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 31, 2009
¨
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 1, 2009: 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
|
|
|
|
|
|
Item
4T. Controls and Procedures
|
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
Item
1. Legal Proceedings
|
|
26
|
|
|
|
Item
2. Unregistered Sale of Equity Securities and Use of
Proceeds
|
|
|
|
|
|
Item
3. Defaults upon Senior Securities
|
|
|
|
|
|
Item
4. Submission of Matters to a Vote of Securities Holders
|
|
|
|
|
|
Item
5. Other Information.
|
|
|
|
|
|
Item
6. Exhibits
|
|
26
|
|
|
|
Signatures
|
|
27
|
ITEM
1. FINANCIAL STATEMENTS
SheerVision,
Inc. and Subsidiary
Consolidated Balance
Sheets
|
|
May 31,
2009
|
|
|
August 31,
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
88,772
|
|
|
$
|
111,887
|
|
Accounts
receivable
|
|
|
163,720
|
|
|
|
399,950
|
|
Inventory
|
|
|
362,704
|
|
|
|
254,052
|
|
Prepaid
expenses and other current assets
|
|
|
90,445
|
|
|
|
45,387
|
|
Total
Current Assets
|
|
|
705,641
|
|
|
|
811,276
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
138,945
|
|
|
|
141,894
|
|
|
|
|
|
|
|
|
-
|
|
Intangible
assets, net
|
|
|
7,091
|
|
|
|
7,520
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
851,677
|
|
|
$
|
960,690
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders'
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
330,158
|
|
|
$
|
423,180
|
|
Accrued
expenses and other current liabilities
|
|
|
115,875
|
|
|
|
84,269
|
|
Accrued
dividends - Series A convertible preferred stock
|
|
|
744,896
|
|
|
|
565,145
|
|
Line
of credit
|
|
|
75,000
|
|
|
|
150,000
|
|
Total
Current Liabilities
|
|
|
1,265,929
|
|
|
|
1,222,594
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
Additional
paid in capital
|
|
|
4,972,954
|
|
|
|
4,953,839
|
|
Accumulated
deficit
|
|
|
(5,400,226
|
)
|
|
|
(5,228,744
|
)
|
Total
Stockholders' Deficit
|
|
|
(414,252
|
)
|
|
|
(261,904
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficit
|
|
$
|
851,677
|
|
|
$
|
960,690
|
|
See
accompanying notes to financial statements
SheerVision,
Inc. and Subsidiary
Consolidated
Statements of Operations
(Unaudited)
|
|
For the Three Months Ended May
31,
|
|
|
For the Nine Months Ended May
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
- net
|
|
$
|
841,533
|
|
|
$
|
1,119,633
|
|
|
$
|
2,885,255
|
|
|
$
|
3,070,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
283,519
|
|
|
|
365,882
|
|
|
|
1,089,942
|
|
|
|
1,067,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
558,014
|
|
|
|
753,751
|
|
|
|
1,795,313
|
|
|
|
2,003,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
360,056
|
|
|
|
443,987
|
|
|
|
1,035,397
|
|
|
|
1,239,198
|
|
Selling
and marketing
|
|
|
219,577
|
|
|
|
305,354
|
|
|
|
746,433
|
|
|
|
801,567
|
|
Product
development
|
|
|
1,050
|
|
|
|
35,513
|
|
|
|
18,542
|
|
|
|
66,176
|
|
Shipping
|
|
|
36,577
|
|
|
|
58,583
|
|
|
|
104,437
|
|
|
|
121,866
|
|
Total
operating expenses
|
|
|
617,260
|
|
|
|
843,437
|
|
|
|
1,904,809
|
|
|
|
2,228,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(59,246
|
)
|
|
|
(89,686
|
)
|
|
|
(109,496
|
)
|
|
|
(225,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
55
|
|
|
|
-
|
|
|
|
451
|
|
|
|
1,567
|
|
Other
income
|
|
|
-
|
|
|
|
-
|
|
|
|
126,797
|
|
|
|
-
|
|
Interest
expense
|
|
|
(1,701
|
)
|
|
|
(835
|
)
|
|
|
(7,083
|
)
|
|
|
-
|
|
Total
other income - net
|
|
|
(1,646
|
)
|
|
|
(835
|
)
|
|
|
120,165
|
|
|
|
1,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
|
(60,892
|
)
|
|
|
(90,521
|
)
|
|
|
10,669
|
|
|
|
(224,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
1,600
|
|
|
|
-
|
|
|
|
2,400
|
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(62,492
|
)
|
|
$
|
(90,521
|
)
|
|
$
|
8,269
|
|
|
$
|
(225,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Preferred stock dividends - Series A convertible preferred
stock
|
|
|
(59,917
|
)
|
|
|
(59,917
|
)
|
|
|
(179,751
|
)
|
|
|
(180,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss applicable to common shareholders
|
|
$
|
(122,409
|
)
|
|
$
|
(150,438
|
)
|
|
$
|
(171,482
|
)
|
|
$
|
(406,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the period - basic and
diluted
|
|
|
12,756,023
|
|
|
|
12,735,190
|
|
|
|
12,749,460
|
|
|
|
12,717,246
|
|
See
accompanying notes to financial statements
SheerVision,
Inc. and Subsidiary
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
For the Nine Months Ended May
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
8,269
|
|
|
$
|
(225,719
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
32,566
|
|
|
|
24,397
|
|
Stock
based compensation
|
|
|
19,134
|
|
|
|
76,472
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
236,230
|
|
|
|
(225,785
|
)
|
Inventory
|
|
|
(108,652
|
)
|
|
|
41,238
|
|
Prepaid
expenses and other current assets
|
|
|
(45,058
|
)
|
|
|
(9,690
|
)
|
Increase
(Decrease) in:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(93,022
|
)
|
|
|
28,463
|
|
Accrued
expenses and other current liabilities
|
|
|
31,606
|
|
|
|
92,860
|
|
Net
Cash Provided by (Used in) Operating Activities
|
|
|
81,073
|
|
|
|
(197,764
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
Repayment
on line of credit
|
|
|
(75,000
|
)
|
|
|
-
|
|
Net
Cash Provided by (Used in) Financing Activities
|
|
|
(75,000
|
)
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Net
Decrease in Cash
|
|
|
(23,115
|
)
|
|
|
(101,083
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning of Period
|
|
|
111,887
|
|
|
|
265,262
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
1,600
|
|
Interest
|
|
$
|
9,987
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
preferred stock dividends - Series A convertible preferred
stock
|
|
$
|
179,751
|
|
|
$
|
180,858
|
|
Issuance
of common stock in connection with conversion of Series A convertible
preferred stock
|
|
$
|
21
|
|
|
$
|
41
|
|
See
accompanying notes to financial statements
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 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. The interim
results for the period ended May 31, 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 3 regarding going concern matters.
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.
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 May 31, 2009 or August 31, 2008, respectively.
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 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 31, 2009 and August 31, 2008, respectively, inventory consisted of
finished goods and raw materials. At May 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 31, 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.
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 2009
(Unaudited)
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s short-term financial instruments, including
accounts receivable, inventory, prepaid expenses and other current assets,
accounts payable, accrued expenses 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 product is installed, (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 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 the criteria under SFAS No.
48,
Revenue Recognition when
Right of Return Exists
and has determined that recognition of revenue on
the date of shipment is appropriate. As a result, management has
determined that no reserve is required. Shipping charges and special orders are
nonrefundable.
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 and rental charges.
Advertising
In
accordance with Accounting Standards Executive Committee Statement of Position
93-7, costs incurred for producing and communicating advertising of the Company,
are charged to operations as incurred.
Advertising
expense has been included in the statement of operations as selling and
marketing expense.
Product
Development
The
Company expenses all product development costs as incurred for which there is no
alternative future use.
Income
Taxes
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.
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 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
Company 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
Compensation
All
share-based payments to employees are recorded and expensed in the statement of
operations as applicable under SFAS No. 123(R)
Share-Based
Payment
. SFAS No. 123(R) requires the measurement and
recognition of compensation expense for all share-based payment awards made to
employees and directors including grants of employee stock options based on
estimated fair values. The Company has used the Black-Scholes
option-pricing model to estimate grant date fair value for all option
grants.
Share-based
compensation expense is based on the value of the portion of share-based payment
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.
Non-Employee
Stock Based Compensation
Stock-based
compensation awards issued to non-employees for services are recorded at either
the fair value of the services rendered or the instruments issued in exchange
for such services, whichever is more readily determinable, using the measurement
date guidelines enumerated in Emerging Issues Task Force Issue EITF No. 96-18,
Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services
(“
EITF
96-18
”).
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 2009
(Unaudited)
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS 141R,
Business Combinations
(“
SFAS 141R
”), which replaces
FASB SFAS 141,
Business
Combinations
. This Statement retains the fundamental requirements
in SFAS 141 that the acquisition method of accounting be used for all business
combinations and for an acquirer to be identified for each business combination.
SFAS 141R defines the acquirer as the entity that obtains control of one or more
businesses in the business combination and establishes the acquisition date as
the date that the acquirer achieves control. SFAS 141R will require
an entity to record separately from the business combination the direct costs,
where previously these costs were included in the total allocated cost of the
acquisition. SFAS 141R will require an entity to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the acquired
at the acquisition date, at their fair values as of that date. This
compares to the cost allocation method previously required by SFAS No.
141. SFAS 141R will require an entity to recognize as an asset or
liability at fair value for certain contingencies, either contractual or
non-contractual, if certain criteria are met. Finally, SFAS 141R will
require an entity to recognize contingent consideration at the date of
acquisition, based on the fair value at that date. This Statement
will be effective for business combinations completed on or after the first
annual reporting period beginning on or after December 15,
2008. Early adoption of this standard is not permitted and the
standards are to be applied prospectively only. Upon adoption of this
standard, there would be no impact to the Company’s results of operations and
financial condition for acquisitions previously completed. The
adoption of SFAS No. 141R is not expected to have a material effect on its
financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements
, an amendment of Accounting Research
Bulletin No 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, changes in a parent’s ownership of a noncontrolling interest,
calculation and disclosure of the consolidated net income attributable to the
parent and the noncontrolling interest, changes in a parent’s ownership interest
while the parent retains its controlling financial interest and fair value
measurement of any retained noncontrolling equity investment. SFAS 160 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 adoption of SFAS No. 160 is not expected to have a material
effect on its financial position, results of operations or cash
flows.
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.
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
31, 2009
(Unaudited)
Reclassifications
Certain
amounts in the fiscal year 2008 financial statements have been reclassified to
conform to the fiscal year 2009 presentation. The results of these
reclassifications did not materially affect financial position, results of
operations or cash flows.
Note 3 Going
Concern
As
reflected in the accompanying financial statements, the Company has a working
capital deficit of $560,288 an accumulated deficit of $5,400,226 and a
stockholders’ deficit of $414,252 at May 31, 2009.
For the
nine months ended May 31, 2009, the Company reflects net income and net cash
provided by operating activities; however, the Company does not yet have history
of financial stability or sources of cash that can be relied upon to sustain
operations for current and expected future growth.
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.
In
response to these problems, management has taken the following
actions:
|
·
|
the
Company is expanding its revenue base beyond direct sales to OEM and third
party sales;
|
|
·
|
the
Company is aggressively signing up new international distributors through
its International Distributor
Program;
|
|
·
|
the
Company is seeking third party financing;
and
|
|
·
|
the
Company is cutting operating
costs.
|
Note 4
Inventory
Inventory
consists of the following at May 31, 2009 and August 31, 2008:
|
|
May 31, 2009
(unaudited)
|
|
|
August 31, 2008
(audited)
|
|
Finished
goods
|
|
$
|
362,704
|
|
|
$
|
249,802
|
|
Raw
materials
|
|
|
-
|
|
|
|
4,250
|
|
Total
|
|
$
|
362,704
|
|
|
$
|
254,052
|
|
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 2009
(Unaudited)
Note 5 Property and
Equipment
At May
31, 2009 and August 31, 2008, respectively, property and equipment consisted of
the following:
|
Estimated
Useful
Lives
|
|
May 31, 2009
(unaudited)
|
|
|
August 31. 2008
(audited)
|
|
Manufacturing
equipment
|
7
years
|
|
$
|
177,828
|
|
|
$
|
148,640
|
|
Office
and computer equipment
|
5
years
|
|
|
49,438
|
|
|
|
49,438
|
|
Leasehold
improvement
|
15
years
|
|
|
7,179
|
|
|
|
7,179
|
|
|
|
|
|
234,445
|
|
|
|
205,257
|
|
Less:
accumulated depreciation
|
|
|
|
(95,500
|
)
|
|
|
(63,362
|
)
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
$
|
138,945
|
|
|
$
|
141,895
|
|
Depreciation
expense for the three months ended May 31, 2009 and 2008 amounted to $11,330
and $9,024, respectively and for the nine months ended May 31, 2009 and
2008 amounted to $31,656 and $24,397, respectively.
Note 6 Intangible
Assets
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
31, 2009
(Unaudited)
Note 8 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.
In
December 2008, the Company received $126,797 from an insurance carrier for a
previously settled lawsuit, representing a partial reimbursement of legal
fees.
Note 9 Stockholders’
Deficit
(A)
Common Stock Issuances
During
the nine months ended May 31, 2008, 3,750 shares of preferred stock were
converted into 41,667 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
the 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 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.
(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
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding
– August 31, 2008 (audited)
|
|
|
1,488,989
|
|
|
$
|
0.53
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(511,713
|
)
|
|
$
|
1.00
|
|
Outstanding
– May 31, 2009 (unaudited)
|
|
|
977,276
|
|
|
$
|
0.28
|
|
Exercisable
–May 31, 2009 (unaudited)
|
|
|
977,276
|
|
|
$
|
0.28
|
|
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 2009
(Unaudited)
Warrants Outstanding
|
|
Warrants Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
Range of
exercise price
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (in years)
|
|
Weighted
Average
Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
$0.28
|
|
977,276
|
|
1.29 years
|
|
$0.28
|
|
977,276
|
|
$0.28
|
At May
31, 2009 and August 31, 2008, the total intrinsic value of warrants outstanding
and exercisable was $0 and $0, respectively.
(C)
Stock Options
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 28, 2009, the
Company has granted options for 661,000 shares and has had cancellations of
175,000 option shares under the Plan. As of May 31, 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)
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
661,000
|
|
|
|
0.20
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(150,000
|
)
|
|
$
|
0.20
|
|
Outstanding
– August 31, 2008 (audited)
|
|
|
511,000
|
|
|
$
|
0.20
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(125,000
|
)
|
|
$
|
0.20
|
|
Outstanding
– May 31, 2009 (unaudited)
|
|
|
386,000
|
|
|
$
|
0.20
|
|
Exercisable
– May 31, 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 exercisable at May 31,
2009
|
|
$
|
79,000
|
|
|
$
|
0.20
|
|
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 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
|
|
8.83
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
|
|
8.83
years
|
|
$
|
0.20
|
|
At May
31, 2009 and August 31, 2008, the total intrinsic value of options outstanding
and exercisable was $0 and $0, respectively.
The
following summarizes the activity of the Company’s stock options that have 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)
|
|
|
-
|
|
|
$
|
-
|
|
Total
unrecognized share-based compensation expense from non-vested stock options at
May 31, 2009 was $0.
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 2009
(Unaudited)
(D)
Convertible Preferred Stock
The
Company’s outstanding Series A, cumulative convertible preferred stock has the
following provisions, rights and preferences:
|
a.
|
Cash
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
unpaid dividends are payable out of funds legally available on any of the
following dates: (i) date of a liquidation event, or (ii) upon conversion
of the underlying convertible preferred stock. During 2009, the Company
did not have sufficient funds to repay 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 and nine months ended May 31, 2009, the Company accrued
dividends on its preferred stock of $59,917 and $179,751, 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.
|
|
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.
|
|
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
of Position 94-6,
Disclosure
of Certain Significant Risks and Uncertainties
, addresses corporate
vulnerability to concentrations.
Customer
|
|
May 31, 2009
|
|
|
August 31, 2008
|
|
A
|
|
|
10
|
%
|
|
|
86
|
%
|
Customer
|
|
May 31, 2009
|
|
|
May 31, 2008
|
|
A
|
|
|
37
|
%
|
|
|
12
|
%
|
B
|
|
|
-
|
|
|
|
23
|
%
|
C
|
|
|
12
|
%
|
|
|
-
|
|
SheerVision,
Inc. and Subsidiary
Notes
to Consolidated Financial Statements
May
31, 2009
(Unaudited)
Vendor
|
|
May 31, 2009
|
|
|
May 31, 2008
|
|
A
|
|
|
23
|
%
|
|
|
25
|
%
|
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
3, 2009, the term of the Company’s line of credit with an unrelated shareholder
in the principal amount of $75,000 was extended through September 19,
2009. In connection with the extension of the line of credit, the
Company agreed that the lender would have an additional option to receive a
warrant exercisable for 75,000 shares of the Company’s common stock at an
exercise price of $0.075 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.
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 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 31, 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 markets, and a commitment to new product development. Worldwide sales are
achieved by sales into direct and indirect sales channels, and by strategic
alliances with dental and medical partners. Exclusive partnerships with Asian
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. With momentum from sales
generated from this major strategic alliance, we initiated a fundamental shift
in our marketing strategy, focusing primarily on indirect domestic and
international sales. In addition to the expected effect this change has had on
our business, we believe that it has helped minimize our exposure to, and impact
of, the current economic challenges currently facing other companies and
industries.
We have
also looked to develop new distributor relationships through the launch of 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.
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.
SheerVision
loupes and our Infinity Ultra head light system have received multiple
endorsements by a highly acclaimed and prestigious leading independent
non-profit dental education and product testing foundation. Our Infinity Ultra
head light system was recently named by this foundation as having the highest
light intensity compared to other leading brands in the dental
marketplace.
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
of Financial Accounting Standards (SFAS):
SFAS
157,
Fair Value
Measurements
— defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements.
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.
SFAS
162,
The Hierarchy of
Generally Accepted Accounting Principles
— FAS 162 is effective
60 days following the SEC’s approval of the Public Company Accounting
Oversight Board Auditing amendments to AU Section, 411
The Meaning of “Present
Fairly in Conformity with Generally Accepted Accounting Principles"
. The
statement is intended to improve financial reporting by identifying a consistent
hierarchy for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with U.S. Generally Accepted
Accounting Principles (GAAP).
FASB
Staff Positions (FSP):
FSP FAS
142-3,
Determination of the
Useful Life of Intangible Assets
— 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.
FSP FAS
157-1,
Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13
— amends FASB Statement No.
157, Fair Value Measurements.
FSP FAS
157-2,
Effective Date of FASB
Statement No. 157
— delays the effective date of FASB Statement No. 157,
Fair Value Measurements.
FSP EITF
03-6-1,
Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.
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
|
|
|
(in
thousands)
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
2,885
|
|
|
|
100.0
|
%
|
|
$
|
3,071
|
|
|
|
100.0
|
%
|
Cost
of Goods Sold
|
|
|
1,090
|
|
|
|
37.8
|
%
|
|
|
1,068
|
|
|
|
34.7
|
%
|
Gross
Profit
|
|
|
1,795
|
|
|
|
62.2
|
%
|
|
|
2,003
|
|
|
|
65.2
|
%
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping
Expenses
|
|
|
105
|
|
|
|
3.6
|
%
|
|
|
122
|
|
|
|
4.0
|
%
|
Selling
Expenses
|
|
|
746
|
|
|
|
25.9
|
%
|
|
|
802
|
|
|
|
26.1
|
%
|
General
& Administrative Exp
|
|
|
1,035
|
|
|
|
35.9
|
%
|
|
|
1,239
|
|
|
|
40.3
|
%
|
Product
Development Expenses
|
|
|
19
|
|
|
|
1.0
|
%
|
|
|
66
|
|
|
|
2.1
|
%
|
Total
Operating Expenses
|
|
|
1,905
|
|
|
|
66.0
|
%
|
|
|
2,229
|
|
|
|
72.6
|
%
|
Income
(Loss) from Operations
|
|
|
(110
|
)
|
|
|
(3.8
|
)%
|
|
|
(226
|
)
|
|
|
(7.4
|
)%
|
Other
Income (Expense)
|
|
|
120
|
|
|
|
4.2
|
%
|
|
|
2
|
|
|
|
0.1
|
%
|
Provision
for Income Tax
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
%
|
Net
Income (Loss)
|
|
$
|
8
|
|
|
|
-
|
%
|
|
$
|
(226
|
)
|
|
|
(7.4
|
)%
|
Third
quarter of fiscal year 2009 revenues overall were lower than during the
corresponding period of fiscal year 2008 due to a temporary pause in orders
from our largest single customer while they reduced inventory levels
company-wide to cope with the generally poor international economic conditions.
Fortunately, demand for the new lighting systems and loupe sales through other
channels are tracking at or above prior year levels. Management recognizes
that the new concentration from one large strategic partner can represent risk
as well as opportunity to broaden distribution channels. Consequently,
management is working aggressively to diversity its distribution channels even
further using more domestic and international outlets for its
products.
While
cost containment efforts dramatically reduced the impact of our largest
customer’s inventory adjustments, we did report a net loss of $62,492 for the
third quarter, although we also continued to be marginally profitable for the
first nine months of 2009 with net income of $8,269.
We plan
to continue reducing operating costs and streamlining our sales and marketing
efforts. As we focus more heavily on distributor relationships to
generate sales, the exposure to escalating costs in sales and travel related
expenses in the domestic retail market is being mitigated. Through large orders
from a growing number of distributors, we anticipate that these efforts will
continue to improve the operating income in future quarters.
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 $185,622 or 6.0%, from $3,070,877 for the nine months ended May 31,
2008 to $2,885,255 for the nine months ended May 31, 2009. The reduction of
sales in the nine months ended May 31, 2009 was due to a decrease during the
third quarter of 2009 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 $207,808 or 10.4%, from $2,003,121 for the nine months ended
May 31, 2008 to $1,795,313 for the nine months ended May 31, 2009. Gross margin
was 62% of net sales for the nine-month period ended May 31, 2009 compared to
65% of net sales for the nine-month period ended May 31, 2008. The decrease in
margin was attributable to inventory adjustments during the second and third
quarters of 2009. 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
$323,998, or 14.5%, to $1,904,809 for the nine months ended May 31, 2009 as
compared to $2,228,807 for the nine 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 by $17,429 or 14.3% to $104,437 or 3.6% of net sales for the
nine months ended May 31, 2009 as compared to $121,866 or 4.0% of net sales for
the nine months ended May 31, 2008 attributable to decreased sales during the
third quarter of 2009.
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 months ended May 31, 2009 decreased by $116,190 or 51.5%
to $109,496 as compared to $225,686 for the nine months 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 nine months ended May 31, 2009 was $7,083 as compared to $0 in
interest expense for the nine months 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. In addition, during the
second quarter of 2009 we received a one-time payment of $126,797 for an
insurance settlement arising out of a claim filed by us partially reimbursing
legal expenses incurred in the defense of a competitor lawsuit.
Net
Income (Loss)
Net
income for the nine months ended May 31, 2009 was $8,269 compared with a net
loss of $225,719 for the nine months ended May 31, 2008. Earnings per share was
$0.01 for the nine months ended May 31, 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 31, 2009, we had cash of
$88,772.
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 31, 2009, we had an accumulated deficit of $5,400,226 and
negative working capital of $560,288. These factors, among others,
raise doubt about our ability to continue as a going concern. In response to
these problems, the Company is expanding its revenue base beyond direct sales to
OEM and third party sales, aggressively signing up new international
distributors through our International Distributor Program, seeking third party
financing and cutting operating costs.
Net cash
provided by operating activities was $81,073 for the nine months ended May 31,
2009 as compared with net cash used in operating activities of $197,764 for the
nine months ended and May 31, 2008. The improvement in operating cash flows
was a direct result of our strategic shift from selling directly to end users to
indirectly through international distributors, OEM and third party
relationships. Utilization of our partner resources to market and sell our
products allowed for the reduction in internal sales and marketing
expenditures.
Net cash
used in investing activities during the nine months ended May 31, 2009 and May
31, 2008 was $29,188 and $53,319, respectively. These expenditures were mainly
related to the purchase of capital equipment.
Net cash
used in financing activities during the nine months ended May 31, 2009 was
$75,000 and net cash provided by financing activities during the nine months
ended May 31, 2008 was $150,000, respectively.
Contractual
Obligations
We lease
space under a non-cancellable lease expiring December 1, 2010. The lease
obligation based on minimum monthly rents is expected to be as
follows:
Fiscal
Years Ended
|
|
|
|
2009
|
|
|
13,449
|
|
2010
|
|
|
56,657
|
|
|
|
$
|
70,106
|
|
Rent
expense for the nine months ended May 31, 2009 and May 31, 2008 was $40,347, and
$39,015, 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.
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
$0.075 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 5.02 - 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.
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.
|
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
|
|
Dated:
July 15, 2009
|
|
|
|
|
|
|
/s/
Suzanne Lewsadder
|
|
|
Suzanne
Lewsadder,
|
|
|
Chief
Executive Officer
|
|
|
|
|
Date:
July 15, 2009
|
/s/
Patrick Adams
|
|
|
Patrick
Adams,
|
|
|
Chief
Financial Officer
|
|
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