UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(MARK
ONE)
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR
THE FISCAL YEAR ENDED - AUGUST 31, 2008
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR
THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION
FILE NUMBER 000-27629
SHEERVISION
INC.
(Name
of small business issuer in its charter)
|
Delaware
(State
or other jurisdiction of incorporation or organization)
|
23-2426437
(I.R.S.
Employer Identification No.)
|
|
|
|
|
4030
Palos Verdes Drive North
Suite
104
Rolling
Hills Estates, California
(Address
of principal executive offices)
|
90274
(Zip
Code)
|
|
Issuer’s
telephone number:
|
(310)
265-8918
|
|
Securities
registered pursuant to Section 12(b) of the Act:
|
None
|
|
Name
of Exchange on which registered:
|
|
|
Securities
registered pursuant to Section 12(g) of the Act:
|
Common
Stock, par value $0.001 per share
|
|
Name
of exchange on which registered:
|
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
x
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that issuer was required to
file
such reports) and (2) has been subject to such filing requirements for at least
the past 90 days. Yes
x
No
o
Indicate
by check mark if there is no disclosure of delinquent filers in response to
Item
405 of Regulation S-B contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
x
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 issuer is a shell company (as defined in Rule 12b-2
of
the Act). Yes
o
No
x
As
of February 29, 2008, the aggregate market value of the voting and non-voting
common equity held by non-affiliates (3,499,387 shares) was approximately
$699,877 (based upon the closing price of $0.20 per share of common stock on
February 29, 2008).
As
of November 17, 2008, the registrant had 12,735,190 outstanding shares of common
stock, par value $0.001 per share.
Table
of Contents
Form
10-K Index
|
Item
1. Description of Business
|
3
|
|
Item
1A. Risk Factors
|
9
|
|
Item
1B. Unresolved Staff Comments
|
|
|
Item
2. Description of Property
|
13
|
|
Item
3. Legal Proceedings
|
13
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
13
|
|
Item
5. Market for Registrant's Common Equity and Related Stockholder
Matters
|
14
|
|
Item
6. Selected Financial Data
|
15
|
|
Item
7. Management’s Discussion and Analysis of Financial Condition and Results
of Operation
|
15
|
|
Item
7A.
Quantitative
and Qualitative Disclosures about Market Risk
|
22
|
|
Item
8. Financial Statements and Supplementary Data
|
22
|
|
Item
9. Changes in and Disagreements with Accountants on Accounting
And
Financial Disclosure
|
22
|
|
Item
9A. Controls and Procedures
|
22
|
|
Item
9B. Other Information
|
23
|
|
Item
10. Directors, Executive Officers and Corporate Governance
|
24
|
|
Item
11. Executive Compensation
|
27
|
|
Item
12.Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
|
30
|
|
Item
13. Certain Relationships and Related Transactions
|
31
|
|
Item
14. Principal Accountant Fees and Services
|
31
|
|
Item
15. Exhibits, Financial Statement Schedules
|
32
|
PART
I
SPECIAL
NOTE REGARDING FORWARD LOOKING
STATEMENTS
This
Annual Report on Form 10-K (including the section regarding Management's
Discussion and Analysis of Financial Condition and Results of Operations)
contains forward-looking statements regarding our business, financial condition,
results of operations and prospects. Words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or
variations of such words are intended to identify forward-looking statements,
but are not deemed to represent an all-inclusive means of identifying
forward-looking statements as denoted in this Annual Report on Form 10-K.
Additionally, statements concerning future matters are forward-looking
statements.
Although
forward-looking statements in this Annual Report on Form 10-K reflect the good
faith judgment of our management, such statements can only be based on facts
and
factors currently known by us. Consequently, forward-looking statements are
inherently subject to risks and uncertainties and actual results and outcomes
may differ materially from the results and outcomes discussed in or anticipated
by the forward-looking statements. Factors that could cause or contribute to
such differences in results and outcomes include, without limitation, those
specifically addressed under the heading “
Risks
Related to Our Business
”
below,
as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers
are urged not to place undue reliance on these forward-looking statements,
which
speak only as of the date of this Annual Report on Form 10-K. We file reports
with the Securities and Exchange Commission (the “
SEC
”
or
“
Commission
”).
We
make available on our website under “Investors/Financial Info/SEC Filings,” free
of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports as soon as
reasonably practicable after we electronically file such materials with or
furnish them to the SEC. Our website address is www.sheervision.com. You can
also read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain
additional information about the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet
site (www.sec.gov) that contains reports, proxy and information statements,
and
other information regarding issuers that file electronically with the SEC,
including us.
We
undertake no obligation to revise or update any forward-looking statements
in
order to reflect any event or circumstance that may arise after the date of
this
Annual Report on Form 10-K. Readers are urged to carefully review and consider
the various disclosures made throughout the entirety of this Annual Report,
which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations and
prospects.
As
used
in this Annual Report, the terms “
we
”,
“
us
”,
“
our
”,
and
“
SheerVision
”
mean
SheerVision, Inc., a Delaware corporation and our subsidiary SheerVision, Inc.,
a California corporation, unless otherwise indicated.
All
dollar amounts refer to US dollars, unless otherwise indicated.
ITEM
1. DESCRIPTION OF BUSINESS
General
We
design, manufacture, market, and sell proprietary surgical loupes and headlight
systems to the dental, medical, and veterinary markets throughout the world.
Through our exclusive arrangements with component manufacturers based in Asia
and, in combination with our U.S. assembly and testing facilities, we can
provide top quality loupes and headlight systems through alliances with sales
partners and directly to end-users with significant advantages over our
competitors. We are now recognized as one of the leading brand-names within
our
core markets, and we believe we offer a solution to the end-user
better than or equal to our competitors.
Since
our inception in 1999, we have rapidly established a significant base of
operations characterized by an entrepreneurial sprit, steady sales growth,
the
deployment of a top-notch dedicated sales force, the implementation of a
strategic branding program, the initiation of an aggressive web presence through
the introduction of an e-commerce online storefront and a continued focus on
new
product development efforts. We believe that we are poised for continued growth
due to the launch of several new product lines during 2008 and through the
development of several strategic sales alliances. By offering a choice of
flip-up or through-the-lens surgical loupes, class-leading headlights, or a
package of both, we are able to sell to a greater proportion of the market,
and
to also offer a better and more complete solution to our customers.
We
pride ourselves on listening to customer needs within our core markets, and
then
being responsive and aggressive in the development of new product designs.
This
interactive process has established us as a trailblazer in a previously stagnant
industry. With our
FireFly
Infinity Ultra™ LED
and
Original FireFly™ LED portable head light systems, SheerVision is now recognized
as the “first to market” leader in the dental illumination industry. We continue
to raise the bar, placing our competitors in the undesirable position of
imitation as opposed to innovation.
Growth
Strategy
Our
objective is to become the leading provider and global marketer of high quality
loupes, light systems and related products and services for the dental, medical,
and veterinary markets. In order to achieve this objective, we have developed
and continue to pursue the following strategies:
|
·
|
Launch
an Aggressive Initiative to Develop Strong Domestic Sales
Alliances
|
During
the last fiscal year we launched two successful domestic alliances, which have
allowed us to grow our sales by leveraging the dedicated sales forces of two
major dental firms. Going forward we plan on continuing to build new alliances
in domestic markets with a major portion of our resources dedicated towards
this
goal. The introduction of our line of FireFly head lights has provided us an
additional advantage to pursue strategic alliances within the United States
as
these systems are able
to mount on any of our competitors’ loupes currently sold in the US dental and
surgical markets. This flexible mounting ability opens up a potentially
lucrative domestic market to potential partners.
|
·
|
Build
Upon Sales Momentum in OEM
Markets
|
A
benefit of our research and development efforts has been the creation of
innovative products which benefit companies in complementary markets as either
stand-alone products or as part of larger systems. These products would be
sold
under our
customers’
brand names in each of these applications as either unaltered or customized
designs. With the sophisticated design and engineering teams currently available
to us, we have the ability to extend our design, engineering, and manufacturing
capabilities to other companies seeking assistance in their new product
development efforts. We anticipate a major focus of our efforts will be to
seek
and form relationships with new OEM partners in both domestic and international
markets that can benefit from
the technologies we have developed.
|
·
|
Continue
to Foster Direct to End-User
Sales
|
We
expect to continue to build upon the direct relationships that we have built
up
with our core group of end users, along with the growth through direct
marketing, online marketing, and direct sales efforts. We also expect tradeshows
will continue to be a key driver of direct sales in several key market segments.
We also benefit by receiving direct feedback from our end-user customer base
at
these shows that is used for our new product development efforts. We expect
to also be using targeted direct-mail efforts to sell directly to specific
user
groups. The eCommerce-powered web store has also provided us with a
cost-effective platform to sell products and to communicate with prospective
and
current customers. We also anticipate that online revenues will continue to
be a
significant portion of our direct sales, as marketing and technical initiatives
are implemented in order to increase site visitor traffic and to encourage
online purchases.
|
·
|
Expansion
of Market Share in International
Markets
|
We
have experienced significant acceptance of our branded products in the
international marketplace. International distributors are being attracted to
us
and we are in a position to offer a wide assortment of innovative products
which
can be resold at strong margins while still offering the end-user a competitive
price. Strategic sales alliances with international partners provide us with
a
method that has the potential to grow rapidly in a highly cost-effective manner.
We
have developed a program to rapidly qualify and support international
distribution partners who will sell SheerVision-branded products, using a
turnkey approach referred to as the International Distributor Program
(“
IDP
”).
The IDP provides sales, marketing, and training tools to enable us to expand
our
distributor base worldwide. We believe that our innovative new products align
well with the needs of many international markets that we do not currently
directly or indirectly service. We
also
entered into a sales partnership agreement with a global detailer of quality
dental and medical products. The intention of this new partnership is to
increase the sales of the FireFly Infinity Ultra™ LED Head Light system
globally, which should further strengthen SheerVision’s overall financial
performance. We also
participate in international dental trade shows, which provide us a forum to
both solicit new strategic alliances and introduce new products to existing
sales partners. We expect to expand our sales network, which in turn is expected
to produce significant sales growth.
|
·
|
Expansion
of our Product Lines to Achieve our Goal of Becoming a Full Service
Optical and Illumination
Company
|
We
launched our upgraded FireFly Infinity™ head light system (since renamed
the
FireFly
Infinity Ultra™ LED
)
during fiscal year 2008 which is powered by a new Lithium Polymer
battery pack. The new microprocessor-controlled battery pack is
smaller,
lighter, durable, safer, and allows for 25-50% longer use between charges.
This
light was rated as a top performer by one of the most prestigious non-profit,
independent dental labs in the country. The FireFly Infinity Ultra™ LED based
head light system provides us with a significant technological innovation that
increases our lead over our competitors. The system provides a light beam with
almost three times the intensity
of our Original FireFly™ LED and compares very favorably against tethered fiber
optic lighting systems. Since the introduction of our new head light system,
sales for the new
FireFly
Infinity Ultra™ LED
light have comprised a significant portion of our total sales. These strong
sales continue to validate our research and development efforts focusing on
introducing new and innovative, Market-driven products.
In
addition, during this fiscal year we introduced to the market many new loupe
designs. The Signature Prism Loupes provide 4.0x and 5.0x levels of
magnification and are used by professionals for several specific types of
medical procedures. These high-magnification loupes (4.0x & 5.0x) will allow
us greater penetration in several dental and surgical market segments. SureFit
TTL™ loupes are a type of loupe which is commonly used by many surgical and
dental professionals were also introduced. Since its introduction, SheerVision
can now offer its state of the art TTL technology to complement our award
winning flip-up design. The new proprietary SureFit alignment system also
enables customers to order our TTLs through our sales partners and also our
online store, providing a significant competitive advantage. We also introduced
our latest sports-type frame design, which is branded as the “Del Rey”. It is a
fashionable frame design for mounting both Flip-Up and TTL loupes that is
available in six vibrant colors, and is available for sale with two designer
loupe carrying cases.
We
continue to invest in the development of new loupe designs in order to create
industry leadership in this key market segment. With the continued market
acceptance of these products and the addition of new products currently in
our
pipeline, management is encouraged with our progress towards the goal of
reaching profitability.
Our
Product Offering
Surgical
& Dental Loupes
Although
dental offices have used some form of magnification for decades, the need for
surgical loupes and light sources in the regular practice of everyday dentistry
is rapidly becoming the standard of practice for all dental professionals,
including dental hygienists. The visual aspects of magnification may appear
to
be the primary benefit, but there are significant ergonomic benefits to the
use
of surgical loupes. Many medical careers have been cut short due to the effects
of chronic neck and back pain, a condition that can be minimized or eliminated
through the use of surgical loupes.
Regular
magnifying glasses create a larger but flatter image and therefore do not give
the user any depth of field. To solve this problem, medical professionals use
special “loupes” that provide a three-dimensional image. These loupes are either
Galilean (compound) loupes, which range in price from $800 to $1,200 or
Panoramic (prism) loupes, which generally cost $1,200 to $1,800 a pair.
We
offer 2.5x, 3.0x, 3.5x, 4.0x and 5.0x magnification surgical loupes, as well
as
two ultra-lightweight models (2.5xx and 3.0xx) for added all-day comfort. The
ultra-light loupes are available in either a Flip-Up or “through-the-lens” (TTL)
design. All loupes can be mounted on either a light-weight titanium frame or
a
fashionable “Del Rey” sports frame available in six vibrant colors. Additional
designer carrying cases for the loupes are also available.
Light
Systems
As
surgical loupes allow the area under view greater magnification, they tend
to
require additional light or illumination. Illumination can be added to surgical
loupes via our head mount (headband), or direct mount to the frame of the loupe.
One of the key benefits of this type of illumination is to provide clinicians
with shadow-free images. With the introduction of a superior quality portable
LED light sources, SheerVision is able to provide a modern generation of
illumination products to practitioners that currently use magnification that
is
extremely bright and completely portable. SheerVision offers two portable head
light systems that are of great benefit to the user: the Original FireFly™ LED,
and the
FireFly
Infinity Ultra™ LED
Both
are available with the FireFly FlipFilter™, an accessory that is of great use to
dental professionals to prevent the accidental curing of dental composite
materials. Through our offering of loupes and headlight systems, we are often
able to sell a package of both to provide a complete and cost effective solution
to the user.
The
Advantages of Our Products and Services
SheerVision
surgical loupes are being used in private dental practices, clinical settings,
college campuses, and medical institutions throughout the United States. Our
surgical loupes are also endorsed by an independent non-profit dental education
and product testing foundation and were featured in the foundation's 2005
Buyer's Guide. Our surgical loupes were also featured in “Dental Lab Products”
2005 Buyer's Guide “Best of the Best” Offering as well as being listed in the
2006 edition of Dentistry Today’s Top 100 Products. Our Original FireFly™ LED
head light was endorsed as one of the Best Products for 2007 by an independent
non-profit dental education and product testing foundation.
Our
Through-the-Lens (TTL) technology has opened new markets where customers prefer
this type of loupe design. Estimated market preference for TTL loupes is 50%
compared with 50% for the Flip-Up type loupes that we have traditionally
offered. We can offer this state of the art TTL technology mounted in either
our
fashion sports frame or our designer titanium frame. With the introduction
of
our proprietary SureFit TTL™ alignment system, customers are now able to order
our TTL loupes through our online store or by telephone, providing us with
a
significant competitive advantage because an on-site sales call is not required
to complete the transaction.
Our
recently introduced Signature Prism Loupes are assisting us in opening new
markets for us with an introduction that began during the third and fourth
quarters of fiscal year 2007. This new product line has greatly expanded our
offering to the surgery marketplace beyond what we previously had in place.
This
introduction has helped us bring our distinctive business model to this large,
established market.
The
SheerVision Del Rey Frame provides a product advantage when compared with some
of our competitors who currently do not provide a similar alternative for their
loupe optics. This is a product for the young, fashion conscious user, as it
features a wrap-around design that is available in six vibrant colors and
accommodating both the Flip-Up and TTL loupes. Both of our FireFly light systems
fit to this frame. Several major competitors appear to have been forced into
launching sport-type frame designs during fiscal year 2007 as a response to
our
introduction of our predecessor to the Del Rey Frame. Many of these competitors
have chosen to purchase a major-brand sunglass-type frame, which puts them
at a
considerable cost disadvantage when compared with the SheerVision Del Rey
Frame.
We
believe that the key selling points of SheerVision surgical loupes are brand
name and reputation, high quality, competitive price, and attentive customer
service. In addition, we offer an unlimited lifetime warranty against defects
in
materials and workmanship on all working parts of our loupes, a program
unmatched by any major surgical loupe supplier.
Our
FireFly line of light systems offers the latest in LED light projection
technologies designed as a completely portable product coupled with value
pricing. The
FireFly
Infinity Ultra™ LED
is
twice as bright as many headlights with 7,000+ foot candles of light and the
FireFly
Infinity Ultra™ LED
outperforms
many tethered fiber-optic lights without their high maintenance
costs.
In 2008,
we introduced our new Lithium Polymer battery pack for the FireFly Infinity™,
the most advanced battery technology for this application on the market.
Both
FireFly models can be mounted to the major brands of loupes currently in use,
and can also be mounted to a SheerVision headband.
The
Original FireFly™ LED received a rating as a top performer in the December 2007
issue of the highly regarded Clinical Research Associates (CRA) Newsletter.
Advantages of SheerVision’s headlight systems include shadow-free illumination,
superior light uniformity, class-leading beam intensity, portability, and all
day comfort at a great value over light sources based on fiber optic technology.
Sales
and Marketing
We
believe sales and marketing will continue to be important functions in order
to
continue our sales growth with both domestic and international customers.
As
part of our previous branding and marketing initiatives we believe that the
SheerVision brand is positioned among the top tier brands within the industry.
The SheerVision brand name has been reinforced by the publicity received by
becoming a publicly traded company, and through its direct mail and advertising
initiatives. On June 20, 2006 we were granted federal registration of the
trademark SheerVision® by the United States Patent and Trademark Office.
We
plan to continue the select, targeted use of direct mail, SEM, and trade
advertising campaigns to accelerate growth to our base of end-users that
purchase directly from us. We have also increased our library of marketing
materials to use in future direct and indirect marketing and sales efforts.
We
also increased our online marketing efforts in the areas of SEM and online
advertising. We believe that our online marketing program will allow us to
extend our reach into new markets beyond our traditional medical, dental, and
veterinary marketplaces in the United States.
The
launch of the International Distributor Program is intended to expand our
network of distributors operating in specific international markets. IDP
distributors purchase SheerVision surgical loupes and light systems and then
resell them using their local expertise in sales and marketing. In order to
assist them with their sales efforts, we have developed a marketing program
to
support our international partners, which includes the use of advertising,
sales
collateral and sales training materials.
OEM
Operations
In
addition to manufacturing and offering surgical loupes and head light systems
under our own brand name, we offer our products for major OEMs. During fiscal
year 2008, we added a significant new client in the medical market, and are
in
negotiations with several other major companies for OEM versions of our product
designs. We believe that offering our products on an OEM basis will help
SheerVision enter markets that it did not have previous access to, as well
as
the distribution of sunk R&D costs for those new product
designs.
Manufacturing
Our
contract manufacturers supply proprietary company-designed surgical loupe and
light system components on an exclusive basis. An inventory of loupes and light
systems is maintained at our offices in order to ensure rapid order processing
and fulfillment. Production capacity is adequate to support a level of sales
approximately twice the current level, and there are alternate sources of supply
of the raw materials needed to produce surgical loupes and light systems. We
believe that the quality of our products is a principal driver of purchasing
decisions, and our third party manufacturers are required to conduct rigorous
quality testing on a regular basis. We currently own and operate computer
controlled assembly equipment to build customized loupe/headlight products
and
have key personnel assigned to perform production staging, final unit assembly,
quality control, and shipping procedures.
Competition
The
surgical loupe and portable headlight market is characterized by a number of
participants, each dominant in one or more market segments. In each market
segment, we compete with established manufacturers of surgical loupes and other
specialty optical products, including Designs for Vision, Orascoptic (part
of
Danaher), and Surgitel. Due to our strategic investments in product development
and branding, we are now recognized as one of the leading brands in the market.
This was demonstrated as several major competitors appear to have been forced
into launching sports-type frame designs during fiscal year 2007 after the
introduction of our first sport frame design for loupes. Overall, we believe
that competition is principally based upon the following three key
areas:
|
·
|
Brand
reputation and loyalty;
|
|
·
|
Product
quality, support, and durability;
|
|
·
|
Surgical
& Dental Loupes Product Attributes
Including:
|
|
·
|
Magnification/Clarity
.
Top quality optics are critical in this
regard;
|
|
·
|
Field-of-View
.
A wide field of vision is better than a smaller
one;
|
|
·
|
Depth-of-Field
.
An extended depth of field is preferable;
and
|
|
·
|
Weight
.
Lighter loupes are generally preferable to heavier
loupes.
|
|
·
|
Portable
Headlight System Product Attributes
Including:
|
|
·
|
Portability
.
A portable light system allows for maximum movement and flexibility.
End
users are no longer tethered to a light
box;
|
|
·
|
LED.
A portable light source with an LED bulb is the brightest, whitest
light
on the market. It is also economical in that it eliminates bulb
replacement common with fiber optic light
sources;
|
|
·
|
Lightweight.
A good portable light should have a small, lightweight battery pack
and
the headlight should be sleek and worn seamlessly
;
|
|
·
|
Value.
Price combined with quality is a driver of brand choice in the
marketplace; and
|
|
·
|
Mounting
Options.
The light source should mount on either a headband or directly to
the
loupes. The unit should be able to be mounted onto loupes from all
major
competing manufacturers to appeal to the widest possible user
base.
|
We
believe that we compete favorably in the dental, dental hygiene, surgical,
and
veterinary markets on the basis of these criteria and are rapidly expanding
our
products in other markets as well.
We
have a number of valuable trade secrets that have demonstrated their
effectiveness as significant barriers to competition. They relate to products,
proprietary manufacturing processes, and sales and marketing techniques. We
are
evaluating the possibility of filing patent applications for components and/or
products under development.
Research
and Development
We
are committed to an ongoing program of research and development to maintain
our
reputation for cutting-edge products that meet the evolving needs of the market.
We conduct research and development activities to design and develop products
that will enhance our competitive marketing position. Our newly developed
products include a fully portable LED light system, a lithium-polymer battery
source, a non-curing flip filter, a through-the-lens loupe, a high-magnification
prism loupe, a wrap around sports frame, and fashionable loupe accessories.
The
Original FireFly™ LED and
FireFly
Infinity Ultra™ LED
light
systems have become best sellers in the dental market and contributed
significantly to our rapid expansion into that market niche during fiscal year
2008.
We
have also forged a strategic alliance with a domestic company which provides
us
advanced product design and manufacturing development. This alliance, which
we
anticipate continuing into the foreseeable future, enables us to design and
bring to market new products and enhancements to existing product lines
rapidly.
During
fiscal year ended 2008, we spent $99,276 on research and development and during
fiscal year ended 2007, we spent $29,523 on research and
development.
Government
Regulation
Our
products are classified as Class I Non-Invasive Medical Devices and, as such,
there is no requirement to obtain FDA approval. We have nonetheless registered
with the FDA on a voluntary basis and have CE certifications for international
sales.
Employees
As
of October 31, 2008, we employed 14 individuals and engaged the services of
several consultants. Of our employees, 6 were engaged in sales and marketing,
2
in customer service/inside sales, 4 in quality control and production, and
2 in
executive/administrative functions.
Background
We
were
incorporated as “Escalator, Inc.” on April 17, 1986. On June 3, 1986, Lone Pine
Resources, Inc. was merged with us through a reverse merger whereby the
shareholders of Lone Pine Resources, Inc. received an equal number of shares
in
Escalator, Inc. Lone Pine Resources, Inc. was incorporated under the laws of
Utah on June 23, 1983.
In
the
past, we conducted operations through three wholly-owned subsidiaries, Escalator
Securities, Inc., Escalator Investments, Inc., and Frank Communications Corp.,
each a Pennsylvania corporation. Escalator Investments, Inc. was incorporated
in
the State of Pennsylvania on August 15, 1984 and conducted financial planning
activities through approximately 1992 as a Registered Investment Advisor under
the Investment Advisors Act of 1940. Since 1992, Escalator Investments, Inc.
has
had no operations. Escalator Securities, Inc. was incorporated in the State
of
Pennsylvania on August 22, 1985, and conducted business as a registered
broker-dealer under the Securities Exchange Act of 1934, as amended, and the
Pennsylvania Securities Act of 1972 until 1997. On December 31, 1997, Escalator
Securities, Inc. was closed by the NASD. In July 1990, we acquired Frank
Communications Corp., a Pennsylvania corporation incorporated on May 30, 1989,
which was in the business of financial public relations. In consideration of
this acquisition, we paid $1,000. Frank Communications Corp. has no operations.
On June 30, 1997, we transferred our holdings in Escalator Securities, Inc.
to
Escalator Investments, Inc. pursuant to the terms of an Agreement and Plan
of
Spinoff. The shareholders of Escalator, Inc. received all of the outstanding
stock of Escalator Investments, Inc. and Escalator Securities, Inc., which
then
ceased being our wholly-owned subsidiaries.
On
April
22, 1998, we changed our name to Nu Electric Corporation. On June 30, 1999,
we
acquired Clean Water Technologies, Inc. (“
Clean
Water
”),
a
Florida corporation, through an agreement and plan of merger whereby all of
the
outstanding and issued shares of Clean Water were exchanged for shares of Nu
Electric. Pursuant to this agreement, we acquired all of the assets of the
business of Clean Water. On September 21, 2000, we acquired Zorax, Inc.
(“
Zorax
”),
a
Florida corporation, through an agreement and plan of merger whereby all of
the
issued and outstanding shares of Zorax were exchanged for shares of Nu Electric.
Pursuant to this agreement, we acquired all of the assets of Zorax. On April
4,
2005, we eliminated our Zorax subsidiary.
On
April
2, 2002, we changed our name to Clean Water Technologies, Inc.
On
March
27, 2006, we entered into a Share Exchange and Reorganization Agreement (the
“
Exchange
Agreement
”)
with
SheerVision, Inc., a California corporation (including its predecessor,
“
Sheervision-CA
”)
and
Suzanne Lewsadder and Jeffrey Lewsadder, our Chief Executive Officer and
President, respectively, and the beneficial holders of all of the outstanding
capital stock of SheerVision-CA, which set forth the terms and conditions of
our
business combination with SheerVision-CA in which all shareholders of
SheerVision-CA exchanged all of the outstanding and issued capital stock of
SheerVision-CA for an aggregate of 9,525,137 shares of our common stock,
representing 95% of the outstanding common stock immediately after giving effect
to such transaction. As a result of this transaction, SheerVision-CA became
our
wholly-owned subsidiary and the shareholders of SheerVision-CA became our
controlling stockholders. On June 15, 2006, we changed our name to SheerVision,
Inc.
We
have
not been a party to any bankruptcy, receivership or similar proceeding. Since
such date, except as described herein, we have not been involved in any material
reclassification, merger, consolidation, purchase or sale of a significant
amount of assets not in the ordinary course of business.
ITEM
1A. RISK FACTORS
Our
business, prospects, financial condition, and results of operations may be
materially and adversely affected due to any of the following risks. The trading
of our common stock could decline due to any of these risks. Some of the
statements in “Risk Factors” are forward looking statements. See “
Special
Note Regarding Forward Looking Statements
.”
Risks
Related To Our Business
Our
accountants have raised substantial doubt with respect to our ability to
continue as a going concern.
We
had
negative cash flow from operations of $245,569, negative working capital of
$411,318 and an accumulated deficit of $5,228,744 at August 31, 2008, and
recurring losses from operations.
The
audit
report of Miller, Ellin & Company, LLP for the fiscal year ended August 31,
2008 contained a paragraph that emphasizes the substantial doubt as to our
continuance as a going concern. This is a significant risk to investors who
purchase shares of our common stock because there is an increased risk that
we
may not be able to generate and/or raise enough resources to remain operational
for an indefinite period of time.
If
we are unable to generate significant revenues from our operations, our business
will fail.
As
we pursue our business plan, we are incurring significant expenses. We incurred
operating expenses for the year ended August 31, 2008 in the amount of
$2,924,996 and had gross profit of $2,753,786 on sales of $4,417,887 for the
same period. We incurred operating expenses for the year ended August 31, 2007
in the amount of $3,829,941 and had gross profit of $2,914,851 on sales of
$4,351,907 for such period. The success and viability of our business is
contingent upon generating significant revenues from the sale of our surgical
loupes and related products such that we are able to pay our operating expenses
and operate our business at a profit. It is not possible at this time for us
to
predict with assurance the outcome of these matters. In the event that we remain
unable to generate significant revenues to pay our operating expenses, we will
not be able to achieve profitability or continue operations.
Our
ability to continue as a going concern may be dependent on raising additional
capital, which we may not be able to do on favorable terms, or at
all.
We
may need to raise additional capital to support our current operations and
fund
our sales and marketing and research and development programs. We can provide
no
assurance that additional funding will be available on a timely basis, on terms
acceptable to us, or at all. If we are unsuccessful raising additional funding,
our business may not continue as a going concern. Even if we do find additional
funding sources, we may be required to issue securities with greater rights
than
those currently possessed by holders of our common stock. We may also be
required to take other actions that may lessen the value of our common stock
or
dilute our common stockholders, including borrowing money on terms that are
not
favorable to us or issuing additional equity securities. If we experience
difficulties raising money in the future, our business and liquidity will be
materially adversely affected.
Because
we have a relatively short operating history and have implemented a shift in
our
business model, it is difficult to evaluate our future prospects and this
increases the risk of your investment.
Although
we were incorporated in April 1986, our operating subsidiary SheerVision-CA
commenced operations in 1999. SheerVision-CA has not been profitable since
it
became our operating subsidiary in 2006.
In
addition, during fiscal year ended 2008, we shifted the focus of our business
to
generating most of our revenues from OEMs, third parties and international
distributors. While management remains cautiously optimistic about its
prospects, the results of this shift require further evaluation. Accordingly,
you have a limited opportunity to evaluate our business and future prospects
because we have a limited operating history under our current business model.
There is no certainty that future operations will be profitable. There is a
risk
that we will be unable to develop a broad enough customer base to conduct enough
volume to pay our operating costs. A limited operating history requires frequent
evaluation to improve operations and/or remedy unforeseen difficulties that
may
occur. If we are unable to remedy unforeseen difficulties that materialize,
our
ability to achieve profitable operations could be impaired. An investor should
consider the risks, expenses and uncertainties of a company like ours that
has a
limited operating history. If we are unsuccessful in addressing these risks,
we
will likely be required to discontinue operations.
Our
financial results may fluctuate from period to period as a result of several
factors which could adversely affect our stock price.
Our
operating results may fluctuate significantly in the future as a result of
a
variety of factors, many of which are outside our control. Factors that will
affect our financial results include:
|
|
·
|
success
in implementing our shift in our business
model;
|
|
|
·
|
acceptance
of our products and market
penetration;
|
|
|
·
|
the
amount and timing of capital expenditures and other costs relating
to the
implementation of our business plan, including acquisitions of, and
investments in, competing or complementary
technologies;
|
|
|
·
|
the
introduction of new products by our
competitors;
|
|
|
·
|
pricing
changes in the surgical loupe and light systems manufacturing or
assembly
industries;
|
|
|
·
|
technical
difficulties with respect to the use of our
products;
|
|
|
·
|
regulatory
changes; and
|
|
|
·
|
general
economic conditions and economic conditions specific to our
industry.
|
As
a
strategic response to changes in the competitive environment, we may from time
to time make certain pricing, service, or marketing decisions or acquisitions
that could have a material adverse effect on our business, prospects, financial
condition, and results of operations.
We
are dependent upon third party suppliers of our raw materials.
We
are
dependent on outside vendors for our supplies of raw materials. While we believe
that there are numerous sources of supply available, if the third party
suppliers were to cease production or otherwise fail to supply us with quality
raw materials in sufficient quantities on a timely basis and we were unable
to
contract on acceptable terms for these services with alternative suppliers,
our
ability to produce our products would be materially adversely affected.
We
have limited manufacturing facilities and are largely dependent upon third
parties to manufacture our products.
We
have limited manufacturing facilities and expertise and have entered into
manufacturing arrangements with third parties to manufacture our products.
Accordingly, our ability to commercialize our products is partially dependent
on
our relationships with our third party contract manufacturers and their ability
to manufacture our products on a timely basis in accordance with our
specifications. While we believe that there are numerous other third party
manufacturers capable of manufacturing our products, should we not be able
to
continue to obtain contract manufacturing on commercially reasonable terms
with
our current suppliers, we may experience difficulty obtaining inventory rapidly
when needed.
Any
of
such events may materially, adversely affect our business, prospects, financial
condition, and results of operations.
We
are dependent on key members of management.
Our
performance is substantially dependent on our key executive officers - Suzanne
Lewsadder and Jeffrey Lewsadder, our Chief Executive Officer and President,
respectively - for sales and marketing, research and development, manufacturing,
and intellectual property protection and licensing. Although these officers
are
our major stockholders, there can be no assurance they will continue to serve
as
our officers or directors. The inability to retain and continue to attract
and
retain qualified management and staff could significantly delay and may prevent
the achievement of our research, development and business objectives, and could
have a material adverse effect on our business, prospects, financial conditions,
and results of operations.
The
industry in which we operate is highly competitive.
Numerous
well-known companies, which have substantially greater capital, research and
development capabilities and experience than we have, are presently engaged
in
the surgical loupe market. By virtue of having or introducing competitive
products on the market before us, these entities may gain a competitive
advantage. Future technological developments may render some or all of our
current or future products noncompetitive or obsolete, and we may not be able
to
make the enhancements to our products necessary to compete successfully with
newly emerging technologies. If we are unable to successfully compete in our
chosen markets, our business prospects, financial condition, and results of
operations would be materially adversely affected.
We
may, in the ordinary course of business, be subject to claims of infringement
of
third party intellectual property rights and we could suffer significant
litigation costs, licensing expenses or be prevented from selling our
products.
Intellectual
property rights are uncertain and involve complex legal and factual questions.
We may be unknowingly infringing upon the intellectual property rights of others
and may be liable for that infringement, which could result in significant
liability for us. If we do infringe upon the intellectual property rights of
others, we could be forced to either seek a license to those intellectual
property rights or alter our products so that they no longer infringe. A license
could be very expensive to obtain or may not be available at all. Similarly,
changing our products or processes to avoid infringing upon the rights of others
may be costly or impractical. Litigation or other proceedings could require
us
to spend significant time and money and could otherwise adversely affect our
business.
Our
failure to protect our intellectual property could have an adverse affect on
us.
We
rely on trademark and trade secrets to protect our intellectual property. We
cannot be sure that these intellectual property rights can be successfully
asserted in the future or will not be invalidated, circumvented, or challenged.
Our failure to protect our proprietary information and any successful
intellectual property challenges or infringement proceedings against us could
have a material adverse effect on our business, prospects, financial condition
and results of operations.
Our
failure to maintain and develop our brand names could adversely affect our
revenues.
We
believe that maintaining and developing our brand names, including the trademark
“
SheerVision
®”,
are
critical to our success. The importance of our name recognition may increase
as
our products gain market acceptance and as we enter additional markets. If
our
brand building strategy is unsuccessful, we may be unable to increase our future
revenues or expand our products and services. Such events would have a material
adverse effect on our business, prospects, financial condition and results
of
operations.
Any
inability by us to respond to changes in consumer demands in a timely manner
could materially adversely affect our business, prospects, financial condition,
and results of operations.
Our
success depends on our ability to identify, originate and define product trends
in our markets, as well as to anticipate, gauge and react to changing consumer
demands in a timely manner. Our products must appeal to a broad range of
consumers whose preferences cannot be predicted with certainty and are subject
to periodic change. We may not be able to meet changing consumer demands in
the
future. If we misjudge the market for our products, we may be faced with
significant excess inventories for some products and missed opportunities for
other products. Either of such events could have a material adverse effect
on
our business, prospects, financial condition, and results of
operations.
We
could experience losses due to u
nexpected
warranty expenses or service claims.
We
generally maintain a warranty reserve on our balance sheet for potential
warranty or service claims that could occur in the future. This reserve is
adjusted based on our ongoing operating experience with equipment and
installations. It is possible, perhaps due to bad supplier material that we
would have actual expenses substantially in excess of the reserves we maintain.
Our failure to accurately predict future warranty claims could result in
unexpected expense.
Risks
Related To Our Common Stock
Our
stock price may be volatile, which could result in substantial losses
for investors.
The
price of our common stock is quoted on the OTCBB and fluctuates significantly.
As a result of these fluctuations, it may make it difficult for you to sell
your
shares of common stock when you want or at prices you find attractive. These
fluctuations may result from a variety of factors, many of which are beyond
our
control. These factors include:
|
·
|
quarterly
variations in our operating
results;
|
|
·
|
operating
results that vary from the expectations of management, securities
analysts
and investors;
|
|
·
|
changes
in expectations as to our business, prospects, financial condition,
and
results of operations;
|
|
·
|
announcements
by us, our partners or our competitors regarding material
developments;
|
|
·
|
the
operating and securities price performance of other companies that
investors believe are comparable to
us;
|
|
·
|
future
sales of our equity or equity-related
securities;
|
|
·
|
changes
in general conditions in our industry and in the economy, the financial
markets and the domestic or international political
situation;
|
|
·
|
fluctuations
in oil and gas prices;
|
|
·
|
departures
of key personnel; and
|
|
·
|
regulatory
considerations.
|
In
addition, the stock market in general has recently experienced extreme price
and
volume fluctuations. This volatility has had a significant effect on the market
price of securities issued by many companies for reasons often unrelated to
their operating performance. These broad market fluctuations may adversely
affect our stock price, regardless of our operating results.
Future
sales of common stock or the issuance of securities senior to our common stock
or convertible into, or exchangeable or exercisable for, common stock could
adversely affect the trading price of our common stock and our ability to raise
funds in new equity offerings.
Future
sales of substantial amounts of our common stock or other equity-related
securities in the public market or privately, or the perception that such sales
could occur, could adversely affect prevailing trading prices of our common
stock and could impair our ability to raise capital through future offerings
of
equity or other equity-related securities. We can make no prediction as to
the
effect, if any, that future sales of shares of common stock or equity-related
securities, or the availability of shares of common stock for future sale,
will
have on the trading price of our common stock.
Our
common stock is deemed a “penny stock,” which may make it more difficult for
investors to sell their shares due to suitability
requirements.
The
SEC has adopted regulations that generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. The market price of our common stock is currently less
than $5.00 per share and therefore is a “penny stock” according to SEC rules.
This designation requires any broker or dealer selling these securities to
disclose certain information concerning the transaction, obtain a written
agreement from the purchaser and determine that the purchaser is reasonably
suitable to purchase the securities. These rules may restrict the ability of
brokers or dealers to sell our common stock and may affect the ability of
investors to sell their shares.
As
the ownership of our voting securities is concentrated in our founders,
executive officers, and directors, such individuals control us.
As
of October 31, 2008, Suzanne Lewsadder and Jeffrey Lewsadder, our Chief
Executive Officer and President, respectively, beneficially own approximately
72.4% of our outstanding common stock. Accordingly, these individuals will
be
able to elect our directors and control the outcome of virtually all important
stockholder decisions and may make such decisions in their own interest, which
may not be in the best interests of other stockholders.
We
do not expect to pay cash dividends on our common stock in the foreseeable
future.
We
have
not declared or paid any cash dividends on our common stock and do not expect
to
do so in the foreseeable future. As a result, investors may have to sell their
shares of our common stock to realize their investment. We currently intend
to
retain all future earnings for use in the operation of our business and to
fund
future growth. In addition, the terms of our Series A Preferred Stock limit
our
ability to pay dividends. If this prohibition were to be waived, our ability
to
pay future cash dividends on our common stock would depend upon our results
of
operations, financial condition, cash requirements, the availability of a
surplus and other factors.
We
are subject to anti-takeover provisions that could affect the price of our
common stock.
Some
provisions of our Second Amended and Restated Certificate of Incorporation,
as
amended, our by-laws, and laws of the State of Delaware could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to our stockholders.
We
are
subject to the provisions of Section 203 of the Delaware General Corporation
Law
(“
Section
203
”).
Section 203 provides, with certain exceptions, that a Delaware corporation
may
not engage in any of a broad range of business combinations with a person or
an
affiliate, or an associate of such person, who is an “interested stockholder”
for a period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the board
of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
such person an interested stockholder (excluding shares owned by persons who
are
both officers and directors of the corporation, and the shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by
the
corporation's board of directors and by the holders of at least 66-2/3% of
the
corporations outstanding voting stock at an annual or special meeting, excluding
the shares owned by the interested stockholder. Under Section 203, an
“interested stockholder” is defined as any person who is: (i) the owner of 15%
or more of the outstanding voting stock of the corporation or (ii) an affiliate
or associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A
corporation may, at its option, exclude itself from coverage of Section 203
by
amending its certificate of incorporation or bylaws, by action of its
stockholders, to exempt itself from coverage, provided that such certificate
of
incorporation amendment or bylaw shall not become effective until 12 months
after the date it is adopted. We have not adopted such an amendment to our
Second Amended and Restated Certificate of Incorporation, as amended, or
By-Laws.
In
addition, our Second Amended and Restated Certificate of Incorporation, as
amended, authorizes our board of directors to issue up to 10,000,000 shares
of
preferred stock, which may be issued in one or more series, the terms of which
may be determined at the time of issuance by the board without further action
by
stockholders, and may include voting rights (including the right to vote as
a
series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights and sinking fund provisions. The issuance
of
any such preferred stock could materially adversely affect the rights of holders
of shares of our common stock and, therefore, could reduce the price of our
common stock. In addition, specific rights granted to future holders of
preferred stock could be used to restrict our ability to merge with, or sell
our
assets to, a third party. The ability of our board of directors to issue
preferred stock could have the effect of rendering more difficult, delaying,
discouraging, preventing, or rendering more costly an acquisition or a change
in
control of us thereby preserving control of by the current controlling
stockholders.
ITEM
1B. UNRESOLVED STAFF COMMENTS
We
are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and
are
not required to provide the information required under this item.
ITEM
2. DESCRIPTION OF PROPERTY
Our
corporate office, customer service and shipping operations are located at 4030
Palos Verdes Drive North, Suite 104 Rolling Hills Estates, California, and
is
approximately 2090 square feet in size. We lease this facility from an
unaffiliated third party, pursuant to a lease which expires December 1, 2010.
Satellite operations are currently in the states of Arizona, California, and
Texas. If we should require additional or alternative facilities, we believe
that such facilities can be obtained on short notice at competitive
rates.
ITEM
3. LEGAL PROCEEDINGS
On
January 10, 2007, a complaint was filed in the United States District Court,
Central District of California, by Martin Hogan Pty, Ltd., which was brought
against the Company and our Chief Executive Officer and President. Plaintiff,
a
former supplier of frames of ours, alleged copyright and trade dress
infringement in its frames and sought damages as well as permanent injunctive
relief. On August 8, 2008, the parties entered into a settlement agreement
pursuant to which we paid the plaintiff $50,000 and agreed to cease the sale
of
our SV sport frame after August 31, 2008, with no admission of wrongdoing.
We
have since replaced our SV sport frame with our “Del Rey” frame. We do not
expect the terms of the settlement to have a material effect on our financial
condition or operations.
There
is no litigation pending or, to our knowledge, threatened litigation or
administrative action (including litigation or action involving our officers,
directors or other key personnel) which in our opinion has, or is expected
to
have, a material adverse effect upon our financial condition or
operations.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matters were submitted to a vote of our shareholders during the fourth quarter
of the fiscal year 2008.
PART
II
ITEM
5.
MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market
Information
Our
common stock is quoted on the OTC Bulletin Board (the "
OTCBB
")
under the symbol “SVSO.OB” The quarterly high and low reported sales prices for
our common stock as quoted on the OTCBB for the periods indicated are as
follows:
|
|
|
2008
|
|
2007
|
|
|
Fiscal
Year Ended August 31
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.52
|
|
$
|
0.12
|
|
$
|
1.10
|
|
$
|
0.25
|
|
|
Second
Quarter
|
|
|
0.74
|
|
|
0.12
|
|
|
0.99
|
|
|
0.30
|
|
|
Third
Quarter
|
|
|
0.40
|
|
|
0.15
|
|
|
1.01
|
|
|
0.30
|
|
|
Fourth
Quarter
|
|
|
0.44
|
|
|
0.18
|
|
|
0.62
|
|
|
0.25
|
|
The
foregoing quotations were provided by Yahoo finance and the quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not
represent actual transactions.
On
November 17, 2008, the last reported sale price per share of common stock as
quoted on the OTCBB was $0.06. Based on information available from our registrar
and transfer agent, we estimate that we had approximately 174 stockholders
of
record on October 31, 2008.
Dividends
Although
we have accrued dividends related to our Series A Preferred Stock, we have
not
paid any dividends to date and do not anticipate paying dividends in the
foreseeable future. Our board of directors will review our dividend policy
from
time to time to determine the desirability and feasibility of paying dividends
after giving consideration to our earnings, financial condition, capital
requirements and such other factors as our board may deem relevant.
Recent
Sales of Unregistered Securities
We
made
no sales of unregistered securities during the year ended August 31, 2008 that
were not otherwise reported in a Quarterly Report on Form 10-QSB or in a Current
Report on Form 8-K.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
We
did not purchase any of our shares of common stock or other securities during
the year ended August 31, 2008.
ITEM
6. SELECTED FINANCIAL DATA
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act
and
are not required to provide the information required under this
item.
ITEM
7.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with our audited
financial statements for each of the two years ended August 31, 2008 and 2007,
and the notes thereto, all of which financial statements are included elsewhere
in this Form 10-K. In addition to historical information, the following
discussion and other parts of this Form 10-K contain forward looking information
that involves risks and uncertainties. Actual results could differ materially
from those anticipated by such forward-looking information due to factors
discussed under “Description of Business” and elsewhere in this Form
10-K.
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 dedicated sales force,
strategic marketing programs, aggressive web presence, expansion into global
markets, and 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 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 to a wider audience in a rapid,
cost effective manner.
Our
first
major strategic alliance was with a large, international Japanese dental
company. With momentum from sales generated from this effort, we
initiated
a
fundamental shift in our marketing strategy, focusing primarily on indirect
domestic and international sales. In fiscal year 2008, we launched two domestic
alliances, allowing us to grow sales by effectively leveraging the dedicated
sales forces of these two large dental companies. In addition to the expected
effect this change has had on our business, we believe that it has minimized
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 fiscal year 2008, w
e
entered
into a sales partnership agreement with a global detailer of quality dental
and
medical products, and continue to be approached by a number of international
distributors. 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.
We
intend
to continue to commit resources to direct sales and marketing in a targeted,
more complimentary 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.
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. This revolutionary
light
system, which we believe employs the most advanced battery technology available
for this application, has been rated a top performer by one of the most
prestigious non-profit, independent dental labs in the country. 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. Continued success of these products, and
future success of products currently in our pipeline, validates and ensures
continued support of R&D efforts.
We
are
always evaluating small medical devices, in an ongoing effort to increase and
enhance our private label product line-up. 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.
Throughout
our recent history we have earned a reputation for 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 FireFly light system have also received an endorsement by a
highly acclaimed and prestigious leading independent non-profit dental education
and product testing foundation. Our Firefly light system is the only LED light
system to receive the coveted “Highly Rated” designation.
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:
Use
of Estimates
The
preparation of financial statements in conformity with accounting principals
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and
accompanying notes. Significant estimates and assumptions relate to estimates
of
collectability of accounts receivable, the realizability of deferred tax assets
and the adequacy of inventory reserves. Management bases its estimates and
assumptions on historical experience and on various other assumptions that
it
believes are reasonable under the circumstances. Actual results could differ
from those estimates.
Cash
and Cash Equuivalents
We
consider highly liquid investments with an original maturity of three months
or
less to be cash equivalents.
Cost
of Goods Sold
Cost
of
goods sold consists of costs of raw materials and finished goods purchased
from
several manufacturers. Factors affecting our cost of goods sold include, but
are
not limited to, currency fluctuations as they relate to our foreign
manufacturers and inflationary price increases.
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 raw materials and 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.
Concentration
of Credit Risk
We
maintain cash balances with various financial institutions, which at times
may
exceed the Federal Deposit Insurance Corporation limit. We have not experienced
any losses to date as a result of this policy and management believes that
there
is little risk of loss.
Basic
and Diluted Loss Per Share
In
accordance with the Financial Accounting Standards Board's (“
FASB
”)
SFAS
No. 128,
Earnings
Per Share,
the
basic loss per common share, which excludes dilution, is computed by dividing
the net loss available to common shareholders by the weighted average number
of
common shares outstanding. Diluted loss per common share reflects the potential
dilution that could occur if all potential common shares had been issued and
if
the additional common shares were dilutive.
Fair
Value of Financial Instruments
The
estimated fair values for financial instruments under SFAS No. 107,
Disclosures
about Fair Value of Financial Instruments
,
are
determined at discrete points in time based on relevant market information.
These estimates involve uncertainties and cannot be determined with precision.
For certain of our financial instruments, including certain assets, accounts
payable and accrued liabilities, the carrying amounts approximate fair value
due
to their short term nature.
Long
Lived Assets
Our
management evaluates the recoverability of our long-lived assets whenever events
or changes in circumstances indicate that their carrying amounts may not be
recoverable. Any impairment of value will be recognized as an expense in the
statement of operations.
Stock-Based
Compensation
In
conjunction with the adoption of our stock option plans on January 25,
2007
,
we began accounting for stock options under the provisions of Statement of
Financial Accounting Standards No. 123R,
Share-Based
Payment
(“
SFAS
123R
”).
SFAS 123R requires entities to recognize the cost of employee services received
in exchange for awards of equity instruments based on the grant-date fair value
of those awards. The fair value of stock options is estimated using a
Black-Scholes option valuation model. This model requires the input of
subjective assumptions, including expected stock price volatility, estimated
life and estimated forfeitures of each award. The fair value of equity-based
awards is amortized over the vesting period of the award, and we have elected
to
use the straight-line method.
Recently
Issued Accounting Pronouncements Not Yet Effective
The
following accounting pronouncements have been issued but were not effective
for
fiscal year ended August 31, 2008:
Statements
of Financial Accounting Standards (SFAS):
SFAS
141
(R),
Business
Combinations
—
retains
the fundamental requirements in Statement 141 that the acquisition method of
accounting (which Statement 141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination
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
160,
Noncontrolling
Interests in Consolidated Financial Statements
—
changes
the way the consolidated income statement is presented
FASB
Statement No. 161,
Disclosures
about Derivative Instruments and Hedging Activities - an Amendment of FASB
Statement 133
—
enhances required disclosures regarding derivatives and hedging
activities
SFAS
163,
Accounting
for Financial Guarantee Insurance Contracts
—
clarifies how FASB Statement No. 60, Accounting and Reporting by Insurance
Enterprises, applies to financial guarantee insurance contracts issued by
insurance enterprises, including the recognition and measurement of premium
revenue and claim liabilities
FASB
Staff Positions (FSP):
FSP
APB
14-1,
Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)
FSP
FAS
117-1,
Endowments
of Not-for-Profit Organizations: Net Asset Classification of Funds Subject
to an
Enacted Version of the Uniform Prudent Management of Institutional Funds Act,
and Enhanced Disclosures for All Endowment Funds
FSP
FAS
133-1 and FIN 45-4,
Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective
Date
of FASB Statement No. 161
—
amends
FASB Statement No. 133,
Accounting
for Derivative Instruments and Hedging Activities
FSP
FAS
140-3,
Accounting
for Transfers of Financial Assets and Repurchase Financing
Transactions
—
amends
FASB Statement 140
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
FIN
46(R)-7,
Application
of FASB Interpretation No. 46(R) to Investment Companies
FSP
SOP
94-3-1 and AAG HCO-1,
Omnibus
Changes to Consolidation and Equity Method Guidance for Not-for-Profit
Organizations
FSP
SOP
07-1-1, — indefinitely delays the effective date of AICPA Statement of Position
07-1,
Clarification
of the Scope of the Audit and Accounting Guide Investment Companies and
Accounting by Parent Companies and Equity Method Investors for Investments
in
Investment Companies
FSP
EITF
03-6-1, —
Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
EITF
Consensuses (EITF):
EITF
Issue No. 07-1,
Accounting
for Collaborative Arrangements
EITF
Issue No. 07-4,
Application
of the Two-Class Method under FASB Statement No. 128, Earnings per Share, to
Master Limited Partnerships
EITF
Issue No. 07-5,
Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own
Stock
EITF
Issue No. 08-3,
Accounting
by Lessees for Maintenance Deposits
EITF
Issue No. 08-5,
Issuer's
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement
EITF
Issue No. 08-6,
Equity
Method Investment Accounting Considerations
EITF
Issue No. 08-7,
Accounting
for Defensive Intangible Assets
EITF
Issue No. 08-8,
Accounting
for an Instrument (or an Embedded Feature) with a Settlement Amount That Is
Based on the Stock of an Entity's Consolidated Subsidiary
AICPA
Statements of Position (SOP):
SOP
07-01,
Clarification
of the Scope of the Audit and Accounting Guide Investment Companies and
Accounting by Parent Companies and Equity Method Investors for Investments
in
Investment Companies
We
do not believe that adoption of any of the above pronouncements that may apply
will have a material impact on our financial position or results of
operations.
Results
of Operations
The
following table sets forth selected financial information related to operations
for the periods indicated expressed in dollars as well as a percentage of
sales:
|
|
|
TWELVE
MONTHS ENDED AUGUST 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
4,418
|
|
|
100.0
|
%
|
$
|
4,352
|
|
|
100.0
|
%
|
|
Cost
of Goods Sold
|
|
|
1,664
|
|
|
37.7
|
|
|
1,437
|
|
|
33.0
|
|
|
Gross
Profit
|
|
|
2,754
|
|
|
62.3
|
|
|
2,915
|
|
|
67.0
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping
|
|
|
156
|
|
|
3.5
|
|
|
163
|
|
|
3.7
|
|
|
Selling
and Marketing
|
|
|
1,081
|
|
|
24.4
|
|
|
1,881
|
|
|
43.2
|
|
|
General
& Administrative
|
|
|
1,589
|
|
|
35.9
|
|
|
1,756
|
|
|
40.4
|
|
|
Product
Development
|
|
|
99
|
|
|
2.2
|
|
|
30
|
|
|
0.7
|
|
|
Total
Operating Expenses
|
|
|
2,925
|
|
|
66.1
|
|
|
3,830
|
|
|
88.0
|
|
|
Loss
from Operations
|
|
|
(171
|
)
|
|
(3.8
|
)
|
|
(915
|
)
|
|
(21.0
|
)
|
|
Other
Income/(Expense)
|
|
|
(52
|
)
|
|
(1.2
|
)
|
|
13
|
|
|
0.3
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
-
|
|
|
(3
|
)
|
|
-
|
|
|
Net
Loss
|
|
$
|
(224
|
)
|
|
(5.0
|
)
|
$
|
(905
|
)
|
|
(20.8
|
)%
|
Year
Ended August 31, 2008 Compared to the Year Ended August 31,
2007
Net
Sales
Net
sales increased by $65,980, or 1.5%, from $4,351,907 for the year ended August
31, 2007 to $4,417,887 for the year ended August 31, 2008. This
relatively
flat year over year sales growth is mainly due to our strategic shift from
selling directly to end users to indirectly through international distributors,
OEM and third party relationships. Although we began to experience an increase
in sales as a result of this shift, the increase in unit sales has been
partially offset by a decrease in sales price.
During
the twelve-month period ended August 31, 2008, OEM and distributor sales
represented 50% of total sales as compared to 30% during the twelve month period
ended August 31, 2007.
Gross
Profit
Gross
profit decreased by $161,065, or 5.5% from $2,914,851 for the year ended August
31, 2007 to $2,753,786 for the year ended August 31, 2008. The decrease in
gross
profit was attributable to a reduction in average unit sales price. In addition,
with the release of our new Lithium Polymer battery pack, all customers who
purchased the predecessor battery pack from us were eligible for an upgrade
at
substantial discount. As most customers did upgrade to the new model, this
resulted in a decrease in sales for this product reducing overall gross profit.
The gross margin was 62.3% of net sales for the year ended August 31, 2008
compared to 67.0% of net sales for the year ended August 31, 2007.
Operating
Expenses
Operating
expenses, which include shipping expenses, selling and marketing expenses,
general and administrative expenses and product development, decreased by
$904,945, or 23.6%, to $2,924,996 for the year ended August 31, 2008 as compared
to $3,829,941 for the year ended August 31, 2007.
Shipping
expenses were $155,598 or 3.5% of net sales for the year ended August 31, 2008
as compared to $163,015 or 3.7% of net sales for the year ended August 31,
2007.
This decrease of $7,417 was directly attributable to the increased international
distributor, OEM and third party sales, which tend to require bulk shipping
as
opposed to the individual, end user shipments.
Selling
and marketing expenses were $1,081,425 for the year ended August 31, 2008,
a
decrease of $799,817 or 42.5% from $1,881,242 for the previous year ended August
31, 2007. This decrease is mainly related to our enhanced channel sales efforts
where we decreased our direct sales, marketing, advertising and direct mail
campaigns resulting in savings of $588,961. We also realized $110,563 in
decreased travel costs related to our redirected and refocused sales
efforts.
General
and administrative expenses were $1,588,697 for the year ended August 31, 2008,
a decrease of $167,464 or 9.5% over the previous year ended August 31, 2007
of
$1,756,161.
This
decrease was attributable to the cost containment efforts implemented in the
areas of personnel, staff related and SEC related expenses as well as a
reduction in our direct sales efforts. The efforts of expense reduction
were partially offset by the legal expenses to defend two competitor
lawsuits, alleging product copyright, trade dress and patent infringement
on specific components of our surgical loupes, which have now been settled.
In
addition, the decrease was also partially offset by stock based compensation
expense of $96,825 for stock option grants awarded to the Company’s employees
during the fiscal year 2008.
Product
development costs increased by $69,753 or 236.3% from $29,523 for the year
ended
August 31, 2007 to $99,276 for the year ended August 31, 2008. This increase
is
a result of our engineering efforts within our optics and LED light product
lines and in particular our Lithium Polymer battery pack which was released
in
May 2008. 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.
Loss
from Operations
Loss
from operations for the year ended August 31, 2008 decreased by $743,880 or
81.3% to $171,210 as compared to $915,090 for the year ended August 31, 2007.
As
mentioned previously, this reduction is mainly related to our
strategic
shift from selling directly to end users to indirectly through international
distributors, OEM and third party relationships.
These efforts have led to significant cost savings related to shipping,
marketing, advertising and travel expenses. We expect this strategic shift
to
help achieve profitability as well as allow for additional resources for
continued research and development.
Other
Income (Expense)
Interest
expense for the year ended August 31, 2008 was $5,918 as compared to $0 for
the
year ended August 31, 2007. This increase was related to the line of credit
that
we obtained in 2008. Interest income for the year ended August 31, 2008 was
$4,320 as compared to $12,706 for the year ended August 31, 2007, a decrease
of
$8,386. The decrease was attributable to less cash being available to be
invested in variable money market funds during the year ended August 31, 2008.
In addition, in July 2008, we reached a settlement in a copyright and trade
dress infringement case in which we were the defendant. We paid the
plaintiff $50,000 which is rejected in other income and expenses in the
accompanying financial statements.
Income
Taxes
During
the year ended August 31, 2008, there was an $800 provision for minimum state
income taxes due to our net loss, and a valuation allowance on the resulting
deferred tax asset.
For
the twelve months ended August 31, 2007 we recorded a current income tax
provision of $2,902.
Net
Loss
Net
loss for the year ended August 31, 2008 was $223,607 as compared to $905,286
for
the year ended August 31, 2007. Loss per common share was $0.04 and $0.09 for
the years ended August 31, 2008 and 2007, respectively.
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 August 31, 2008, we
had
cash and equivalents of $111,887.
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. There
can
be no assurance that we will be successful in generating a positive operational
cash flow.
We
may require substantial additional financing to support our current operations,
for sales and marketing and research and development programs, including
significant requirements for operating expenses and for intellectual property
protection and enforcement. As we raise additional funds through the issuance
of
equity securities and equity securities equivalents, the percentage ownership
of
our existing stockholders will be reduced. If we are unable to raise sufficient
funds on acceptable terms, then we may not succeed in executing our business
plan and achieving our business objectives. In particular, we could be forced
to
limit our product development and marketing activities, forego business
opportunities, and we may lose the ability to respond to competitive pressures.
There can be no assurance that any funding will be available on a timely basis
on terms acceptable to us or at all, nor can any assurance be made that our
business operations will prove to be profitable or that we can remain in
business as a going concern.
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 August 31, 2008, we had an accumulated deficit of $5,228,744,
recurring losses from operations and negative cash flows from operating
activities of $245,569 for the year then ended. We also had a negative working
capital of $411,318 as of August 31, 2008.
These
factors, among others, raise doubt about our 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 we be unable
to continue as a going concern.
In
response to these problems, management has taken the following
actions:
|
|
·
|
we
are expanding our revenue base beyond direct sales to OEM and third
party
sales;
|
|
|
·
|
we
are aggressively signing up new international distributors through
our IDP
program; and
|
|
|
·
|
we
are seeking third party financing.
|
Net
cash used in operating activities was $245,569 and $807,163 for the years ended
August 31, 2008 and 2007, respectively.
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 years ended August 31, 2008 and
2007 was $57,806 and $42,201, respectively. These expenditures were mainly
related to the purchase of manufacturing equipment.
Net
cash received from financing activities during the year ended August 31, 2008
and 2007 was $150,000 and $0, respectively. The cash inflow resulted from the
proceeds from a line of credit
with
an unrelated shareholder of the Company, entered into on March 25,
2008, providing for a line of credit to us of up to $300,000 carrying an
interest rate of 9% per annum. The agreement provides that principal and
interest of the loan is repayable nine months from the date of the execution
of
the agreement or earlier upon the occurrence of an event of default. As of
August 31, 2008, the outstanding balance of the line of credit was $155,918,
which includes accrued interest of $5,918.
We
also owe accrued dividends on Series A Preferred Stock in the amount of
$565,145, which is not anticipated to be paid within the next 12 months.
Contractual
Obligations
The
following table is a summary of our contractual obligations as of October 31,
2008, which consist of lease obligations based on minimum monthly rents:
|
Fiscal
Years Ended
|
|
|
|
|
|
|
|
|
|
2009
|
|
$
|
55,007
|
|
|
2010
|
|
|
56,657
|
|
|
|
|
$
|
111,664
|
|
Rent
expense for the years ended August 31, 2008 and 2007 amounted to $52,464 and
$48,268, respectively.
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements.
ITEM7A.
QUANTITIVATIVE 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
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached
hereto and filed as a part of this Annual Report on Form 10-K are our
Consolidated Financial Statements, beginning on page F-1.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A(T). CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and Interim
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 Interim 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 Interim
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
Management's
Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control over financial reporting has been
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in
accordance with generally accepted accounting principles in the United States
of
America.
Our
internal control over financial reporting includes policies and procedures
that
pertain to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation
of
financial statements in accordance with accounting principles generally accepted
in the United States of America, that receipts and expenditures are being made
only in accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a
material effect on our financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Therefore, even those systems determined to
be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting
at
August 31, 2008. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
in
Internal
Control—Integrated Framework
.
Based
on that assessment under those criteria, management has determined that, at
August 31, 2008, our internal control over financial reporting was effective.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not
subject
to attestation by our registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only management's report in this
annual report.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fourth quarter of fiscal year 2008 that have materially affected,
or
are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM
9B. 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
September 22, 2008, the Board of Directors appointed Stephen Rochman to serve
as
our Interim Chief Financial Officer, effective immediately.
Mr.
Rochman is the founder and sole owner of Revotech, an international contract
manufacturing company based in Los Angeles, CA which he founded in September,
2002. Since 2002, Mr. Rochman has also acted as a business consultant to
numerous companies in manufacturing and other industries. From October 2000
to
November 2001, Mr. Rochman served as Director of Finance and Accounting for
Digital Transit, a software development firm. Prior to that, from 1994 to 2000,
Mr. Rochman served as Controller and then Director of Finance for Antex
Electronics Corp., a digital audio hardware manufacturer. Mr. Rochman has over
20 years experience in financial management, primarily in a manufacturing
environment, in both public and private companies. Mr. Rochman holds a
B.A. degree in Economics from University of California, Irvine.
Revotech
currently supplies us with certain components required in the production of
our
SheerVision products. To date, the value of purchases from Revotech has been
immaterial.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors,
Executive Officers and Significant Employees
Set
forth below is certain information with respect to the individuals who are
our
directors, executive officers and significant employees.
|
Name
|
Age
|
Position
|
|
Suzanne
Lewsadder
|
62
|
Chief
Executive Officer, Treasurer and Director
|
|
Jeffrey
Lewsadder
|
52
|
President,
Director and Secretary
|
|
Stephen
Rochman
|
43
|
Interim
Chief Financial Officer
|
|
Shemiran
Hart
|
50
|
Director
|
|
Sharon
Biddle
|
56
|
Director
|
|
David
Frankel
|
60
|
Director
|
|
Terri
Wiest
|
61
|
National
Sales Director, Dental Hygiene
|
|
Martin
Chaput
|
40
|
Online
Marketing Manager
|
Suzanne
Lewsadder has served as our Chief Executive Officer, Treasurer and a director
since November 30, 2005. Ms. Lewsadder has also served as SheerVision-CA's
Chief
Executive Officer since co-founding the company in 1999. Ms. Lewsadder has
over
twenty-five years experience starting and building enterprises, with a focus
on
operational management and strategic business development. As our Chief
Executive Officer, Ms. Lewsadder runs day-to-day operations, oversees strategic
alliances and develops marketing strategies. Ms. Lewsadder holds a B.A. degree
in Organization Communications, Cum Laude, from California State University.
Suzanne Lewsadder is the wife of Jeffrey Lewsadder.
Jeffrey
Lewsadder has served as our President, Secretary and a director since November
30, 2005. Mr. Lewsadder has also served as SheerVision-CA's President since
co-founding the company in 1999. Mr. Lewsadder is a veteran sales and marketing
executive largely from the medical device industry. As our President, Mr.
Lewsadder is responsible for the overall sales and marketing activities of
the
firm, including trade shows, as well as product development. He is credited
with
the design and development of our product line. Jeffrey Lewsadder is the husband
of Suzanne Lewsadder.
Stephen
Rochman has served as our Interim Chief Financial Officer since September 2008.
Mr. Rochman is the founder and sole owner of Revotech, an international contract
manufacturing company based in Los Angeles, CA which he founded in September,
2002. Since 2002, Mr. Rochman has also acted as a business consultant to
numerous companies in manufacturing and other industries. From October 2000
to
November 2001, Mr. Rochman served as Director of Finance and Accounting for
Digital Transit, a software development firm. Prior to that, from 1994 to 2000,
Mr. Rochman served as Controller and then Director of Finance for Antex
Electronics Corp., a digital audio hardware manufacturer. Mr. Rochman has over
20 years experience in financial management, primarily in a manufacturing
environment, in both public and private companies. Mr. Rochman holds a
B.A. degree in Economics from University of California, Irvine.
Shemiran
Hart has served as one of our directors since March 16, 2006. Ms. Hart is Vice
President and General Manager of Veeco Slider Process Equipment of semiconductor
manufacturer Veeco Instruments, Inc., where she has served in that capacity
since July 2007. Other positions held with Veeco include Division
Controller and Senior Director of Operations since joining Veeco in 2005.
Previously, Ms. Hart was Division Controller of Teradyne, Inc., an S&P 500
corporation, from 1999 to 2005. She brings over fifteen years experience in
public company financial management to her role as a member of our board. Ms.
Hart holds a B.S. in Business Administration, Magna Cum Laude, from the
University of Southern California.
Sharon
Biddle has served as one of our directors since March 16, 2006. Ms. Biddle
is
President and Publisher of The Real Estate Book for San Luis Obispo County,
California, where she has served in that capacity since 2000. She brings over
twenty-five years experience in corporate marketing and public relations to
her
role as a member of our board. Previously, Ms. Biddle served as the Vice
President of Marketing for Jazzercise, Inc. Ms. Biddle holds a B.A. in
Journalism and Marketing from Long Beach State University.
David
Frankel has served as one of our directors since March 16, 2006. Mr. Frankel
is
a CPA/ABV and a principal in the accounting firm of David Frankel, an
accountancy corporation. Prior to July 1, 2006 Mr. Frankel was a partner for
thirteen years in the accounting firm of Frankel and Kohn. He brings over
twenty-five years experience in financial consulting to his role as a member
of
our board. Mr. Frankel has been a financial and tax consultant to SheerVision-CA
since its inception in 1999 and briefly served as its interim CFO during 2005.
Mr. Frankel holds a B.S. in Business Administration and is ABV
accredited.
Terri
Wiest has served as our National Sales Director, Dental Hygiene Division since
July 2003. In this capacity, Ms. Wiest is responsible for the sales and
marketing activities of the Dental Hygiene market, overseeing a dedicated sales
force covering 280 schools, as well as dental meetings, in the U.S. &
Canada. Ms. Wiest was President of the Arizona State Dental Hygienists’
Association from 2003 to 2004. A licensed dental hygienist in Arizona and
California, Ms. Wiest practiced clinical dental hygiene for over 20 years prior
to joining us after completing her professional education at Phoenix
College.
Martin
Chaput has served as our Online Marketing Manager since June 2006. In this
capacity, Mr. Chaput is responsible for the design and implementation of
SheerVision’s online marketing programs, as well as the technology that supports
these transactions. Prior to joining us, Mr. Chaput was Product Marketing
Manager for Louis and Company from 2002 to 2006. Mr. Chaput holds an MBA in
Marketing and IT Management/E-Commerce from the Merage School of Business,
University of California, Irvine.
Directors
and Officers
Each
director is elected for a period of one year at our annual meeting of
stockholders and serves until the next such meeting and until his or her
successor is duly elected and qualified. The board of directors may also appoint
additional directors up to the maximum number permitted by our By-Laws. A
director so chosen or appointed will hold office until the next annual meeting
of stockholders.
Each
of our executive officers serves at the discretion of our board of directors
and
holds office until his or her successor is elected or until his or her earlier
resignation or removal in accordance with our Second Amended and Restated
Certificate of Incorporation and By-Laws.
Meetings
and Committees of the Board
During
the year ended August 31, 2008, our board of directors held one meeting and
took
actions by written consent on two occasions.
Committees
of the Board of Directors
On
April 21, 2006, we established an audit committee and a compensation committee,
which are responsible, respectively, for the matters described
below.
Audit
Committee
The
audit committee is responsible for the following:
|
·
|
reviewing
the results of the audit engagement with the independent
auditors;
|
|
·
|
identifying
irregularities in the management of our business in consultation
with our
independent accountants, and suggesting appropriate courses of
action;
|
|
·
|
reviewing
the adequacy, scope, and results of the internal accounting controls
and
procedures;
|
|
·
|
reviewing
the degree of independence of the auditors, as well as the nature
and
scope of our relationship with our independent
auditors;
|
|
·
|
reviewing
the auditors' fees; and
|
|
·
|
recommending
the engagement of auditors to the full board of
directors.
|
A
charter has been adopted to govern the audit committee. The members of the
audit
committee are Sharon Biddle and Shemiran Hart. At the date hereof, each member
is deemed an audit committee financial expert and is considered an independent
director
under Rule 4200(a)(15) of the Nasdaq Marketplace Rules, even though such
definition does not currently apply to us because we are not listed on
Nasdaq.
Compensation
Committee
The
compensation committee determines the salaries and incentive compensation of
our
officers and provides recommendations for the salaries and incentive
compensation of our other employees and consultants. The members of the
compensation committee are David Frankel and Sharon Biddle.
The
compensation of our executive officers is generally determined by the
compensation committee of the board of directors, subject to applicable
employment agreements. Our compensation programs are intended to enable the
attraction, motivation, reward, and retention of the management talent required
to achieve corporate objectives and thereby increase stockholder value. Our
policy has been to provide incentives to our senior management to achieve both
short-term and long-term objectives and to reward exceptional performance and
contributions to the development of our business. To achieve these objectives,
the executive compensation program may include a competitive base salary, cash
incentive bonuses, and stock-based compensation.
The
compensation committee establishes, subject to the approval of our board of
directors and any applicable employment agreements, the salaries that will
be
paid to our executive officers. In setting salaries, the compensation committee
intends to take into account several factors, including the
following:
|
·
|
competitive
compensation data;
|
|
·
|
the
extent to which an individual may participate in the stock plans
which may
be maintained by us; and
|
|
·
|
qualitative
factors bearing on an individual's experience, responsibilities,
management and leadership abilities, and job
performance.
|
Nominating
Committee
Each
member of our board of directors participates in the consideration of director
nominees. Stockholders may submit in writing to our secretary at our address
set
forth elsewhere in this Annual Report on Form 10-K the names and five year
backgrounds for the board of directors' consideration in its selection of
nominees for directors. Currently, our share ownership is relatively
concentrated in Suzanne Lewsadder and Jeffrey Lewsadder, our Chief Executive
Officer and President, respectively; as such, it is improbable that any board
nominee found to be unqualified or unacceptable by the majority stockholders
could be selected as a member of the board of directors. Accordingly, there
is
no nominating committee and we do not rely on pre-approval policies and
procedures for our nomination process. We intend to implement the necessary
formation of a nominating committee and will establish proper policies and
procedures upon such time as our share ownership is more
diversified.
Involvement
in Certain Legal Proceedings
None
of our directors, executive officers, promoters or control persons have been
involved in any of the following events during the past five years:
|
·
|
any
bankruptcy petition filed by or against any business of which such
person
was a general partner or executive officer either at the time of
the
bankruptcy or within two years prior to that
time;
|
|
·
|
any
conviction in a criminal proceeding or being subject to a pending
criminal
proceeding (excluding traffic violations and other minor
offences);
|
|
·
|
being
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting
his or
her involvement in any type of business, securities or banking activities;
or
|
|
·
|
being
found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated
a
federal or state securities or commodities law, and the judgment
has not
been reversed, suspended, or
vacated.
|
Code
of Ethics
We
adopted a Code of Ethics that applies to our officers, employees and directors,
including our principal executive officers, principal financial officers and
principal accounting officers. The code of ethics sets forth written standards
that are designed to deter wrongdoing and to promote:
|
·
|
Honest
and ethical conduct, including the ethical handling of actual or
apparent
conflicts of interest between personal and professional
relationships;
|
|
·
|
Full,
fair, accurate, timely and understandable disclosure in reports and
documents that we file with, or submit to, the SEC and in other public
communications made by us;
|
|
·
|
Compliance
with applicable governmental laws, rules and
regulations;
|
|
·
|
The
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code of ethics;
and
|
|
·
|
Accountability
for adherence to the code of
ethics.
|
We
will provide a copy of our Code of Ethics to any person without charge, upon
request. Requests can be made to: SheerVision, Inc., 4030 Palos Verdes Drive
North, Suite 104 Rolling Hills Estates, California 90274.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our directors and officers, and persons
who
own more than 10% of a registered class of our equity securities, to file
reports of ownership and changes in ownership with the SEC. Officers, directors
and greater than 10% stockholders are required by SEC regulation to furnish
us
with copies of all the Section 16(a) forms they file.
Based
solely upon a review of Forms 3, 4 and 5 furnished to us, we are not aware
of
any person who, at any time during the fiscal year ended August 31, 2008, was
a
director, officer, or beneficial owner of more than 10% of our common stock
and
who failed to file on a timely basis reports required by Section 16(a) of the
Securities Exchange Act of 1934 during such fiscal year.
ITEM
11.
EXECUTIVE
COMPENSATION
The
following table sets forth
the compensation earned during the years
ended August 31
,
2008 and 2007 by our Chief Executive Officer, President and Chief Financial
Officer and our two most highly compensated non-executive officers. We refer
to
such individuals as “named executive officers”:
|
Name
and
Principal
Position
|
|
Year
(1)
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)(2)
|
|
Non-Equity
Incentive
Plan Compensation
($)
|
|
Non-qualified
Deferred
Compensation
($)
|
|
All
Other
Compensation
($)
(3)
|
|
Total
($)
|
|
|
Suzanne
Lewsadder
|
|
|
2008
|
|
|
112,500
|
|
|
27,686
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
28,028
|
|
|
168,214
|
|
|
Chairman
and Chief
Executive
Officer
|
|
|
2007
|
|
|
112,500
|
|
|
44,073
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
26,091
|
|
|
182,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
Lewsadder
|
|
|
2008
|
|
|
112,500
|
|
|
20,750
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
26,330
|
|
|
159,580
|
|
|
President
and Secretary
|
|
|
2007
|
|
|
112,500
|
|
|
27,443
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
26,568
|
|
|
166,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suzanne
Puente
|
|
|
2008
|
|
|
100,008
|
|
|
10,000
|
|
|
--
|
|
|
23,601
|
|
|
--
|
|
|
--
|
|
|
18,174
|
|
|
151,783
|
|
|
Chief
Financial Officer(4)
|
|
|
2007
|
|
|
100,008
|
|
|
40,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
16,511
|
|
|
156,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terri
Wiest
|
|
|
2008
|
|
|
107,733(5
|
)
|
|
--
|
|
|
--
|
|
|
15,734
|
|
|
--
|
|
|
--
|
|
|
8,503
|
|
|
131,970
|
|
|
National
Sales Director,
Dental
Hygiene Division
|
|
|
2007
|
|
|
115,228(6
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
6,660
|
|
|
121,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
Chaput
|
|
|
2008
|
|
|
80,000
|
|
|
--
|
|
|
--
|
|
|
7,867
|
|
|
--
|
|
|
--
|
|
|
12,276
|
|
|
100,143
|
|
|
Online
Marketing Manager
|
|
|
2007
|
|
|
80,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
12,026
|
|
|
92,026
|
|
|
(1)
|
The
information is provided for each fiscal year referenced beginning
September 1 and ending August 31.
|
|
(2)
|
The
amounts reflect the compensation expense in accordance with FAS 123(R)
of
these option awards. The assumptions used to determine the fair value
of
the option awards for fiscal year ended August 31, 2008 are set forth
in
Note 12 of our audited consolidated financial statements included
in our
Form 10-K for fiscal year ended August 31, 2008. Our named executive
officers will not realize the value of these awards in cash unless
and
until these awards are exercised and the underlying shares subsequently
sold.
|
|
(3)
|
See
“All Other Compensation” table below.
|
|
(4)
|
Ms.
Puente resigned as Chief Financial Officer, effective August 31,
2008.
|
|
(5)
|
Includes
$44,400 in commission.
|
|
(6)
|
Includes
$55,228 in commission.
|
All
Other Compensation
All
Other Compensation amounts in the Summary Compensation Table consist of the
following:
|
Name
|
|
Year
|
|
Automobile
Related
Expenses
($)
|
|
Medical
Related
Expenses
($)
|
|
Insurance
Premium
($)
|
|
Total
($)
|
|
|
Suzanne
|
|
|
2008
|
|
|
11,043
|
|
|
16,082
|
|
|
902
|
|
|
28,058
|
|
|
Lewsadder
|
|
|
2007
|
|
|
11,253
|
|
|
13,936
|
|
|
902
|
|
|
26,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
|
|
|
2008
|
|
|
11,312
|
|
|
14,447
|
|
|
570
|
|
|
26,330
|
|
|
Lewsadder
|
|
|
2007
|
|
|
11,108
|
|
|
14,890
|
|
|
570
|
|
|
26,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suzanne
|
|
|
2008
|
|
|
--
|
|
|
17,832
|
|
|
342
|
|
|
18,174
|
|
|
Puente
|
|
|
2007
|
|
|
--
|
|
|
16,311
|
|
|
200
|
|
|
16,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terri
|
|
|
2008
|
|
|
--
|
|
|
7,957
|
|
|
546
|
|
|
8,503
|
|
|
Wiest
|
|
|
2007
|
|
|
--
|
|
|
6,401
|
|
|
259
|
|
|
6,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
|
|
|
2008
|
|
|
--
|
|
|
12,216
|
|
|
60
|
|
|
12,276
|
|
|
Chaput
|
|
|
2007
|
|
|
--
|
|
|
11,991
|
|
|
35
|
|
|
12,026
|
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information concerning stock options and stock awards
held by the named executive officers as of August 31, 2008.
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
Name
|
|
Number
of Securities Underlying Unexercised
Options
(#)
Exercisable
|
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
|
|
Equity
Incentive Plan Awards Number of Securities Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration Date
|
|
Number
of Shares or Units of Stock Held That Have Not Vested
(#)
|
|
Market
Value of Shares or Units of Stock Held
That
Have
Not
Vested
($)
|
|
Equity
Incentive Plan Awards: Number of Unearned
Shares,
Units or Other Rights That Have Not
Vested
(#)
|
|
Equity
Incentive Plan Awards: Market
or
Payout
Value of Unearned Shares, Units or Other Rights
That
Have
Not Vested ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suzanne
Lewsadder,
CEO
and
Treasurer
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
Lewsadder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
and
Secretary
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suzanne
Puente
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Financial
Officer(1)
|
|
|
75,000(2
|
)
|
|
—
|
|
|
—
|
|
|
0.20
|
|
|
11/29/08
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terri
Wiest;
National
Sales
Director,
Dental
Hygiene
Division
|
|
|
50,000(2
|
)
|
|
|
|
|
50,000(3
|
)
|
|
0.20
|
|
|
03/20/18
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin
Chaput
Online
Marketing
Manager
|
|
|
25,000(2
|
)
|
|
|
|
|
25,000(3
|
)
|
|
0.20
|
|
|
03/20/18
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
Referenced
individual resigned as Chief Financial Officer effective August 31,
2008.
On such date 75,000 unvested options expired.
|
|
(2)
|
These
options were granted under our 2007 Stock Option Plan and vested
on March
20, 2008.
|
|
(3)
|
These
options were granted under our 2007 Stock Option Plan and vest on
December
31, 2008.
|
Employment
Agreements
Currently,
we do not maintain employment agreements with our executive officers. We intend
to enter into an employment agreement with each executive officer prior to
December 31, 2008. We anticipate that these agreements will contain provisions
which will be comparable to those of similarly situated companies in our
industry with respect to confidentiality, non-competition and assignment of
intellectual property.
Stock
Option Plans
2007
Stock Option Plan
On
January 25, 2007, our board of directors adopted, and on the same date, holders
of a majority of the voting power of the outstanding shares of our capital
stock
approved, our 2007 Stock Option Plan (the “
Plan
”).
The Plan authorizes the grant of options and stock purchase rights with respect
to up to an aggregate of 3,000,000 shares of our common stock to our or our
subsidiaries’ employees and directors and individuals, including consultants,
performing services for us or our subsidiaries. As of August 31, 2008, 511,000
options are outstanding under the Plan.
2007
Stock Option Plan for Independent and Non-Employee
Directors
On
January 25, 2007, our board of directors adopted, and on the same date, holders
of a majority of the voting power of the outstanding shares of our capital
stock
approved, the 2007 Stock Option Plan for Independent and Non-Employee Directors
(the “
Directors
Plan
”)
for the purpose of promoting our interests and those of our stockholders by
increasing the proprietary and vested interest of such directors in our growth
and performance. The Directors Plan authorizes the grant of options with respect
to up to an aggregate of 200,000 shares of our common stock. As of August 31,
2008, no options are outstanding under the Directors
Plan.
The
Directors Plan provides that each newly elected independent or non-employee
director upon first election or appointment to the board will receive options
to
purchase 2,000 shares of our common stock and, immediately following each annual
meeting of stockholders, each such director who has served in such capacity
for
more than twelve months preceding such meeting will receive an option to
purchase an additional 3,000 shares of our common stock.
Compensation
of Directors
During
the fiscal year ended August 31, 2008, directors received no compensation for
their services as directors. Pursuant to our By-Laws, directors may receive
such
compensation for their services and such reimbursement of expenses for attending
meetings as our board of directors may determine from time to time. Pursuant
to
our 2007 Stock Option Plan for Independent and Non-Employee Directors, our
independent directors are entitled to a grant of options to purchase our common
stock. See “
Executive
Compensation - Stock Option Plans”
above.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
following table sets forth, as of October 31, 2008 the beneficial ownership
of
(i) each person known by us to beneficially own five percent (5%) or more of
the
outstanding shares; (ii) our named executive officers; and (iii) our officers
and directors as a group.
As
used in the table below and elsewhere in this Annual Report on Form 10-K, the
term “beneficial ownership” with respect to a security consists of sole or
shared voting power, including the power to vote or direct the vote and/or
sole
or shared investment power, including the power to dispose or direct the
disposition, with respect to the security through any contract, arrangement,
understanding, relationship, or otherwise, including a right to acquire such
power(s) during the next 60 days following the date hereof. Except as otherwise
indicated, the stockholders listed in the table have sole voting and investment
powers with respect to the shares indicated. The table below is based on
12,735,190 shares of our common stock issued and outstanding as of October
31,
2008.
Except
as otherwise noted, the address of the referenced individual is c/o SheerVision,
Inc., 4030 Palos Verdes Drive North, Suite 104, Rolling Hills, California
90274.
|
Name
and Address of
Beneficial
Owner
|
Shares
of Common
Stock
Beneficially
Owned
|
Percentage
of Class
Beneficially
Owned
|
|
Suzanne
Lewsadder
(1)(2)
|
9,219,137
(3)
|
72.4%
|
|
Jeffrey
Lewsadder
(1)(2)
|
9,219,137
(3)
|
72.4%
|
|
Shemiran
Hart
(1)
|
0
|
0%
|
|
Sharon
Biddle
(1)
|
31,041
(4)
|
*%
|
|
David
Frankel
(1)
|
31,041
(4)
|
*%
|
|
Stephen
Rochman
(2)
|
0
|
0%
|
|
Terri
Wiest
|
50,000
(5)
|
*%
|
|
Martin
Chaput
|
25,000
(5)
|
*%
|
|
All
Current Executive Officers and
Directors
as a Group (6 persons)
|
9,281,219
(6)
|
72.7%
|
|
*
|
Less
than one percent
|
|
(1)
|
Indicates
Director.
|
|
(2)
|
Indicates
Officer.
|
|
(3)
|
In
the case of Suzanne Lewsadder, includes the shares of common stock
beneficially owned by Jeffrey Lewsadder. In the case of Jeffrey
Lewsadder,
includes the shares of common stock beneficially owned by Suzanne
Lewsadder.
|
|
(4)
|
Includes
20,833 shares of common stock issuable upon the conversion of Series
A
Preferred Stock and 1,875 shares of common stock issuable upon
exercise of
warrants within 60 days following October 31, 2008.
|
|
(5)
|
Represents
shares of common stock issuable upon exercise of options within
60 days
following October 31, 2008.
|
|
(6)
|
Includes
41,666 shares of common stock issuable upon the conversion of Series
A
Preferred Stock and 3,750 shares of common stock issuable upon
exercise of
warrants within 60 days following October 31,
2008.
|
Equity
Compensation Plan Information
The
following table sets forth information with respect to our 2007 Stock Option
Plan and our 2007 Stock Option Plan for Independent and Non-Employee Directors
as of August 31, 2008:
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
|
Weight-average
exercise price
of
outstanding options,
warrants
and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|
Equity
compensation
plans
approved
by
security
holders
|
511,000(1)
|
$0.20
|
2,689,000(2)
|
|
|
|
|
|
|
Equity
compensation
plans
not
approved by
security
holders
|
--
|
--
|
--
|
|
Total
|
511,000(1)
|
$0.20
|
2,689,000(2)
|
___________
|
(1)
|
Represents
shares of our common stock issuable upon exercise of outstanding
options
under our 2007 Stock Option Plan.
|
|
(2)
|
Represents
up to 2,489,000 shares of our common stock authorized for issuance
under
our 2007 Stock Option Plan and up to 200,000 shares of our common
stock
authorized for issuance under our 2007 Stock Option Plan for Independent
and Non-Employee Directors.
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our
policy is to enter into transactions with related parties on terms that, on
the
whole, are more favorable, or no less favorable, than those available from
unaffiliated third parties. Based on our experience in the business sectors
in
which we operate and the terms of our transactions with unaffiliated third
parties, we believe that all of the transactions described below met this policy
standard at the time they occurred.
Except
as otherwise indicated below, we have not been a party to any transaction,
proposed transaction, or series of transactions required to be disclosed
pursuant to Item 404 of Regulation S-K.
On
April
18, 2007, we entered into a consulting agreement for investor and public
relations services. In consideration for the consultant's
services, he was entitled to $5,000 per month for the twelve-month
term of the agreement, unless terminated sooner. In addition, Suzanne Lewsadder
and Jeffery Lewsadder, our Chief Executive Officer and President, respectively,
and beneficial holders of a majority of our outstanding common stock transferred
an aggregate of 306,000 shares of our common stock to the
consultant.
On
September 22, 2008, Stephen Rochman was appointed as our Interim Chief Financial
Officer. Mr. Rochman is the founder of Revotech, a contract manufacturer that
supplies us with certain components of our SheerVision products. To date, the
value of purchases from Revotech has been immaterial.
During
the year ended 2008, consulting service fees in the amount of $4,000 were
paid
to an individual who is a relative of a major shareholder, officer and director
of the Company. This individual provides consulting services in connection
with
online marketing strategies and planning.
ITEM
14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
As
of August 31, 2008, aggregate fees billed to us by our independent registered
public accounting firm Miller Ellin & Company LLP are as
follows:
|
Summary:
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Audit
fees
|
|
$
|
83,152
|
|
$
|
87,401
|
|
|
Audit
related fees
|
|
|
-
|
|
|
-
|
|
|
Tax
fees
(1)
|
|
|
-
|
|
|
38,943
|
|
|
Other
fees
|
|
|
-
|
|
|
-
|
|
_________
(1)
Amount represents fees for preparation of our tax returns.
ITEM
15. EXHIBITS AND INDEX OF EXHIBITS
The
Exhibits below are included as part of this Annual Report on Form
10-K.
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
2.1
|
|
Acquisition
of Escalator, Inc. (incorporated by reference to Exhibit 2.1 to Current
Report on Form 10-SB of SheerVision, Inc., a Delaware corporation
(formerly Clean Water Technologies, Inc.), filed with the Securities
and
Exchange Commission on October 13, 1999).
|
|
|
|
|
|
2.2
|
|
Lone
Pine Resources, Inc. Merger (incorporated by reference to Exhibit
2.2 to
Current Report on Form 10-SB of SheerVision, Inc., a Delaware corporation
(formerly Clean Water Technologies, Inc.), filed with the Securities
and
Exchange Commission on October 13, 1999).
|
|
|
|
|
|
2.3
|
|
Agreement
and Plan of Spinoff (incorporated by reference to Exhibit 2.3 to
Current
Report on Form 10-SB of SheerVision, Inc., a Delaware corporation
(formerly Clean Water Technologies, Inc.), filed with the Securities
and
Exchange Commission on October 13, 1999).
|
|
|
|
|
|
2.4
|
|
Acquisition
of Clean Water Technologies, Inc. (incorporated by reference to Exhibit
2.4 to Current Report on Form 10-SB of SheerVision, Inc., a Delaware
corporation (formerly Clean Water Technologies, Inc.), filed with
the
Securities and Exchange Commission on October 13,
1999).
|
|
|
|
|
|
2.5
|
|
Acquisition
of Zorax, Inc. (incorporated by reference to Exhibit 2.5 to Current
Report
on Form 10KSB of SheerVision, Inc., a Delaware corporation (formerly
Clean
Water Technologies, Inc.), filed with the Securities and Exchange
Commission on August 16, 2001).
|
|
|
|
|
|
3.1
|
|
Second
Amended and Restated Certificate of Incorporation of SheerVision,
Inc.
(incorporated by reference to Exhibit 3.1 to Current Report on Form
8-K of
SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
June 20, 2006).
|
|
|
|
|
|
3.2
|
|
By-laws
of SheerVision, Inc., a Delaware corporation (incorporated by reference
to
Exhibit 3.2 to Current Report on Form 10-QSB of SheerVision, Inc.,
a
Delaware corporation), filed with the Securities and Exchange Commission
on October 13, 1999).
|
|
|
|
|
|
3.3
|
|
Form
of Common Stock Certificate (incorporated by reference to Exhibit
3.3 to
Current Report on Form SB-2A of SheerVision Inc., a Delaware corporation,
filed with the Securities and Exchange Commission on September 29,
2006).
|
|
|
|
|
|
3.4
|
|
Articles
of Incorporation of SheerVision, Inc., a California corporation
(incorporated by reference to Exhibit 3.3 to Current Report on Form
8-K/A
of SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
March 28, 2006).
|
|
|
|
|
|
3.5
|
|
Certificate
of Amendment of Articles of Incorporation of SheerVision, Inc., a
California corporation (incorporated by reference to Exhibit 3.4
to
Current Report on Form 8-K/A of SheerVision, Inc., a Delaware corporation
(formerly Clean Water Technologies, Inc.), filed with the Securities
and
Exchange Commission on March 28, 2006).
|
|
|
|
|
|
3.6
|
|
By-laws
of SheerVision, Inc., a California corporation (incorporated by reference
to Exhibit 3.5 to Current Report on Form 8-K/A of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
3.7
|
|
Form
of Certificate of Designations, Preferences, Rights, and Limitations
of Series A Cumulative Convertible Preferred Stock as filed with the
Secretary of State of Delaware (incorporated by reference to Exhibit
3.1
to Current Report on Form 8-K of SheerVision, Inc., a Delaware corporation
(formerly Clean Water Technologies, Inc.), filed with the Securities
and
Exchange Commission on May 11, 2006)
|
|
|
|
|
|
4.1
|
|
Warrant,
issued to Patricia Hall (Hallmark Capital), dated as of September
28, 2005
(incorporated by reference to Exhibit 4.1 to Current Report on Form
8-K/A
of SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
March 28, 2006).
|
|
4.2
|
|
Warrant,
issued to Northeast Securities, dated as of September 19, 2005, in
connection with the 2005 Private Placement (incorporated by reference
to
Exhibit 4.2 to Current Report on Form 8-K/A of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
4.3
|
|
Form
of Warrant issued to investors in the 2005 Private Placement (incorporated
by reference to Exhibit 4.3 to Current Report on Form 8-K/A of
SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
March 28, 2006).
|
|
|
|
|
|
4.4
|
|
Form
of 12% Secured Promissory Note issued to investors in the 2005 Private
Placement (incorporated by reference to Exhibit 10.15 to Current
Report on
Form 8-K/A of SheerVision, Inc., a Delaware corporation (formerly
Clean
Water Technologies, Inc.), filed with the Securities and Exchange
Commission on March 28, 2006).
|
|
|
|
|
|
4.5
|
|
Form
of Warrant issued to investors in the 2006 Private Placement (incorporated
by reference to Exhibit 4.1 to Current Report on Form 8-K of SheerVision,
Inc., a Delaware corporation (formerly Clean Water Technologies,
Inc.),
filed with the Securities and Exchange Commission on May 11,
2006).
|
|
|
|
|
|
4.6
|
|
Form
of Warrant, issued to Northeast Securities, dated as of April ____,
2006,
in connection with the 2006 Private Placement (incorporated by reference
to Exhibit 4.2 to Current Report on Form 8-K of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on May 11,
2006).
|
|
|
|
|
|
4.7
|
|
Form
of 9% Convertible Promissory Note issued to investors in the 2006
Private
Placement (incorporated by reference to Exhibit 10.2 to Current Report
on
Form 8-K of SheerVision, Inc., a Delaware corporation (formerly Clean
Water Technologies, Inc.), filed with the Securities and Exchange
Commission on May 11, 2006).
|
|
|
|
|
|
10.1
|
|
Sublicense
Agreement, effective as of October 22, 1999, between SheerVision,
Inc., a
Delaware corporation (formerly Clean Water Technologies, Inc.), and
GSA
Resources, Inc., an Arizona corporation (incorporated by reference
to
Exhibit 10 to Current Report on Form 10KSB of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on September 26,
2000).
|
|
|
|
|
|
10.2
|
|
Securities
Purchase Agreement, dated as of November 30, 2005, among SheerVision,
Inc., a California corporation, Laurie C. Scala and Howard A. Scala,
and
SheerVision, Inc., a Delaware corporation (formerly, Clean Water
Technologies, Inc.) (Schedules intentionally omitted) (incorporated
by
reference to Exhibit 10.1 to Current Report on Form 8-K of SheerVision,
Inc., a Delaware corporation (formerly Clean Water Technologies,
Inc.),
filed with the Securities and Exchange Commission on December 7,
2005).
|
|
|
|
|
|
10.3
|
|
License
Assignment Agreement, dated March 16, 2006, by and between SheerVision,
Inc., a Delaware corporation (formerly, Clean Water Technologies,
Inc.)
and Water Technology Partners LLC, a Florida limited liability company
(incorporated by reference to Exhibit 10.1 to Current Report on Form
8-K
of SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
March 22, 2006).
|
|
|
|
|
|
10.4
|
|
Sublicense
Assignment Agreement, dated March 16, 2006, by and between SheerVision,
Inc., a Delaware corporation (formerly, Clean Water Technologies,
Inc.)
and Water Technology Partners LLC, a Florida limited liability company
(incorporated by reference to Exhibit 10.2 to Current Report on Form
8-K
of SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
March 22, 2006).
|
|
|
|
|
|
10.5
|
|
Commercial
Real Estate Lease, by and among Academy Center LLC and Suzanne Lewsadder
(d/b/a SheerVision, Inc.), dated as of August 26, 2005 (incorporated
by
reference to Exhibit 10.2 to Current Report on Form 8-K/A of SheerVision,
Inc., a Delaware corporation (formerly Clean Water Technologies,
Inc.),
filed with the Securities and Exchange Commission on April 5,
2006).
|
|
|
|
|
|
10.6
|
|
Letter
of Engagement with Northeast Securities, dated as of August 3, 2005
(incorporated by reference to Exhibit 10.3 to Current Report on Form
8-K/A
of SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
March 28, 2006).
|
|
|
|
|
|
10.7
|
|
Confidentiality
and Non-Disclosure Agreement, dated as of August 3, 2005, between
SheerVision, Inc., a California corporation, and Northeastern Securities
(incorporated by reference to Exhibit 10.4 to Current Report on Form
8-K
of SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
March 28, 2006).
|
|
10.8
|
|
Letter
of Engagement, dated as of December 14, 2004, between SheerVision,
Inc., a
California corporation, and Hallmark Capital Corp. (incorporated
by
reference to Exhibit 10.5 to Current Report on Form 8-K/A of SheerVision,
Inc., a Delaware corporation (formerly Clean Water Technologies,
Inc.),
filed with the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.9
|
|
Letter
of Engagement, dated as of October 1, 2005, between SheerVision,
Inc., a
California corporation, and Hallmark Capital Corp. (incorporated
by
reference to Exhibit 10.6 to Current Report on Form 8-K/A of SheerVision,
Inc., a Delaware corporation (formerly Clean Water Technologies,
Inc.),
filed with the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.10
|
|
Letter
Agreement, dated as of November 14, 2005, between SheerVision, Inc.,
a
California corporation, and Javier Schmidt & Kalma, S.A, and addendum
(incorporated by reference to Exhibit 10.7 to Current Report on Form
8-K/A
of SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
March 28, 2006).
|
|
|
|
|
|
10.11
|
|
Promissory
Note, dated as of December 7, 2005, issued by SheerVision, Inc. in
favor
of Vineyard Bank, in the principal amount of $300,000 (incorporated
by
reference to Exhibit 10.8 to Current Report on Form 8-K/A of SheerVision,
Inc., a Delaware corporation (formerly Clean Water Technologies,
Inc.),
filed with the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.12
|
|
Commercial
Security Agreement, dated as of December 7, 2005, between SheerVision,
Inc., a California corporation, and Vineyard Bank (incorporated by
reference to Exhibit 10.9 to Current Report on Form 8-K/A of SheerVision,
Inc., a Delaware corporation (formerly Clean Water Technologies,
Inc.),
filed with the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.13
|
|
Business
Loan Agreement, dated as of December 7, 2005, between SheerVision,
Inc., a
California corporation, and Vineyard Bank (incorporated by reference
to
Exhibit 10.10 to Current Report on Form 8-K/A of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.14
|
|
Agreement
to Provide Insurance, dated as of December 7, 2005, between SheerVision,
Inc., a California corporation, and Vineyard Bank (incorporated by
reference to Exhibit 10.11 to Current Report on Form 8-K/A of SheerVision,
Inc., a Delaware corporation (formerly Clean Water Technologies,
Inc.),
filed with the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.15
|
|
Commercial
Guaranty, dated as of December 7, 2005, by Suzanne Lewsadder, on
behalf of
SheerVision, Inc., a California corporation (incorporated by reference
to
Exhibit 10.12 to Current Report on Form 8-K/A of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.16
|
|
Commercial
Guaranty, dated as of December 7, 2005, by Jeffrey Lewsadder, on
behalf of
SheerVision, Inc., a California corporation (incorporated by reference
to
Exhibit 10.13 to Current Report on Form 8-K/A of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.17
|
|
Change
in Terms Agreement, dated as of January 5, 2006, between SheerVision,
Inc., a California corporation, and Vineyard Bank and accompanying
Disbursement Request and Authorization for the Variable Rate
Nondisclosable Revolving Line of Credit (incorporated by reference
to
Exhibit 10.14 to Current Report on Form 8-K of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.18
|
|
Form
of Intercreditor Agreement, dated as of September 13, 2005, with
SheerVision, Inc., a California corporation (incorporated by reference
to
Exhibit 10.17 to Current Report on Form 8-K/A of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on March 28,
2006).
|
|
|
|
|
|
10.19
|
|
Letter
Agreement, dated as of April 6, 2003, and Addendum, dated as of April
5,
2003 (filed in redacted form pursuant to a confidential treatment
request)
(incorporated by reference to Exhibit 10.19 to Current Report on
Form 8-K
of SheerVision, Inc., a Delaware corporation (formerly Clean Water
Technologies, Inc.), filed with the Securities and Exchange Commission
on
April 5, 2006).
|
|
|
|
|
|
10.20
|
|
Consulting
Agreement, dated as of February 15, 2005, and Addendum, dated as
of March
6, 2005 (filed in redacted form pursuant to a confidential treatment
request) (incorporated by reference to Exhibit 10.20 to Current Report
on
Form 8-K of SheerVision, Inc., a Delaware corporation (formerly Clean
Water Technologies, Inc.), filed with the Securities and Exchange
Commission on April 5, 2006).
|
|
10.21
|
|
Supply
and License Agreement, dated as of April 7, 2003 (filed in redacted
form
pursuant to a confidential treatment request) (incorporated by reference
to Exhibit 10.21 to Current Report on Form 8-K of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on April 5,
2006).
|
|
|
|
|
|
10.22
|
|
Form
of Engagement Letter, dated April 11, 2006, between Northeast Securities
and Clean Water Technologies, Inc. (incorporated by reference to
Exhibit
10.3 to Current Report on Form 8-K of SheerVision, Inc., a Delaware
corporation (formerly Clean Water Technologies, Inc.), filed with
the
Securities and Exchange Commission on May 11, 2006).
|
|
|
|
|
|
10.23
|
|
Form
of Side Letter, dated as of April 20, 2006, between Northeast Securities
and Clean Water Technologies, Inc. (incorporated by reference to
Exhibit
10.4 to Current Report on Form 8-K of SheerVision, Inc., a Delaware
corporation (formerly Clean Water Technologies, Inc.), filed with
the
Securities and Exchange Commission on May 11, 2006).
|
|
|
|
|
|
10.24
|
|
Form
of Registration Rights Letter delivered by Clean Water Technologies,
Inc.
in connection with the 2006 Private Placement (incorporated by reference
to Exhibit 10.5 to Current Report on Form 8-K of SheerVision, Inc.,
a
Delaware corporation (formerly Clean Water Technologies, Inc.), filed
with
the Securities and Exchange Commission on May 11,
2006).
|
|
|
|
|
|
10.25
|
|
Form
of Registration Rights Letter delivered by Clean Water Technologies,
Inc.
in connection with the 2005 Private Placement (incorporated by reference
to Exhibit 10.25 to Form SB-2/A of SheerVision, Inc., a Delaware
corporation (formerly Clean Water Technologies, Inc.), filed with
the
Securities and Exchange Commission on September 22,
2006).
|
|
|
|
|
|
10.26
|
|
2007
Stock Option Plan (incorporated by reference to Exhibit A to the
Information Statement pursuant to Section 14C of the Securities and
Exchange Act of 1934 on Form Def-14C filed with the Securities and
Exchange Commission on March 13, 2007).
|
|
|
|
|
|
10.27
|
|
2007
Stock Option Plan for Independent and Non-Employee Directors (incorporated
by reference to Exhibit B to the Information Statement pursuant to
Section
14C of the Securities and Exchange Act of 1934 on Form Def-14C filed
with
the Securities and Exchange Commission on March 13,
2007).
|
|
|
|
|
|
10.28
|
|
Investor
and Public Relations Consulting Agreement dated April 18, 2007 between
SheerVision, Inc, a Delaware corporation and Mark Taggatz (incorporated
by
reference to Exhibit 10.1 to Current Report on Form 8K of SheerVision,
Inc. filed with the Securities and Exchange Commission on April 24,
2007).
|
|
|
|
|
|
10.29
|
|
Form
of Settlement and Release Agreement dated as of January 4, 2008 between
General Scientific Corporation, SheerVision, Inc. and Asia Sourcing
Corporation
(incorporated
by reference to Exhibit 10.1 to Current Report on Form 8K of SheerVision,
Inc. filed with the Securities and Exchange Commission on January
18,
2008).
|
|
|
|
|
|
10.30
|
|
Form
of Loan Agreement dated March 19, 2008
(incorporated
by reference to Exhibit 10.1 to Current Report on Form 8K of SheerVision,
Inc. filed with the Securities and Exchange Commission on March 19,
2008).
|
|
|
|
|
|
14.1
|
|
Code
of Business Conduct and Ethics (incorporated by reference to Exhibit
14.1
to Current Report on Form 8-K/A of SheerVision, Inc., a Delaware
corporation (formerly Clean Water Technologies, Inc.), filed with
the
Securities and Exchange Commission on March 28, 2006).
|
|
|
|
|
|
21.1
|
|
Subsidiaries
of SheerVision, Inc.*
|
|
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer required by Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer required by Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
|
|
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.*
|
|
|
|
|
|
32.2
|
|
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.*
|
__________________
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
Dated:
November 21, 2008
|
|
|
|
|
|
|
|
SHEERVISION
INC.
|
|
|
|
|
|
|
By:
|
/s/
Suzanne Lewsadder
|
|
|
Suzanne
Lewsadder
|
|
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of registrant and in the
capacities and on the dates indicated.
|
|
|
Title
|
Date
|
|
|
|
|
|
|
/s/
Suzanne Lewsadder
|
|
Chief
Executive Officer
|
November
21, 2008
|
|
Suzanne
Lewsadder
|
|
and
Director
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Steve Rochman
|
|
Interim
Chief Financial Officer
|
November
21, 2008
|
|
Stephen
Rochman
|
|
(Principal
Financial and
|
|
|
|
|
Accounting
Officer)
|
|
|
|
|
|
|
|
/s/
Jeffrey Lewsadder
|
|
Director
|
November
21, 2008
|
|
Jeffrey
Lewsadder
|
|
|
|
|
|
|
|
|
|
/s/
Shemiran Hart
|
|
Director
|
November
21, 2008
|
|
Shemiran
Hart
|
|
|
|
|
|
|
|
|
|
/s/
Sharon Biddle
|
|
Director
|
November
21, 2008
|
|
Sharon
Biddle
|
|
|
|
|
|
|
|
|
|
/s/
David Frankel
|
|
Director
|
November
21, 2008
|
|
David
Frankel
|
|
|
|
SHEERVISION,
INC. AND SUBSIDIARY
FINANCIAL
STATEMENTS
FOR
THE YEARS ENDED AUGUST 31, 2008 AND 2007
TABLE
OF CONTENTS
|
|
Page
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Consolidated
Balance Sheets - August 31, 2008 and 2007
|
F-3
|
|
|
|
|
Consolidated
Statements of Operations Years Ended August 31, 2008 and
2007
|
F-4
|
|
|
|
|
Consolidated
Statements of Cash Flows Years Ended August 31, 2008 and
2007
|
F-5
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (Deficiency) Years Ended
August 31, 2008 and 2007
|
F-6
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of Directors and Shareholders,
SheerVision,
Inc. and Subsidiary
We
have audited the accompanying consolidated balance sheet of SheerVision,
Inc. (the “Company”) and Subsidiary, as of August 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders’ equity
(deficiency), and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal controls over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In
our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of SheerVision, Inc. as of August 31, 2008 and 2007 and the
consolidated results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in
the
United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company had negative
cash
flow from operations of $245,569, negative working capital of $411,318 and
an
accumulated deficit of $5,228,744 at August 31, 2008, and recurring losses
from
operations. These factors, among others, raise doubt about the Company’s ability
to continue as a going concern. Management’s plans regarding these matters are
also described in Note 1. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
/s/
Miller, Ellin & Company, LLP
MILLER
ELLIN & COMPANY, LLP
New
York, New York
November
21, 2008
|
SHEERVISION,
INC. AND SUBSIDIARY
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
August
31,
|
|
August
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
111,887
|
|
$
|
265,262
|
|
|
Accounts
receivable, net
|
|
|
399,950
|
|
|
50,397
|
|
|
Inventory
|
|
|
254,052
|
|
|
341,219
|
|
|
Prepaid
expenses and other current assets
|
|
|
45,387
|
|
|
73,160
|
|
|
Total
Current Assets
|
|
|
811,276
|
|
|
730,038
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
141,894
|
|
|
117,864
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
7,520
|
|
|
8,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
960,690
|
|
$
|
855,992
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Line
of credit payable
|
|
$
|
155,918
|
|
$
|
-
|
|
|
Accounts
payable
|
|
|
423,180
|
|
|
337,013
|
|
|
Accrued
expenses and other current liabilities
|
|
|
78,351
|
|
|
88,957
|
|
|
Accrued
dividends - Series A Preferred Stock
|
|
|
565,145
|
|
|
324,370
|
|
|
Total
Current Liabilities
|
|
|
1,222,594
|
|
|
750,340
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY (DEFICIENCY):
|
|
|
|
|
|
|
|
|
Preferred
Stock, Series A, 9% cumulative convertible; $.001 par value, $10
per
share:
|
|
|
|
|
|
|
|
|
Authorized
- 350,000 shares;
|
|
|
|
|
|
|
|
|
Issued
and outstanding - 266,296 and 270,046 shares, respectively
|
|
|
266
|
|
|
270
|
|
|
Common
Stock: par value $.001;
|
|
|
|
|
|
|
|
|
Authorized
- 90,000,000 shares -
|
|
|
|
|
|
|
|
|
Issued
and outstanding - 12,735,190 and 12,693,523 shares,
respectively
|
|
|
12,735
|
|
|
12,694
|
|
|
Additional
paid in capital
|
|
|
4,953,839
|
|
|
4,857,051
|
|
|
Accumulated
deficit
|
|
|
(5,228,744
|
)
|
|
(4,764,363
|
)
|
|
Total
Stockholders' Equity (Deficiency)
|
|
|
(261,904
|
)
|
|
105,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
960,690
|
|
$
|
855,992
|
|
See
accompanying notes to consolidated financial statements
|
SHEERVISION,
INC. AND SUBSIDIARY
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
Years
Ended August 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
NET
SALES
|
|
$
|
4,417,887
|
|
$
|
4,351,907
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF GOODS SOLD
|
|
|
1,664,101
|
|
|
1,437,056
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
2,753,786
|
|
|
2,914,851
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
Shipping
|
|
|
155,598
|
|
|
163,015
|
|
|
Selling
and marketing
|
|
|
1,081,425
|
|
|
1,881,242
|
|
|
General
and administrative
|
|
|
1,588,697
|
|
|
1,756,161
|
|
|
Product
development
|
|
|
99,276
|
|
|
29,523
|
|
|
Total
operating expenses
|
|
|
2,924,996
|
|
|
3,829,941
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(171,210
|
)
|
|
(915,090
|
)
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(5,918
|
)
|
|
-
|
|
|
Interest
income
|
|
|
4,320
|
|
|
12,706
|
|
|
Legal
Settlement
|
|
|
(50,000
|
)
|
|
-
|
|
|
Total
other income (expense)
|
|
|
(51,597
|
)
|
|
12,706
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE PROVISION FOR INCOME TAXES
|
|
|
(222,807
|
)
|
|
(902,384
|
)
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES - CURRENT
|
|
|
800
|
|
|
2,902
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(223,607
|
)
|
$
|
(905,286
|
)
|
|
|
|
|
|
|
|
|
|
|
ACCRUED
PREFERRED STOCK DIVIDENDS
|
|
|
(240,774
|
)
|
|
(269,012
|
)
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS APPLICABLE TO COMMON SHAREHOLDERS
|
|
$
|
(464,381
|
)
|
$
|
(1,174,298
|
)
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE APPLICABLE TO COMMON
SHAREHOLDERS:
|
|
|
|
|
|
|
|
|
-
basic and diluted
|
|
$
|
(0.04
|
)
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
12,721,720
|
|
|
12,373,888
|
|
See
accompanying notes to consolidated financial statements
|
SHEERVISION,
INC. AND SUBSIDIARY
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
Years
Ended
|
|
|
|
|
August
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(223,607
|
)
|
$
|
(905,286
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
34,346
|
|
|
26,153
|
|
|
Stock-based
compensation
|
|
|
96,825
|
|
|
-
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
-
|
|
|
Accounts
receivable
|
|
|
(349,553
|
)
|
|
23,467
|
|
|
Inventory
|
|
|
87,167
|
|
|
(64,297
|
)
|
|
Deferred
patent costs
|
|
|
-
|
|
|
(8,562
|
)
|
|
Prepaid
expenses
|
|
|
27,777
|
|
|
3,269
|
|
|
Accounts
payable
|
|
|
86,167
|
|
|
132,861
|
|
|
Accrued
expenses and other current liabilities
|
|
|
(4,691
|
)
|
|
(14,768
|
)
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(245,569
|
)
|
|
(807,163
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(57,806
|
)
|
|
(42,201
|
)
|
|
NET
CASH USED IN INVESTING ACTIVITIES
|
|
|
(57,806
|
)
|
|
(42,201
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from line of credit
|
|
|
150,000
|
|
|
-
|
|
|
Net
cash provided by financing activities
|
|
|
150,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(153,375
|
)
|
|
(849,364
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
265,262
|
|
|
1,114,626
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
111,887
|
|
$
|
265,262
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOWS:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
1,600
|
|
$
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF NON - CASH INVESTING
|
|
|
|
|
|
|
|
|
AND
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Accrued
interest on line of credit
|
|
$
|
5,918
|
|
$
|
-
|
|
|
Accrued
preferred stock dividends
|
|
$
|
240,774
|
|
$
|
269,012
|
|
|
Conversion
of preferred stock to common
|
|
$
|
41
|
|
$
|
417
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements
|
SHEERVISION,
INC. AND SUBSIDIARY
|
|
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
|
|
YEARS
ENDED AUGUST 31, 2008 AND
2007
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 31, 2006
|
|
|
307,546
|
|
$
|
308
|
|
|
12,276,856
|
|
$
|
12,277
|
|
$
|
4,857,430
|
|
$
|
(3,590,065
|
)
|
$
|
1,279,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock conversion
|
|
|
(37,500
|
)
|
|
(38
|
)
|
|
416,667
|
|
|
417
|
|
|
(379
|
)
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
accrued on Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(269,012
|
)
|
|
(269,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(905,286
|
)
|
|
(905,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 31, 2007
|
|
|
270,046
|
|
$
|
270
|
|
|
12,693,523
|
|
$
|
12,694
|
|
$
|
4,857,051
|
|
$
|
(4,764,363
|
)
|
$
|
105,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock conversion
|
|
|
(3,750
|
)
|
|
(4
|
)
|
|
41,667
|
|
|
41
|
|
|
(37
|
)
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,825
|
|
|
|
|
|
96,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
accrued on Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(240,774
|
)
|
|
(240,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223,607
|
)
|
|
(223,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
August 31, 2008
|
|
|
266,296
|
|
$
|
266
|
|
|
12,735,190
|
|
$
|
12,735
|
|
$
|
4,953,839
|
|
$
|
(5,228,744
|
)
|
$
|
(261,904
|
)
|
See
accompanying notes to consolidated financial statements
SHEERVISION,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED AUGUST 31, 2008 AND 2007
NOTE
1
-
DESCRIPTION OF BUSINESS
SheerVision,
Inc. (the “
Company
”),
a Delaware corporation, designs and sells high quality, value-priced 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 top quality 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.
On
December 1, 2005, SheerVision, Inc., a California corporation (“
SheerVision-CA
”)
acquired 4,517,800 shares (610,514 shares after giving effect to the 1 for
7.4
reverse stock split to its then stockholders) of the common stock, par value
$0.001, of the Company which was then called Clean Water Technologies, Inc.
(“
CWTI
”),
or
54.579% of the outstanding shares of CWTI, from two individuals for a purchase
price of $625,000.
On
March
27, 2006, CWTI entered into a Share Exchange and Reorganization Agreement with
SheerVision-CA, and its shareholders thereof, in which all SheerVision-CA
shareholders exchanged all of the outstanding and issued common stock of
SheerVision-CA for an aggregate of 9,525,137 shares of CWTI common stock,
representing 95% of its outstanding common stock after giving effect to the
transaction. As a result, SheerVision-CA became a wholly-owned subsidiary of
CWTI and all options, warrants exercisable for, and securities convertible
into,
shares of SheerVision-CA common stock, became exercisable for or convertible
into such number of shares of CWTI common stock as the holder thereof would
have
received if such options and warrants had been exercised, or such convertible
securities converted, immediately prior to closing.
Effective
June 19, 2006, the Company formally changed its name from Clean Water
Technologies, Inc. to SheerVision, Inc.
Going
Concern Considerations
The
accompanying consolidated financial statements have been prepared assuming
the
Company 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 August 31, 2008, the Company had an
accumulated deficit of $5,228,744, recurring losses from operations and negative
cash flows from operating activities of $245,569 for the year then ended. The
Company also had a negative working capital of $411,318 as of August 31,
2008.
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;
and
|
|
|
·
|
the
Company is seeking third party
financing.
|
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
summary of significant accounting policies presented below is designed to assist
in understanding the Company’s consolidated financial statements. These
accounting policies conform to accounting policies generally accepted in the
United States of America (“
GAAP
”)
in all material respects, and have been consistently applied in preparing the
accompanying consolidated financial statements. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America 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,
the
reported amounts of revenues and expenses during the reporting period, and
related disclosures. Actual results could differ from those
estimates.
SHEERVISION,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED AUGUST 31, 2008 AND 2007
Principles
of Consolidation
The
consolidated financial statements include the accounts of SheerVision, Inc.
and
its wholly owned subsidiary. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Revenue
Recognition
The
Company’s 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. 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.
Returns are minimal, therefore management has determined that no reserve is
required. Shipping charges and special orders are nonrefundable.
Cash
and Cash Equivalents
The
Company considers highly liquid investments with an original maturity of three
months or less to be cash equivalents.
Accounts
Receivable
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 the
end of the year. Management has provided an allowance for doubtful accounts
of
$0 and $507 at August 31, 2008 and August 31, 2007, respectively. Management
did
not provide an allowance at August 31, 2008 as substantially all receivables
were subsequently collected.
Concentrations
of Credit Risk
Financial
instruments and related items that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with credit quality institutions. At times, such investments may be in excess
of
the FDIC insurance limit. To date, the Company has not experienced any such
losses and believes it is not exposed to any significant credit
risk.
Inventory
Inventory
is valued at the lower of cost or market, determined on a first-in, first-out
basis. At August 31, 2008 and 2007, inventory consisted of finished goods and
raw materials. 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.
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.
Income
Taxes
Deferred
income taxes are recognized for temporary differences between financial
statement and income tax basis of assets and liabilities and loss carryforwards
for which income tax benefits are expected to be realized in future years.
A
valuation allowance is established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. In estimating future tax
consequences, the Company generally considers all expected future events other
than an enactment of changes in the tax laws or rates. The deferred tax asset
is
continually evaluated for realizability. To the extent the Company’s judgment
regarding the realization of the deferred tax assets changes, adjustment to
the
allowance is recorded, with an off setting increase or decrease, as appropriate,
to income tax expense. Such adjustments are recorded in the period in which
the
Company’s estimate as to the realizability of the asset changed that it is “more
likely than not” that all of the deferred tax assets will be realized. The “more
likely than not” standard is subjective, and is based upon the Company’s
estimate of a greater than 50% probability that its long range business plan
can
be realized. Deferred tax liabilities and assets are classified as current
or
non-current based on the classification of the related asset or liability for
financial reporting. A deferred tax liability or asset that is not related
to an
asset or liability for financial reporting, including deferred tax assets
related to NOL carry forwards, are classified according to the expected
occurence date of the temporary difference.
SHEERVISION,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED AUGUST 31, 2008 AND 2007
Long-Lived
Assets
We
account for long-lived assets in accordance with Statement of Financial
Accounting Standards No. 144, (“
SFAS
144
”)
Accounting
for the Impairment or Disposal of Long-Lived Assets
.
Accordingly, we evaluate the carrying value of long-lived assets, including
intangible assets, whenever events or changes in business circumstances or
our
planned use of long-lived assets indicate that their carrying amounts may not
be
fully recoverable or that their useful lives are no longer appropriate.
Reviews are performed to determine whether the carrying values of long-lived
assets are impaired based on a comparison to the undiscounted expected future
net cash flows. If the comparison indicates that impairment exists,
long-lived assets that are classified as held and used are written down to
their
respective fair values and long-lived assets classified as held for sale are
written down to their respective fair values less costs to sell.
Significant management judgment is required in the forecast of future operating
results that is used in the preparation of expected undiscounted cash flows.
The
Company recorded no impairments for the years ended August 31, 2008 and 2007.
Stock
- Based Employee Compensation
Effective
January 25, 2007, the Company adopted the provisions of statement of Financial
Standards No. 123 (revised 2004),
Share-Based Payment
(“
SFAS
123R
”),
requiring recognition of expenses equivalent to the fair value of stock-based
compensation awards. Prior to adoption, the Company had no outstanding options
and therefore the adoption has had no financial statement impact from the
transition. SFAS 123R requires that options issued be recognized in the
financial statements at fair value over the vesting period.
Basic
and Diluted Loss Per Share
In
accordance with the Financial Accounting Standards Board’s SFAS No.
128,
Earnings Per Share
,
the basic loss per common share, which excludes dilution, is computed by
dividing the net loss available to common shareholders by the weighted average
number of common shares outstanding. Diluted loss per common share reflects
the
potential dilution that could occur if all potential common shares had been
issued and if the additional common shares were dilutive.
Research
and Development
Research
and development costs are expensed as incurred.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Significant estimates made by
management include revenue recognition, estimates of collectability of accounts
receivable, the realizability of deferred tax assets and the adequacy of
inventory reserves. Management bases its estimates and assumptions on historical
experience and on various other assumptions that it believes are reasonable
under the circumstances. Actual results could differ from those
estimates.
Fair
Value of Financial Instruments
The
estimated fair values for financial instruments under SFAS No. 107,
Disclosures about Fair Value of Financial Instruments
,
are determined at discrete points in time based on relevant market information.
These estimates involve uncertainties and cannot be determined with precision.
For certain of the Company’s financial instruments, including certain assets,
accounts payable and accrued liabilities, the carrying amounts approximate
fair
value due to their short term nature.
SHEERVISION,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED AUGUST 31, 2008 AND 2007
NOTE
3 - INVENTORIES
Inventories
are valued at the lower of cost (first-in, first-out method) or market, and
consist of the following:
|
|
|
August
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Finished
Goods
|
|
$
|
249,802
|
|
$
|
331,642
|
|
|
Raw
Materials
|
|
|
4,250
|
|
|
9,577
|
|
|
Total
|
|
$
|
254,052
|
|
$
|
341,219
|
|
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment are stated at cost less accumulated depreciation and amortization,
and consist of the following:
|
|
|
Estimated
|
|
August
31,
|
|
|
|
|
Useful
lives
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
equipment
|
|
|
7
years
|
|
$
|
148,640
|
|
$
|
93,765
|
|
|
Office
and computer equipment
|
|
|
5
years
|
|
|
49,437
|
|
|
46,507
|
|
|
Leasehold
improvement
|
|
|
15
years
|
|
|
7,179
|
|
|
7,179
|
|
|
|
|
|
|
|
|
205,257
|
|
|
147,451
|
|
|
Less:
Accumulated Depreciation & Amortization
|
|
|
|
|
|
63,362
|
|
|
29,587
|
|
|
Property
and Equipment, net
|
|
|
|
|
$
|
141,894
|
|
$
|
117,864
|
|
Depreciation
and amortization expense for the years ended August 31, 2008 and 2007 amounted
to $34,346 and $26,153, respectively.
NOTE
5 - 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.
As
of the year ended August 31, 2008, the Company was evaluating the technology
under this provisional patent to determine if it fits into its redefined
business strategy. 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 $1,042 at August 31, 2008. Should the Company
determine it will not pursue this patent, it will write-off the remaining
balances at the time the determination is made.
NOTE
6 - LOSS PER SHARE
In
accordance with the Financial Accounting Standards Board’s SFAS No.
128,
Earnings Per Share
,
the basic loss per common share, which excludes dilution, is computed by
dividing the net loss available to common shareholders by the weighted average
number of common shares outstanding. Diluted loss per common share reflects
the
potential dilution that could occur if all potential common shares had been
issued and if the additional common shares were dilutive. Potential common
shares are the shares that may be issued upon the exercise of warrants, reduced
by the shares that may be repurchased with the funds received from the exercise,
based on the average price during the period, plus conversion of convertible
preferred stock into common shares.
The
following table sets forth the computation of basic and diluted loss per common
share:
SHEERVISION,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED AUGUST 31, 2008 AND 2007
|
|
|
Twelve
Months Ended August 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(223,607
|
)
|
$
|
(905,286
|
)
|
|
Series
A preferred stock dividends
|
|
|
(240,774
|
)
|
|
(269,012
|
)
|
|
Net
loss attributable to common stock
|
|
$
|
(464,381
|
)
|
$
|
(1,174,298
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted
average common shares - basic and diluted
|
|
|
12,721,720
|
|
|
12,373,888
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per common share
|
|
$
|
(0.04
|
)
|
$
|
(0.09
|
)
|
Warrants,
and convertible preferred stock, in accordance with the following table, were
excluded from the computation of diluted loss per share for the twelve months
ended August 31, 2008 and 2007, respectively, because the effect of their
inclusion would be antidilutive.
|
|
|
Twelve
months ended
August
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Warrants
to purchase - common stock
|
|
|
1,488,989
|
|
|
1,488,989
|
|
|
Convertible
preferred stock
|
|
|
2,958,844
|
|
|
3,000,523
|
|
|
|
|
|
4,447,833
|
|
|
4,489,512
|
|
NOTE
7 - 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 asset at August 31, 2008 and 2007 is comprised
of the following components:
|
|
|
August
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Net
operating losses carry forwards
|
|
$
|
1,537,550
|
|
$
|
1,386,000
|
|
|
Less:
Valuation allowance
|
|
|
(1,537,550
|
)
|
|
(1,386,000
|
)
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
At
August 31, 2008, the Company has net operating loss carry forwards for federal
tax purposes of approximately $3,915,000, which expire in years 2025 through
2028.
The
provision for income taxes for the years ended August 31, 2008 and 2007 are
summarized as follows:
|
|
|
|
|
August
31,
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
Current
|
|
|
-
federal
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
-
state
|
|
|
800
|
|
|
2,902
|
|
|
|
|
|
|
|
|
800
|
|
|
2,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
-
federal
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
state
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
Total
provision
|
|
|
|
|
$
|
800
|
|
$
|
2,902
|
|
SHEERVISION,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED AUGUST 31, 2008 AND 2007
A
reconciliation of the provision for income taxes with amounts determined by
applying the statutory U.S. Federal income tax rate of 34% for 2008 and 2007,
respectively, to income before income taxes is as follows:
|
|
|
Years
Ended August 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Computed
tax at the federal statutory rate of 34%
|
|
$
|
(82,800
|
)
|
$
|
(307,000
|
)
|
|
State
income tax, net of federal benefit
|
|
|
(13,400
|
)
|
|
(54,000
|
)
|
|
Valuation
allowance
|
|
|
96,200
|
|
|
361,000
|
|
|
Other
|
|
|
800
|
|
|
2,902
|
|
|
|
|
$
|
800
|
|
$
|
2,902
|
|
NOTE
8 - COMMITMENTS AND CONTINGENCIES
Operating
Leases
During
2008, the Company finalized execution of the three-year, non-cancellable lease
of its headquarters effective December 1, 2007 and expiring December 1, 2010.
The lease obligation based on minimum monthly rents is as follows:
|
FISCAL
YEARS
ENDED
|
|
|
|
|
2009
|
|
$
|
55,007
|
|
|
2010
|
|
|
56,657
|
|
|
|
|
$
|
111,664
|
|
Rent
expense for the years ended August 31, 2008 and 2007 amounted to $52,464 and
$48,268, respectively.
Litigation
On
January 10, 2007, a complaint was filed in the United States District Court,
Central District of California, by Martin Hogan Pty, Ltd., which was brought
against the Company and our Chief Executive Officer and President. Plaintiff,
a
former supplier of frames of the Company, alleged copyright and trade dress
infringement in its frames and sought damages as well as permanent injunctive
relief. On August 8, 2008, the parties entered into a settlement agreement
pursuant to which the Company paid the plaintiff $50,000 and agreed to cease
the
sale of its SV sport frame after August 31, 2008, with no admission of
wrongdoing. The Company has since replaced its SV sport frame with its “Del Rey”
frame. The Company does not expect the terms of the settlement to have a
material effect on its financial condition or operations.
On
June
25, 2007,
General
Scientific Corporation (“
GSC
”)
initiated a “Section 337” complaint against the Comapny with the International
Trade Commission (“
ITC
”)
alleging the unlawful importation and sale in the United States of certain
magnifying loupe products which allegedly infringe certain of the complainant's
patents. On January 17, 2008, the Company entered into a settlement with GSC
and
a co-defendant pursuant to which the Company and the co-defendant agreed to
cease the importation of a particular type of metal frame, GSC covenanted not
to
bring patent infringement claims against the Company and the co-defendant with
respect to certain SheerVision products and the pending investigation by the
ITC
was terminated. The settlement involved no monetary payment by the Company
and
no admission of wrongdoing.
The
Company does not expect the terms of the settlement to have a material effect
on its financial condition or operations.
There
is no other litigation pending or, to the Company's knowledge, threatened
litigation or administrative action (including litigation or action involving
the Company's officer, directors or other key personnel) which in the Company's
opinion has, or is expected to have, a material adverse effect upon its
financial condition or operations.
SHEERVISION,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED AUGUST 31, 2008 AND 2007
NOTE
9 - LINE OF CREDIT
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 carrying an interest rate of 9% per annum. The agreement provides
that principal and interest on amounts borrowed against the line of credit
is
repayable 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 inventories 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 $0.25 per share.
As of August 31, 2008, the outstanding balance on the line of credit was
$155,918, which includes accrued interest of $5,918.
The
Company previously had a bank revolving credit facility for up to $300,000
at
1.25% above the bank's prime rate, collateralized by a security interest in
all
of the assets of the Company which expired on April 15, 2007.
NOTE
10 - STOCKHOLDERS' EQUITY
Preferred
Stock
The
Company has authorized 350,000 shares of Series A Preferred Stock (“
Preferred
Stock
”),
par value $0.001 per share. As of August 31, 2008 there were 266,296 shares
of
Preferred Stock issued and outstanding. Dividends accrue at the rate of 9%
per
annum and are payable every June 30 and December 31. To the extent not paid,
accrued dividends shall accumulate until paid. At the option of the holder,
the
Preferred Stock may be converted into common stock at any time at a conversion
price of $0.90 per share. In June 2007, 37,500 shares of Preferred Stock at
a
stated value of $10 per share were converted into 416,667 shares of Company
common stock. In December 2007, 3,750 shares of Preferred Stock at a stated
value of $10 were converted into 41,667 shares of Company common
stock.
As
of August 31, 2008 and 2007, accrued cumulative preferred dividends were
$565,145 and $324,370, respectively.
Common
Stock
The
Company has authorized 90,000,000 shares of common stock, par value $0.001
per
share. At August 31 2008 and 2007 there were 12,735,190 and 12,693,523 shares
of
common stock issued and outstanding, respectively.
NOTE
11 - WARRANTS
Transactions
involving the Company's warrant issuance are summarized as follows:
|
|
|
Number
of
Shares
|
|
Weighted
Average
Price
Per Share
|
|
|
Outstanding
at August 31, 2006
|
|
|
1,488,989
|
|
$
|
0.53
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
|
Outstanding
at August 31, 2007
|
|
|
1,488,989
|
|
$
|
0.53
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Canceled
or expired
|
|
|
-
|
|
|
-
|
|
|
Outstanding
at August 31, 2008
|
|
|
1,488,989
|
|
$
|
0.53
|
|
SHEERVISION,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED AUGUST 31, 2008 AND 2007
NOTE
12 - EQUITY BASED COMPENSATION PLANS
Effective
January 25, 2007, the Company adopted the SheerVision Inc. 2007 Stock Option
Plan (the “
Plan
”).
Awards granted under the Plan may include incentive stock options, which are
qualified under Section 422 of the Internal Revenue Code and stock options
other
than incentive stock options, which are not qualified under Section 422 of
the
Code and stock purchase rights. Awards may be granted to employees and directors
of the Company or its subsidiaries and individuals, including consultants,
performing services to the Company. The maximum number of shares reserved for
the Plan is 3,000,000 shares and administered by the Board of Directors (the
“
Board
”)
or a committee appointed by the Board. The Plan administrator determines the
terms of each option granted including (1) the purchase price of shares subject
to options, (2) the dates on which options become exercisable and (3) the
expiration date of each option (which may not exceed ten years from the date
of
grant). The minimum per share exercise price for options granted under the
Plan
for incentive stock options is the fair market value at the grant date or if
the
optionee is more than a 10% holder, 110% of the fair market value at the grant
date, of one share of the Company’s common stock on the date the option is
granted.
Effective
January 25, 2007, the Company adopted the SheerVision Inc. 2007 Stock Option
Plan for Independent and Non-Employee Directors (the “
Directors
Plan
”).
A maximum of 200,000 shares of Company common stock options may be granted
to
eligible directors who are defined as independent or non-employee directors.
The
Directors Plan is to be administered by the Board or a compensation committee.
The Directors Plan specifies that each newly elected Independent or Non-Employee
Director, upon first election or appointment to the Board, will receive options
to purchase 2,000 shares. Immediately following each annual meeting of
stockholders each Director who has been an eligible Director for more than
12
months immediately preceding and including such meeting shall be granted an
additional option to purchase 3,000 shares. As of August 31, 2008 and 2007,
there were no options outstanding under the Directors Plan.
On
March 20, 2008, the Company granted 1,025,000 incentive stock options to
purchase shares of the Company’s common stock under the Plan to employees
and consultants of the Company. Of the options granted, 400,000 of such options
granted to Suzanne Lewsadder and Jeffrey Lewsadder, both officers and directors
of the Company, were declined prior to issuance. The remaining 625,000 options
have an exercise price of $0.20 per share and vest one half on the grant date
and the remaining half on December 31, 2008. The fair value of the options
issued was estimated at the date of the grant using the Black-Scholes pricing
model with the following assumptions: (i) a risk free interest rate of 4.50%,
(ii) no dividend yield, (iii) and a volatility factor of 330%, and (iv) an
estimated life of 10 years. The aggregate calculated fair value of the option
grants was $118,000 of which $96,825 was recognized as stock based compensation
expense, included in General and Administrative costs during the year ended
August 31, 2008. The remaining stock based compensation expense of $21,175
will
be expensed over the remaining vesting period through December 31, 2008.
On
July 14, 2008, the Company granted 36,000 incentive stock options to purchase
shares of the Company’s common stock under the Plan to an employee at an
exercise price of $0.25 per share, with half of the options vesting on the
date
of grant and the other half vesting on December 31, 2008.
Stock
option activity as of August 31, 2008 is summarized as follows:
|
|
|
Number
of shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
Options
outstanding at August 31, 2006
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
Forfeited
or cancelled
|
|
|
-
|
|
|
-
|
|
|
Options
outstanding at August 31, 2007
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
661,000
|
|
|
.20
|
|
|
Forfeited
or cancelled
|
|
|
(150,000
|
)
|
|
.20
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at August 31, 2008
|
|
$
|
511,000
|
|
$
|
.20
|
|
SHEERVISION,
INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED AUGUST 31, 2008 AND 2007
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Range
of
Exercise
Prices
|
|
Outstanding
|
|
Weighted
Average Remaining Contractual
|
|
Weighted
Average Exercise Price
|
|
Exercisable
|
|
Weighted
Average Exercise Price
|
|
|
$
0.20 - $ 0.25
|
|
|
511,000
|
|
|
9.6
|
|
$
|
0.20
|
|
|
305,500
|
|
$
|
0.20
|
|
The
weighted average grant-date fair value of options granted during the year-ended
August 31, 2008 was $ 0.20.
NOTE
13 - RELATED PARTY TRANSACTIONS
In
April,
2007, the Company entered into a consulting agreement to receive investor and
public relations services. As part of the agreement two of the Company’s major
shareholders who are also officers and directors transferred an aggregate of
306,000 shares of the Company’s common stock to the consultant. For the year
ended August 31, 2008, $10,000 was paid to this consultant and the agreement
has
been terminated. In addition the Company paid consulting fees in the amount
of
$4,000 to an individual who is a relative of a major shareholder, officer and
director of the Company.
This
individual provides consulting services in connection with online marketing
strategies and planning.
On
September 22, 2008, Stephen Rochman was appointed as the Company’s interim Chief
Financial Officer. Mr. Rochman is the founder of Revotech, a contract
manufacturer that supplies the Company with certain components required in
the
production of our SheerVision products. To date, the value of purchases from
Revotech has been immaterial.
SheerVision (CE) (USOTC:SVSO)
Historical Stock Chart
Von Mai 2024 bis Jun 2024
SheerVision (CE) (USOTC:SVSO)
Historical Stock Chart
Von Jun 2023 bis Jun 2024
