) Convertible Preferred Stock

The Company’s outstanding Series A, cumulative convertible preferred stock has the following provisions, rights and preferences:

(1)

Dividends

a. ~~Cash~~Dividends, ~~dividends~~ at ~~the rate of~~ 9% per year, ~~and~~ are payable on June 30 and December 31 each year. If there are not sufficient funds to pay these dividends, the Company will continue to accrue until such funds are available ~~for payout~~.

b. ~~Accrued~~Since ~~unpaid dividends are payable out of funds legally available on any of the following dates: (i) date of a liquidation event~~inception, ~~or (ii) upon conversion of~~ the ~~underlying convertible preferred stock. During 2009, the~~ Company ~~did~~has not ~~have~~had sufficient funds to ~~repay~~pay the accrued dividends on the convertible preferred shares that were converted into common shares. The accrued dividends remain as a current liability.

c. During the ~~three~~quarter ended November 30, 2009, and ~~nine~~the ~~months~~fiscal year ended ~~May~~August 31, 2009, the Company accrued dividends on its preferred stock of $59,~~917~~510 and $~~179~~239,~~751~~668, respectively~~, resulting in a cumulative balance of $744,896 in accrued dividends~~.

(2) Voting - voted with the common stock on an as converted basis based upon the number of shares of common stock into which the convertible preferred stock is convertible ~~into~~ at the record date for any stockholder action.

(3)	Stated value is $10 per share.

(4) Liquidation rights - convertible preferred stock holders are senior to any other classes of stock in liquidation. These will be paid equivalent to $10 per share.

a. Convertible preferred stock holders are senior to any other classes of stock in liquidation. These will be paid equivalent to $10 per share.

b. If traded on a national exchange, the value shall be equal to the average of the closing prices of the securities over a 30 day period ending 3 days prior to the date of the relevant liquidation payment.

(5) Conversion price

a. $0.90 per share, after giving effect for the stated value per share of $10 per share.

b. In the event that the closing price for the common shares shall equal or exceed 200% of the then effective conversion price for 15 of any 30 immediately preceding consecutive trading days, the preferred stock shall convert automatically.

Note 10 Concentration of Credit Risk

~~Statement~~The ofCompany ~~Position~~had ~~94-6,~~the ~~Disclosure of~~following ~~Certain Significant Risks and Uncertainties, addresses corporate vulnerability to~~ concentrations.:

(A) Accounts Receivable

Customer		~~May~~November 3130, 2009				August 31, ~~2008~~2009
A			1041%	%			8659%	%

~~(B) Sales – net~~F-21

Customer	May 31, 2009			May 31, 2008
A		37	%		12	%
B		-			23	%
C		12	%		-

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

~~May~~November 3130, 2009

(Unaudited)

(B) Sales – net

Customer	November 30, 2009		November 30, 2008
A		34%		50%

Vendor	~~May~~November 3130, 2009			~~May~~November 3130, 2008
A		2314%	%		2521%	%
B		4	%		12	%
C		7	%		12	%

Note 11 Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. For financial reporting purposes, the Company has incurred substantial losses which have caused management to doubt, based on the available objective evidence whether it was more likely than not that the net deferred tax assets would be fully realizable. Accordingly, the Company has provided for a full valuation allowance against its net deferred tax asset.

The Company's deferred tax assets at May 31, 2009 and 2008 is comprised of the following components:

	May 31,
	2009				2008
Net operating loss carry forwards		$	1,448,550			$	928,092
Less: Valuation allowance			(1,448,550	)			(928,092	)
Net deferred tax asset		$	-			$	-

At May 31, 2009, the Company has net operating loss carry forwards for federal tax purposes of approximately $1,448,500 which expires through 2029. These net operating loss carryforwards have been applied against the Company’s net income for the three and nine months ended May 31, 2009, therefore, no provision is required at this time for income taxes payable.

The provision for income taxes is summarized as follows:

		May 31,
		2009		2008
Current	- federal	$	-	$	-
	- state		2,400		1,600
			2,400		1,600
Deferred	- federal		-		-
	- state		-		-
			-		-
Total provision		$	0	$	0

SheerVision, Inc. and Subsidiary

Notes to Consolidated Financial Statements

May 31, 2009

(Unaudited)

Note 12 Subsequent Events

~~On June~~The ~~3, 2009, the term of the~~ Company’s ~~line~~has ofevaluated ~~credit~~for ~~with~~subsequent anevents ~~unrelated~~between ~~shareholder in~~ the ~~principal~~balance ~~amount~~sheet date of November ~~$75~~30,~~000~~ ~~was~~2009 ~~extended~~and ~~through~~January ~~September~~ 19, ~~2009. In~~ ~~connection with the extension of the line of credit~~2010, the ~~Company~~ ~~agreed~~date ~~that~~ the ~~lender~~financial ~~would~~statements ~~have an additional option to receive a~~were ~~warrant~~issued ~~exercisable~~and ~~for~~has ~~75,000~~concluded ~~shares~~that ofno ~~the~~recognized ~~Company’s~~subsequent ~~common~~events ~~stock at an~~have ~~exercise price of $0~~occured.~~075 per share (see Note 7).~~

~~On July 9, 2009, the Company’s Board of Directors terminated its President and Secretary and ratified the termination of his employment effective as of June 26, 2009.~~F-22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This Quarterly Report on Form 10-Q and the documents incorporated herein contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this quarterly report, statements that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "plan", "intend", "may", "will", "expect", "believe", "could", "anticipate", "estimate", or "continue" or similar expressions or other variations or comparable terminology are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by law, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The following information should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this ~~Form~~form 10-Q.

Unless the context indicates otherwise, any reference to "SheerVision", the "Company", "we", "us", "our" or the "Registrant" refers to SheerVision, Inc., a Delaware corporation, and its subsidiaries as of ~~May~~November 3130, 2009.

Overview

SheerVision designs and sells proprietary surgical loupes and light systems for the dental, medical, and veterinary markets. Since our inception in 1999, we have rapidly established a significant base of operations through our strategic marketing programs, an aggressive web presence, a dedicated sales force, expansion into ~~global~~ global markets, and a commitment to new product development. Worldwide sales are ~~achieved~~ achieved by sales into direct and indirect sales channels, and by strategic ~~alliances~~ alliances with dental and medical partners. Exclusive partnerships with Asian ~~component~~ component manufacturers and ~~effective integration of~~ domestic assembly and testing facilities, allow us to provide superior quality loupes and light systems at competitive prices.

In 2006, we launched an aggressive marketing campaign with the objective of expanding direct sales and promoting name brand recognition in the dental market. This campaign established SheerVision as one of the premier magnification and illumination providers in the country. In 2007, with our new position in the marketplace, we identified third-party and OEM relationships as a necessary component of an overall strategy to continued realization of our aggressive sales and profitability goals. This revised strategy resulted in our introduction of a number of new product designs ~~that are distributed~~ to a wider audience in a rapid, cost effective manner.

We have had a successful history of producing products for major industry leaders long before we became a public entity in 2006. This included a major long-term strategic alliance with one of the world’s leading optical companies. Since then we also formed a major ~~international~~ strategic alliance with a large, Japanese dental company and we domestically launched a private label business with a large dental products distributor. With momentum from sales generated from ~~this~~these major strategic ~~alliance~~alliances, we ~~initiated~~are arefocusing ~~fundamental shift in~~ our ~~marketing~~attention ~~strategy,~~in ~~focusing~~two ~~primarily~~areas: on1) indirect domestic and international sales.; Inand, ~~addition~~2) domestic direct sales to ~~the~~dentists ~~expected~~and surgeons. ~~effect~~Beginning ~~this~~in ~~change~~the ~~has~~first ~~had~~quarter ~~on our~~ended ~~business~~November 30, 2009 we ~~believe~~have determined that itthere ~~has~~is ~~helped~~significant ~~minimize~~opportunity ~~our~~to ~~exposure~~improve brand awareness and sales by strategically placing direct sales people to, sell directly to dentists and ~~impact~~surgeons in the U.S. This is the first time that we have attempted, on a oflarge scale, ~~the~~to ~~current~~sell ~~economic~~directly ~~challenges~~to ~~currently~~these ~~facing~~customers. ~~other~~Our ~~companies~~previous ~~and~~direct sales ~~industries~~efforts were primarily targeted towards the dental hygienist market.

WeIn ~~have~~fiscal ~~also~~2009, ~~looked~~we hired a full-time International Sales Manager to ~~develop~~build new distributor relationships ~~through~~using ~~the~~our ~~launch~~previously oflaunched ~~our~~ International Distributor Program, and have increased our reach by ~~successfully~~ expanding our international distribution network in several countries. In March 2009, we ended our partnership with a global retailer of quality dental and medical products, and have hired an international sales manager with the goal of improving our sales results in growing this market segment. We believe our attraction is our breadth of innovative products, which can be resold at strong margins, while maintaining a highly competitive end-user price point.

17In 2009, we intend to continue to commit resources to direct sales and marketing in a targeted, more complimentary manner. In addition to the previously mentioned expansion of our outside direct sales force, this includes participation in trade shows emphasizing the dental, veterinary, and medical markets, and growing our e-commerce powered web store, which has provided us with a cost-effective platform to sell products directly to the end user. In addition, we believe there may be selected opportunities to pursue additions to our current product lines by purchasing businesses with products that can now be distributed through our maturing distribution channels effectively.

In 2009, we intend to continue to commit resources to direct sales and marketing in a targeted, more complementary manner. This includes participation in trade shows emphasizing the dental, veterinary, and medical markets, and growing our e-commerce powered web store, which has provided us with a cost-effective platform to sell products directly to the end user. In addition, we believe there may be selected opportunities to pursue additions to our current product lines by purchasing businesses with products that can now be distributed through our maturing distribution channels effectively.

We also continue to develop new products that not only enhance the SheerVision product portfolio, but also add greater value for our third party clients. In fiscal year 2008, we introduced our upgraded FireFly Infinity Ultra™ LED head light system, featuring our new Lithium Polymer battery pack. The development and launch of our Signature Flip-Up Prism (high magnification) Loupe product line expanded our penetration into horizontal and vertical market segments where we have historically had only limited success. Additionally, in August 2008, we introduced a new sports frame, to appeal to the younger, more fashionable demographic of the dental market. In 2009, we are continuing the investment in lighting products with the introduction of a new generation of headlights for the surgical, dental and veterinary markets that have higher light intensity, lower weight, and lighter, smaller battery cables. We wish to boost the awareness of our brand name and our reputation in the lighting markets by building upon the technical achievements and performance of our current designs that have the highest beam intensity and quality in the industry.

With the sophisticated design and engineering teams currently available to us, we have the ability to not only modify and incorporate SheerVision products into other company’s offerings, but to also extend our design, engineering, and manufacturing capabilities to other company’s product development. Toward that end, we are constantly evaluating new, small medical devices.

Throughout our recent history we have earned a reputation for innovation, leadership, and value in optical and lighting technology, supporting dentists, dental hygienists, and doctors throughout the world. Our Ultra-Light Loupes have received the “Best of the Best” award by Dental Lab Products’ Buyers Guide - 2006 Edition and named a Dentistry Today top 100 product for 2006.2

~~SheerVision~~Throughout ~~loupes~~our ~~and~~recent ~~our~~history ~~Infinity~~we ~~Ultra~~have ~~head~~earned ~~light~~a ~~system~~reputation ~~have~~for ~~received~~innovation, ~~multiple~~leadership and ~~endorsements~~value byin aoptical ~~highly~~and ~~acclaimed~~lighting ~~and~~technology, ~~prestigious~~supporting ~~leading~~dentists, ~~independent~~dental ~~non-profit~~hygienists, ~~dental education~~ and ~~product~~doctors ~~testing~~throughout ~~foundation~~the world. Our ~~Infinity~~ Ultra-Light Loupes have ~~head~~received ~~light~~the ~~system~~“Best ~~was~~of ~~recently~~the ~~named~~Best” award by ~~this~~Dental ~~foundation~~Lab asProducts’ ~~having~~Buyers ~~the~~Guide ~~highest~~- ~~light~~2006 ~~intensity~~Edition ~~compared~~and tonamed ~~other~~a ~~leading~~Dentistry ~~brands~~Today intop ~~the~~100 ~~dental marketplace~~product for 2006.

SheerVision loupes and our Ultralight light system have also received an endorsement by a highly acclaimed and prestigious leading independent non-profit dental education and product testing foundation. Our Ultralight LED was recently named by this foundation as having the highest light intensity.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Below is a brief description of our critical accounting policies:

Accounts Receivable

Accounts receivable are reported net of any write-off for uncollectible accounts. Accounts are written off when significantly past due after exhaustive efforts at collection.

Revenue Recognition

Our surgical loupes and lighting products need no installation and are ready for use upon receipt by the customer. Products sold are delivered by shipments made through common carrier and revenue is recognized upon shipment to the customer. Discounts and sales incentives are recognized as a reduction of revenue at the time of sale. We offer an unconditional satisfaction guarantee for a 30-day period and permit product returns within 30 days of purchase, at which time returns are accepted and refunds are made. Shipping charges and special orders are nonrefundable. Allowances for returns are provided for based upon an analysis of our historical patterns of product returns. To date, there have been no significant product returns and such returns have been within our estimates.

Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market and consists of finished goods. Materials associated with the manufacturing of our product lines are readily available within the US and international markets with relatively short ordering cycles and therefore inventory on hand normally represents a two to three month selling cycle. Inventory valuations depend on quantities on hand, sales history and expected near term sales prospects. On a regular basis, we evaluate inventory balances for excess quantities and obsolescence by analyzing estimated demand, inventory on hand, sales levels and other information. Based on these evaluations, inventory balances are reduced, if necessary.

Income Taxes

We account for income taxes using the liability method ~~as prescribed by Statement of Financial Accounting Standards No~~. ~~109, Accounting for Income Taxes.~~ Deferred income taxes reflect temporary differences in reporting assets and liabilities for income tax and financial accounting purposes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Recent Accounting Pronouncements

~~Statements~~Effective January 1, 2009, we adopted an accounting standard update regarding the determination of ~~Financial~~the ~~Accounting~~useful ~~Standards~~life of intangible assets. As codified in ASC 350-30-35, this update amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under intangibles accounting. It also requires a consistent approach between the useful life of a recognized intangible asset under prior business combination accounting and the period of expected cash flows used to measure the fair value of an asset under the new business combinations accounting (~~SFAS~~as currently codified under ASC 850):. The update also requires enhanced disclosures when an intangible asset’s expected future cash flows are affected by an entity’s intent and/or ability to renew or extend the arrangement. The adoption did not have a material impact on our financial statements.

~~SFAS~~In ~~157~~February 2008, ~~Fair~~the ~~Value~~FASB issued an accounting standard update that delayed ~~Measurements—~~the ~~defines~~effective date of fair value, ~~establishes~~measurements aaccounting ~~framework~~for all non-financial assets and non-financial liabilities, except for ~~measuring~~items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal 2009. These include goodwill and ~~expands~~other ~~disclosures~~non-amortizable ~~about~~intangible ~~fair~~assets. ~~value~~We ~~measurements~~adopted this accounting standard update effective January 1, 2009. The adoption of this update to non-financial assets and liabilities, as codified in ASC 820-10, did not have a material impact on our financial statements.

SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115 — permits entities to choose to measure many financial instruments and certain other items at fair value.3

~~SFAS~~Effective ~~162~~January 1, ~~The~~2009, ~~Hierarchy~~we ofadopted a new accounting standard update regarding ~~Generally~~business ~~Accepted~~combinations. ~~Accounting~~As ~~Principles~~codified —under ~~FAS~~ASC ~~162~~805, isthis ~~effective~~update requires an entity ~~60 days~~to ~~following~~recognize the ~~SEC’s~~assets ~~approval~~acquired, ofliabilities ~~the~~assumed, ~~Public~~contractual contingencies, ~~Company~~and ~~Accounting Oversight~~contingent ~~Board~~consideration ~~Auditing~~at ~~amendments~~their tofair AUvalue ~~Section,~~on ~~411 The~~the acquisition ~~Meaning~~date. ofIt ~~“Present~~further requires that acquisition-related costs be ~~Fairly~~recognized inseparately ~~Conformity~~from ~~with~~the ~~Generally~~acquisition ~~Accepted~~and ~~Accounting~~expensed ~~Principles"~~as .incurred; ~~The~~that ~~statement~~restructuring iscosts ~~intended~~generally be expensed in periods subsequent to ~~improve~~the acquisition ~~financial~~date; ~~reporting~~and bythat ~~identifying~~changes ain ~~consistent hierarchy~~accounting for ~~selecting~~deferred ~~accounting~~tax ~~principles~~asset valuation toallowances beand ~~used~~acquired inincome ~~preparing~~tax ~~financial~~uncertainties after the measurement ~~statements~~period ~~that~~be ~~are~~recognized ~~presented~~as ina ~~conformity~~component ~~with~~of Uprovision for taxes.S. ~~Generally~~The ~~Accepted~~adoption did not ~~Accounting~~have ~~Principles~~a ~~(GAAP)~~material impact on our financial statements.

~~FASB~~Effective ~~Staff~~June 30, ~~Positions~~2009, we adopted three accounting standard updates which were intended to provide additional application guidance and enhanced disclosures regarding fair value measurements and impairments of securities. They also provide additional guidelines for estimating fair value in accordance with fair value accounting. The first update, as codified in ASC 820-10-65, provides additional guidelines for estimating fair value in accordance with fair value accounting. The second accounting update, as codified in ASC 320-10-65, changes accounting requirements for other-than-temporary-impairment (~~FSP~~OTTI): for debt securities by replacing the current requirement that a holder have the positive intent and ability to hold an impaired security to recovery in order to conclude an impairment was temporary with a requirement that an entity conclude it does not intend to sell an impaired security and it will not be required to sell the security before the recovery of its amortized cost basis. The third accounting update, as codified in ASC 825-10-65, increases the frequency of fair value disclosures. These updates were effective for fiscal years and interim periods ended after June 15, 2009. The adoption of these accounting updates did not have a material impact on our financial statements.

~~FSP~~Effective June 30, ~~FAS~~2009, we adopted a new accounting standard for subsequent events, ~~142~~as codified in ASC 855-3,10. ~~Determination~~The update modifies the names of the ~~Useful~~ ~~Life~~two types of subsequent ~~Intangible~~events ~~Assets—~~either ~~amends~~as ~~the~~recognized ~~factors~~subsequent ~~that~~events ~~should~~(previously ~~be considered~~referred to in ~~developing~~practice ~~renewal~~as Type I subsequent events) or ~~extension~~non-recognized ~~assumptions~~subsequent ~~used~~events (previously referred to ~~determine~~in practice as Type II subsequent events). In addition, the standard modifies the definition of subsequent events to refer to events or ~~useful~~transactions ~~life~~that occur after the balance sheet date, but before the financial statements are issued (for public entities) or available to be issued (for nonpublic entities). It also requires the disclosure of athe ~~recognized~~date ~~intangible~~through ~~asset~~which subsequent ~~under~~events ~~FASB~~have ~~Statement~~been Noevaluated. ~~142~~The update did not result in significant changes in the practice of subsequent event disclosures, ~~Goodwill~~ and ~~Other~~therefore ~~Intangible~~the ~~Assets~~adoption did not have a material impact on our financial statements.

~~FSP FAS~~Effective ~~157-~~July 1, ~~Application~~2009, ofwe adopted the Financial Accounting Standards Board (“FASB”) ~~Statement~~Accounting NoStandards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ~~157~~ASC to105-10 establishes the FASB ~~Statement~~Accounting NoStandards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. 13Rules and ~~Other~~interpretive ~~Accounting~~releases ~~Pronouncements~~of the SEC under authority of federal ~~That~~securities ~~Address~~laws ~~Fair~~are ~~Value~~also ~~Measurements~~sources of authoritative U.S. GAAP for ~~Purposes~~SEC registrants. All guidance contained in the Codification carries an equal level of ~~Lease~~authority. The ~~Classification~~Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues ~~Measurement~~Task ~~under~~Force ~~Statement~~Abstracts. ~~13 —~~Instead, ~~amends~~it will issue Accounting Standards Updates (“ASUs”). The FASB ~~Statement~~will Nonot consider ASUs as authoritative in their own right. ~~157~~ASUs will serve only to update the Codification, ~~Fair~~provide ~~Value~~background ~~Measurements~~information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

~~FSP~~Effective July 1, ~~FAS~~2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and ~~157~~Disclosures (Topic 820) (“ASU 2009-205”). ASU 2009-05 provided amendments to ASC 820-10, ~~Effective~~Fair ~~Date~~Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ~~FASB~~ASU 2009-05 provides clarification that in circumstances in which a ~~Statement~~quoted Noprice in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ~~157—~~ASU 2009-05 ~~delays~~also clarifies that when estimating the ~~effective~~fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of ~~FASB~~the ~~Statement~~asset Noare required are Level 1 fair value measurements. ~~157,~~Adoption of ASU 2009-05 did not have a material ~~Fair~~impact ~~Value~~on ~~Measurements~~our results of operations or financial condition.

19In September 2009, the FASB issued Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (ASU 2009-13). It updates the existing multiple-element revenue arrangements guidance currently included under ASC 605-25, which originated primarily from the guidance in EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, with early adoption permitted provided that the revised guidance is retroactively applied to the beginning of the year of adoption. We are currently assessing the future impact of this new accounting update to its financial statements.

~~FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.~~4

SEC Staff Accounting Bulletin (SAB)

SAB 110 expresses the views of the SEC staff regarding the use of a “simplified” method, as discussed in SAB No. 107 (“SAB 107”), in developing an estimate of expected term of “plain vanilla” share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular, the staff indicated in SAB 107 that it will accept a company’s election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company currently uses the simplified method for “plain vanilla” share options and warrants, and will assess the impact of SAB 110 for fiscal year 2009.

The Company is currently evaluating the aforementioned new accounting guidance but does not believe that adoption of any of the pronouncements will have a material impact on the Company’s financial position or results of operations.

Results of Operations

The following table sets forth, for the periods indicated, financial information related to operations, as well as expressed as a percentage of our net sales:

	NINE MONTHS ENDED May 31, 2009 and 2008
	THREE MONTHS ENDED November 30, 2009 and 2008
	(in thousands)
	2009					2008
Net Sales	$	~~2,885~~561		100.0	%	$	31,~~071~~172		100.0	%
Cost of Goods Sold		~~1,090~~120		3721.84	%		~~1,068~~466		3439.78	%
Gross Profit		~~1,795~~441		6278.26	%		~~2,003~~706		6560.2	%
Operating Expenses
Shipping Expenses		105		3.6	%		122		4.0	%
Selling Expenses		209		37.2	%		295		25.2	%
Selling Expenses		746		25.9	%		802		26.1	%
General & Administrative Exp		266		47.3	%		341		29.1	%
General & Administrative Exp		1,035		35.9	%		1,239		40.3	%
Total Operating Expenses		475		84.1	%		636		54.3	%
Product Development Expenses		19		1.0	%		66		2.1	%
Income (Loss) from Operations		(33	)	(5.9	)%		70		6	%
Total Operating Expenses		1,905		66.0	%		2,229		72.6	%
Other Income (Expense) - Net		(28	)	(5	)%		(3	)	(0.2	)%
Income (Loss) from Operations		(110	)	(3.8	)%		(226	)	(7.4	)%
Provision (Benefit) for Income Tax		1		0.2	%		1		0.1	%
Other Income (Expense)		120		4.2	%		2		0.1	%
Net Income (Loss)	$	(6	)	(1.1	)%	$	66		5.6	%
Provision for Income Tax		2		-			2		-	%
Net Income (Loss)	$	8		-	%	$	(226	)	(7.4	)%

~~Third~~ First quarter of fiscal year ~~2009~~ 2010 revenues overall were lower than ~~during~~expected ~~the corresponding~~principally ~~period~~due ofa ~~fiscal~~decrease ~~year~~in ~~2008 due~~purchase orders tofrom aour ~~temporary~~now ~~pause~~largest distributor. During inthe ~~orders~~first quarter of ~~from~~2008, our largest ~~single~~distributor, ~~customer~~who ~~while~~was then ~~they~~a ~~reduced~~new ~~inventory~~strategic ~~levels~~partner, ~~company~~made non-~~wide~~recurring toinitial ~~cope~~inventory ~~with~~purchases ~~the~~of ~~generally~~approximately ~~poor~~$552,000 to build ~~international~~up ~~economic~~its ~~conditions. Fortunately,~~inventory ~~demand~~ for ~~the~~initial ~~new~~purchases ~~lighting systems~~ and ~~loupe~~for ~~sales~~use ~~through~~by ~~other~~its ~~channels~~salespeople. ~~are~~During ~~tracking~~the atfirst orquarter ~~above~~of ~~prior~~fiscal ~~year~~2009, ~~levels.~~this ~~Management recognizes~~distributor made ~~that~~purchases ~~the~~of ~~new~~approximately ~~concentration~~$182,000. ~~from~~Net ~~one~~revenues ~~large~~from ~~strategic~~this ~~partner~~distributor ~~can~~were also ~~represent~~down ~~risk~~ as ~~well~~a asresult ~~opportunity~~of tothe ~~broaden~~impact ~~distribution~~of ~~channels.~~the ~~Consequently, management~~general iseconomic ~~working~~downturn ~~aggressively~~which caused this distributor to ~~diversity~~reduce its ~~distribution~~inventory ~~channels~~levels ~~even~~for items that were not ~~further~~selling ~~using~~as ~~more~~well as ~~domestic~~originally projected and ~~international~~to ~~outlets~~discount ~~for~~products ~~its~~to drive ~~products~~sales in a more price-conscious market.

20While cost containment efforts offset to some extent the impact of the reduction in net sales, we reported a net loss of $6,323 for the first quarter. The net loss reported was mitigated somewhat by a favorable inventory adjustment that reduced cost of goods sold in the first quarter of fiscal 2010 where we reinstated a large number of items to inventory that had been previously written off because they were items in need of repair or rework. During the 2009 audit, after reviewing the items, it was determined that these goods could be sold if repaired or reworked.

~~While~~We plan ~~cost~~to ~~containment~~continue ~~efforts~~reducing ~~dramatically~~operating ~~reduced~~costs ~~the~~and ~~impact~~streamlining of our ~~largest customer’s~~sales ~~inventory~~and ~~adjustments, we did report a net loss of $62,492 for the~~marketing ~~third~~efforts. ~~quarter,~~Management ~~although~~expects ~~we also continued~~ to berecord ~~marginally~~improved ~~profitable~~bottom ~~for~~line ~~the~~performance during ~~first~~the ~~nine~~current ~~months~~fiscal ~~of 2009 with net income of $8,269~~year.

~~We plan~~Three toMonths ~~continue~~Ended ~~reducing~~November ~~operating costs and streamlining our sales and marketing efforts. As we focus more heavily on distributor relationships to generate sales~~30, ~~the~~2009 ~~exposure~~Compared to ~~escalating costs in sales and travel related expenses in~~ the ~~domestic~~Three ~~retail~~Months ~~market~~Ended isNovember ~~being mitigated. Through large orders from a growing number of distributors~~30, ~~we anticipate that these efforts will~~ ~~continue to improve the operating income in future quarters.~~2008

We reduced the retail sales force to a level that will support those existing demographic areas producing the greatest volume of sales. The number of trade shows for 2008-2009 has been scaled down as well, and several of the smaller localized shows, which in the past generated exposure to our product lines but not necessarily immediate revenues, have been eliminated. This action will also reduce excessive travel related expenses which have increased due to cost pressures in the travel industry.

Management believes that we have positioned ourselves for steady sales growth through the rest of fiscal year 2009 and through the cost cutting measures already established, this should result in a stronger financial position relative to fiscal year 2008.

Nine Months Ended May 31, 2009 Compared to the Nine Months Ended May 31, 2008

Net Sales

Net Sales decreased by $~~185~~611,~~622~~190 or ~~6.0~~52%, from $31,~~070~~172,~~877~~362 for the ~~nine~~three months ended ~~May~~November 3130, 2008 to $2561,~~885,255~~172 for the three ~~nine~~ months ended ~~May~~November 3130, 2009. ~~The~~During ~~reduction~~the first quarter of 2008, our ~~sales~~largest indistributor, ~~the~~who ~~nine~~was then ~~months~~a ~~ended~~new ~~May~~strategic 31partner, made non-recurring ~~2009~~initial ~~was~~inventory ~~due~~purchases of approximately $552,000 to build aup ~~decrease~~its ~~during~~inventory ~~the~~for initial purchases and for use by its ~~third~~salespeople. During the first quarter of fiscal 2009, inthis ~~purchase~~distributor ~~orders~~made purchases ~~from~~of ~~our~~approximately ~~largest~~$182,000. Net revenues from this distributor so were also down as a result of the impact of the general economic downturn which caused this distributor to reduce its inventory levels for items that were not selling as well as originally projected. ~~This~~and ~~reduction~~to indiscount ~~sales~~products ~~was~~to ~~partially offset by increased~~drive ~~light~~ sales ~~through~~in ~~all~~a ~~marketing~~more price-conscious ~~channels~~market. ~~and~~Reduced annet ~~increase~~sales inwere ~~our~~also ~~loupe sales~~more ~~through~~generally ~~direct~~attributable ~~sales~~to ~~channels.~~the Wegeneral ~~are~~economic ~~working~~downturn, ~~diligently~~the ~~with~~effect ~~our~~of ~~largest~~which we ~~distributor~~felt tomore ~~rebuild~~fully ~~sales~~during tothe ~~historic~~first ~~levels~~quarter of fiscal 2010.

Gross Profit

Gross profit decreased by $~~207~~264,~~808~~653 or 10 37.45%, from $2705,~~003,121~~886 for the ~~nine~~three months ended ~~May~~ 31November 30, 2008 to $1441,~~795,313~~ 233 for the ~~nine~~three months ended ~~May~~November 3130, 2009. The decrease in gross profits was attributable mainly to a reduction in overall purchase orders from our largest distributor. Gross margin was 6278.6% of net sales for the ~~nine~~three-month period ended ~~May~~November 3130, 2009 compared to 65 60.2% of net sales for the ~~nine~~three-month period ended ~~May 31~~November, 2008. The ~~decrease~~increase in ~~margin~~ ~~was~~gross profit percentage is directly attributable to ~~inventory~~a ~~adjustments~~reduction ~~during~~in ~~the~~cost ~~second~~of ~~and~~goods ~~third quarters~~sold as a result of ~~2009.~~a Weone-time inventory doadjustment ~~not~~that ~~expect~~reinstated ~~any~~previously ~~major~~written ~~adjustments~~off items to inventory because init ~~the future~~was ~~now~~determined during our 2009 audit that anthese ~~unaudited~~items ~~physical~~had ~~inventory~~value ~~has~~and could ~~been~~be ~~completed~~sold toif ~~update~~repaired ~~our records~~or reworked.

Operating Expenses

Operating expenses, which include ~~shipping expenses,~~ selling and marketing expenses~~, general~~ and general and administrative expenses ~~and product development~~ decreased by $~~323~~161,~~998~~771, or 1425.54%, to $1474,~~904,809~~533 for the three ~~nine~~ months ended ~~May~~November 3130, 2009 as compared to $2636,~~228,807~~304 for the ~~nine~~ three months ended ~~May~~November 3130, 2008. ~~This reduction is primarily attributable to the decline in legal costs associated with the legal settlement that occurred in fiscal year 2008.~~

~~Shipping~~Selling ~~expenses~~and ~~decreased~~marketing byexpenses were $17208,~~429~~904 orfor ~~14.3%~~the tothree months ended November 30, 2009, a decrease of $~~104~~88,~~437~~519 or 329.68%, ofcompared ~~net~~with ~~sales~~$297,143 for the ~~nine~~ three months ended ~~May~~November 3130, ~~2009~~2008. asThis ~~compared~~decrease tois ~~$121,866~~mainly orrelated ~~4.0%~~to ofour ~~net~~enhanced channel sales ~~for the~~efforts ~~nine~~where ~~months~~we ~~ended~~decreased ~~May~~our 31direct sales, ~~2008~~marketing, advertising ~~attributable~~and todirect ~~decreased~~mail ~~sales~~campaigns. ~~during~~We ~~the~~also realized decreased travel costs ~~third~~related ~~quarter~~to ofour ~~2009~~redirected and refocused sales efforts.

General and administrative expenses were $265,629 for the three months ended November 30, 2009, a decrease of $73,252 or 21.6% compared to $338,881 for the quarter ended November 30, 2008. This decrease is primarily attributable to a decline in legal costs associated with a legal settlement that occurred in fiscal year 2008, a decrease in salary payments as a result of the departure of our former President and Secretary and a reduction in external accounting costs.

Selling and marketing expenses were $746,433 for the nine months ended May 31, 2009, a decrease of $55,134 or 6.9%, compared with $801,567 for the nine months ended May 31, 2008. This decrease was mainly related to our changes that reduced our direct sales force and increased use of OEM distributors and dealers.

General and administrative expenses were $1,035,397 for the nine months ended May 31, 2009 a decrease of $203,801, or 16.4% compared to $1,239,198 for the nine months ended May 31, 2008. This decrease is attributable to the decline in legal costs associated with the legal settlement that occurred in fiscal year 2008.

Product development costs decreased by $47,634 or 72%, from $66,176 for the nine months ended May 31, 2008 to $18,542 for the nine months ended May 31, 2009. Our elevated light development activity in the nine months ended May 31, 2008, resulted in a decrease in costs as compared to the same period in 2009. Product development costs are expected to increase in the future as we continue to expend resources to enhance our existing product lines as well as develop new products.

Income (Loss) from Operations

Loss from operations for the ~~nine~~quarter ~~months~~ ended ~~May~~November 3130, 2009 ~~decreased~~increased by $~~116~~102,~~190~~882 or 51 147.59% to $~~109~~33,~~496~~300 as compared to income from operations of $~~225~~69,~~686~~582 for the quarter ~~nine months~~ ended ~~May~~November 3130, 2008. ~~The reduction~~This in loss ~~from~~was ~~operations~~primarily isattributable ~~related~~ to the ~~continuing refinement of our~~ ~~business~~reduction ~~model~~in tosales ~~reflect the changing distribution channel strategy and the one-time impact of the settlement of legal actions. These efforts have led~~ to ~~significant~~ ~~cost~~our ~~savings~~largest ~~related~~distributor toas ~~shipping,~~described ~~marketing, sales and customer service labor, and travel expenses~~above. ~~We anticipate improved operating profit performances in the upcoming quarters related to these changes.~~

Other Income (Expense) - Net

~~Interest~~Other ~~expense~~income for the ~~nine~~quarter ~~months~~ ended ~~May~~November 3130, 2009 ~~was~~increased ~~$7,083~~by ~~as compared to~~ $~~0 in interest expense for the nine months ended May 31~~30,752 ~~2008.~~or ~~These changes reflected~~1033.7% ~~the~~to ~~use~~other ofincome ~~a line~~ of ~~credit~~$27,777 ~~established~~from inother ~~fiscal~~expense ~~year 2008. At the end~~ of ~~the first nine months of fiscal 2009~~$2,975 ~~the~~for ~~balance owing on~~ the ~~line~~quarter ~~was $75,000, not~~ended ~~including~~November $330,~~014~~ in2008. ~~accrued~~This ~~interest~~increase ~~expense. In~~was ~~addition,~~primarily ~~during~~due to the ~~second~~ ~~quarter~~recording of ~~2009 we received~~ a ~~one-time~~gain ~~payment~~ of $~~126~~29,~~797~~460 ~~for~~resulting ~~an insurance~~from ~~settlement arising out of~~ a ~~claim~~mark ~~filed~~to bymarket usadjustment ~~partially~~for ~~reimbursing legal~~our ~~expenses~~derivative ~~incurred in the defense of a competitor lawsuit~~financial instruments.

Net Income (Loss)

~~Net~~The net ~~income~~loss for the ~~nine~~three months ended ~~May~~November 3130, 2009 was $86,~~269~~323 compared with a net ~~loss~~profit of $~~225~~65,~~719~~807 for the ~~nine~~quarter ~~months~~ ended ~~May~~November 3130, 2008. ~~Earnings~~The loss per share ~~was~~ was $0.01 for the ~~nine~~three months ended ~~May~~November 3130, 2009~~, compared with a loss per share of $0~~.~~03 for the nine months ended May 31, 2008.~~

Three Months Ended May 31, 2009 Compared to the Three Months Ended May 31, 2008

Net Sales

Net Sales decreased by $278,100 or 24.8%, from $1,119,633 for the three months ended May 31, 2008 to $841,533 for the three months ended May 31, 2009. The reduction of sales in the third quarter was due to a decrease in purchase orders from our largest distributor so as to reduce its inventory levels for items that were not selling as well as originally projected. This reduction in sales was partially offset by increased light sales through all marketing channels and an increase in our loupe sales through direct sales channels. We are working diligently with our largest distributor to rebuild sales to historic levels.

Gross Profit

Gross profit decreased by $195,737, or 26%, from $753,751 for the three months ended May 31, 2008 to $558,014 for the three months ended May 31, 2009. Gross margin was 66.3 % of net sales for the three-month period ended May 31, 2009 compared to 67.3% of net sales for the three-month period ended May 31, 2008. The decrease in margin was attributable to an inventory adjustment resulting from a reduction in inventory levels of our largest distributor. We do not expect any major adjustments to inventory in the future now that an unaudited physical inventory has been completed to update our records.

Operating Expenses

Operating expenses, which include shipping expenses, selling and marketing expenses, general and administrative expenses and product development decreased by $226,177, or 26.8%, to $617,260 for the three months ended May 31, 2009 as compared to $843,437 for the three months ended May 31, 2008. This reduction is primarily attributable to the decline in legal costs associated with the legal settlement that occurred in fiscal year 2008.

Shipping expenses decreased $22,006 or 37.6% to $36,577 or 4.3% of net sales for the three months ended May 31, 2009 as compared to $58,583 or 5.2% of net sales for the three months ended May 31, 2008 attributable to decreased sales during the quarter.

Selling and marketing expenses were $219,577 for the three months ended May 31, 2009, a decrease of $85,777 or 28.1%, compared with $305,354 for the three months ended May 31, 2008. This decrease was mainly related to our changes that reduced our direct sales force and increased use of OEM distributors and dealers.

General and administrative expenses were $360,056 for the three months ended May 31, 2009, a decrease of $83,931, or 18.9% compared to $443,987 for the quarter ended May 31, 2008. This decrease is attributable to the decline in legal costs associated with the legal settlement that occurred in fiscal 2008.

Product development costs decreased by $34,463 or 97%, from $35,513 for the three months ended May 31, 2008 to $1,050 for the three months ended May 31, 2009. Our elevated light development activity in the three months ended May 31, 2008, resulted in a decrease in costs as compared to the same period in 2009. Product development costs are expected to increase in the future as we continue to expend resources to enhance our existing product lines as well as develop new products.

Income (Loss) from Operations

Loss from operations for the quarter ended May 31, 2009 decreased by $30,440 or 33.9% to $59,246 as compared to $89,686 for the quarter ended May 31, 2008. The reduction in loss from operations is related to the continuing refinement of our business model to reflect the changing distribution channel strategy and the one-time impact of the settlement of legal actions. These efforts have led to significant cost savings related to shipping, marketing, sales and customer service labor, and travel expenses. We anticipate improved operating profit performances in the upcoming quarters related to these changes.

Other Income (Expense)

Interest expense for the three months ended May 31, 2009 was $1,701 as compared to $835 in interest income for the quarter ended May 31, 2008. These changes reflected the use of a line of credit established in fiscal year 2008. At the end of the first nine months of fiscal 2009, the balance owing on the line was $75,000, not including $3,014 in accrued interest expense.

Net Income (Loss)

The net loss for the three months ended May 31, 2009 was $62,492 compared with a net loss of $90,521 for the quarter ended May 31, 2008. The loss per share was $0.01 for the three months ended May 31, 2009, compared with a loss per share of $0.01 for the three months ended May 31, 2008.

Liquidity and Capital Resources

We assess our liquidity by our ability to generate cash to fund operations. Significant factors in the management of liquidity are: funds generated by operations; levels of accounts receivable; inventories, accounts payable and capital expenditures; adequate lines of credit; and financial flexibility to attract long-term capital on satisfactory terms. As of ~~May~~November 3130, 2009, we had cash ofon hand of $~~88,772~~786.

To date, we have financed operations principally through lines of credit and equity capital. Our ability to generate positive operational cash flow is dependent upon increasing revenues through the sales of existing product lines. Our historical uses of cash have primarily been for operations, capital expenditures, and payments of principal and interest on outstanding debt obligations.

The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business. As of ~~May~~November 3130, 2009, we had an accumulated deficit of $5,~~400~~656,~~226 and~~751, negative working capital of $~~560~~781,~~288~~982 and recurring losses from operations. These factors, among others, raise doubt about our ability to continue as a going concern. In response to these problems, ~~the~~we ~~Company is~~ are expanding ~~its~~our revenue base ~~beyond~~by increasing direct sales to dentists and surgeons and continuing to search for OEM and third party ~~sales~~relationships. Additionally, our new international sales manager is aggressively signing up new international distributors through our International Distributor Program~~, seeking third party financing and cutting operating costs~~.

Net cash ~~provided~~used byin operating activities was $8119,~~073~~471 for the ~~nine~~quarter ~~months~~ ended ~~May~~November 3130, ~~2009~~ 2009 as compared ~~with~~to net cash ~~used~~provided inby operating activities of $~~197~~178,~~764~~192 for the ~~nine~~quarter ~~months~~ ended ~~and~~November ~~May 31~~30, 2008. The ~~improvement~~decline in operating cash flows was a direct result of ~~our~~the ~~strategic~~reduction ~~shift~~in ~~from~~net ~~selling~~sales ~~directly~~from ~~to end users to indirectly through international distributors, OEM and third party relationships. Utilization of~~ our ~~partner~~largest ~~resources~~distributor ~~to market and sell our products allowed~~ for the reasons ~~reduction~~described ~~in internal sales and marketing expenditures~~above.

Net cash used in investing activities during the ~~nine~~quarter ~~months~~ ended ~~May~~November 3130, 2009 and ~~May~~ 31November 30, 2008 was $~~29,188~~0 and $530,~~319,~~ respectively. ~~These expenditures were mainly related to the purchase of capital equipment.~~

Net cash used in financing activities during the ~~nine~~quarter ~~months~~ ended ~~May~~November 3130, 2009 ~~was~~and November 30, 2008 was $752,~~000~~606 and ~~net~~$0, ~~cash~~respectively. ~~provided~~As byof ~~financing~~November ~~activities~~30, ~~during~~2009, the outstanding ~~nine~~balance ~~months ended~~due ~~May~~under ~~31,~~our ~~2008~~line of credit was $~~150~~81,~~000~~399, ~~respectively~~which includes accrued interest of $6,399. We also owe as of November 30, 2009 accrued dividends on Series A Preferred Stock in the amount of $863,039 which is not anticipated to be paid within the next 12 months.

Contractual Obligations

We lease space under a non-cancellable lease expiring ~~December~~June 115, ~~2010~~2014. The lease ~~obligation~~ obligation based on minimum monthly rents is expected to be as follows:

Fiscal Years Ended
2009		13,449
2010		56,657
	$	70,106

Future minimum rental payments are as follows:

~~Rent expense~~As ~~for the nine months ended May 31, 2009 and May 31, 2008 was $40,347, and~~of ~~$39,015,~~August ~~respectively.~~31:

2010	$	58,123
2011		77,497
2012		77,497
2013		77,497
2014		64,581
Total minimum lease payments	$	355,195

Rent expense for the three months ended November 30, 2009 and November 30, 2008 was $19,374, and $13,449, respectively.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain financial market risks, including changes in interest rates. All of our revenue, expenses and capital spending are transacted in U.S. dollars. Our exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalent balances. The majority of our investments are in short-term instruments and subject to fluctuations in US interest rates. Due to the nature of our short-term investments, we believe that there is no material risk exposure.

ITEM 4T CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms; and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting which occurred during the most recent fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 2.

UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

On June 3, 2009, we agreed that an unrelated shareholder who has extended to us a line of credit in the principal amount of $75,000 may at their option receive a warrant to purchase 75,000 shares of our common stock at an exercise price of $0None.075 per share. We believe that such transaction was exempt from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof and/or Rule 506 of Regulation D promulgated thereunder.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None.

ITEM 5.

OTHER INFORMATION

~~The following disclosure would have otherwise been filed on Form 8-K under the heading “Item 5~~None.~~02 - Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangement of Certain Officers”:~~

On July 9, 2009, our Board of Directors terminated Jeffrey Lewsadder as our President and Secretary and ratified the termination of Mr. Lewsadder’s employment effective as of June 26, 2009.

ITEM 6.

EXHIBITS

Exhibit 31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

268

SIGNATURE

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.

	~~SHEERVISION, INC. Registrant~~	SHEERVISION, INC. Registrant
Dated: July 15, 2009
Dated: January 19, 2010
	~~/s/ Suzanne Lewsadder~~	/s/ Suzanne Lewsadder
	~~Suzanne Lewsadder,~~	Suzanne Lewsadder,
	~~Chief Executive Officer~~	Chief Executive Officer
Date: July 15, 2009	/s/ Patrick Adams
Date: January 19, 2010		/s/ Patrick Adams
	Patrick Adams,
		Patrick Adams, Chief Financial Officer
	Chief Financial Officer

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