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

Unless the context indicates otherwise, any reference to "SheerVision", the "Company", "we", "us", "our" or the "Registrant" refers to SheerVision, Inc., a Delaware corporation, and its subsidiaries as of November 30, 2008.

Overview

SheerVision designs and sells proprietary surgical loupes and light systems for the dental, medical, and veterinary markets. Since our inception in 1999, we have rapidly established a significant base of operations through our strategic marketing programs, aggressive web presence, dedicated sales force, 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 helped minimize our exposure to, and impact of, the 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, we 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.

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 Equivalents

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 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.

Statements of Financial Accounting Standards (SFAS):

SFAS 157, Fair Value Measurements- defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

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

SFAS 162. The Hierarchy of Generally Accepted Accounting Principles -. FAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section, 411 The Meaning of "Present Fairly in Conformity with Generally Accepted Accounting Principles". The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. Generally Accepted Accounting Principles (GAAP).

FASB Staff Positions (FSP):

FSP FAS 142-3, Determination of the Useful Life of Intangible Assets- amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets.

FSP FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 - amends FASB Statement No. 157, Fair Value Measurements.

FSP FAS 157-2, Effective Date of FASB Statement No. 157- delays the effective date of FASB Statement No. 157, Fair Value Measurements.

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

SEC Staff Accounting Bulletin (SAB)

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

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

Results of Operations

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

                                              THREE MONTHS ENDED NOVEMBER 30,
                                               2008                     2007
                                                       (in thousands)
         Net Sales                      $ 1,172       100.0 %    $ 1,124       100.0 %
         Cost of Goods Sold                 466        38.8 %        379        33.7 %
         Gross Profit                       706        60.2 %        745        66.3 %
         Operating Expenses
         Shipping Expenses                   37         3.1 %         31         2.8 %
         Selling Expenses                   297        25.4 %        252        22.4 %
         General & Administrative Exp       294        25.1 %        425        37.8 %
         Product Development Expenses         8         0.6 %         17         1.5 %
         Total Operating Expenses           636        54.2 %        725        64.5 %
         Income from Operations              70         6.0 %         20         1.8 %
         Other Income (Expense)              (3 )      (0.2 )%         1           -
         Provision for Income Tax             1         0.1 %          1           -
         Net Income                     $    66         5.7 %    $    20         1.8 %

First quarter of fiscal year 2009 revenues overall were slightly lower than expected due to delays incurred in the manufacturing process of our power source that supports our LED light systems. We have contracted with additional manufacturers to increase production volume for this product in order to meet the demand on a real-time basis. We anticipate this increased level of production to start during the second quarter of fiscal year 2009.

Through cost cutting efforts in our retail sales and marketing programs we were able to post a first quarter net income of $65,807.

We continue to concentrate efforts on reducing operating costs and streamlining our sales and marketing efforts. As we focus more heavily on distributor relationships to generate sales, the exposure to escalating costs in sales and travel related expenses in the domestic retail market can be mitigated. Through large orders from a growing number of distributors, we anticipate that these efforts will continue to improve the operating income in future quarters.

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

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

Net Sales

Net Sales increased by $48,264, or 4.3%, from $1,124,098 for the quarter ended November 30, 2007 to $1,172,362 for the quarter ended November 30, 2008. This increase was directly related 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 three-month period ended November 30, 2008, OEM and distributor sales represented 62% of total sales as compared to 44% during the three-month period ended November 30, 2007.

Gross Profit

Gross profit decreased by $39,387, or 5.3%, from $745,273 for the quarter ended November 30, 2007 to $705,886 for the quarter ended November 30, 2008. Gross profit was 60.2% of net sales for the three-month period ended November 30, 2008 compared to 66.3% of net sales for the three-month period ended November 30, 2007. The decrease in gross profit and margin was attributable to a reduction in average unit sales price related to our shift from a direct sales strategy to distribution and OEM partnerships which have lower gross margins than retail sales. During the three-month period ended November 30, 2008, distributor sales represented 62% of total sales as compared to 44% during the three month period ended November 30, 2007. 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 gross profit.

Operating Expenses

Operating expenses, which include shipping expenses, selling and marketing expenses, general and administrative expenses and product development decreased by $88,867, or 12.3%, to $636,304 for the quarter ended November 30, 2008 as compared to $725,171 for the quarter ended November 30, 2007.

Shipping expenses increased $5,612 or 18.1% to $36,550 or 3.1% of net sales for the quarter ended November 30, 2008 as compared to $30,938 or 2.8% of net sales for the quarter ended November 30, 2007 attributable to the global increase in transportation costs.

Selling and marketing expenses were $297,423 for the quarter ended November 30, 2008 an increase of $45,322 or 18.0%, compared to $252,101 for the quarter ended November 30, 2007. This increase is mainly related to our enhanced channel sales efforts where we instituted long-range commission and co-op marketing plans. This increase was partially offset by a decrease in our direct sales, marketing, advertising efforts resulting in savings of $39,776.

General and administrative expenses were $294,720 for the quarter ended November 30, 2008 a decrease of $130,771, or 30.7% compared to $425,491 for the quarter ended November 30, 2007. This decrease is directly attributable to a reduction in legal expenses of $145,260 related to the defense and settlement of two competitor lawsuits alleging product copyright, trade dress and patent infringement on specific components of our surgical loupes. This reduction in expenses was partially offset by $20,400 related to the re-institution of the Company's bonus plan which began in fiscal year 2008.

Product development costs decreased by $9,029 or 54.3%, from $16,641 for the quarter ended November 30, 2007 to $7,612 for the quarter ended November 30, 2008. Our elevated light development activity in the quarter ended November 30, 2007, resulted in a decrease in costs as compared to the same period in fiscal year 2009. Product development costs are expected to increase in the future as we continue to expend resources to enhance our existing product lines as well as develop new products.

Income from Operations

Income from operations for the quarter ended November 30, 2008 increased by $49,480 or 246.2% to $69,582 as compared to $20,102 for the quarter ended November 30, 2007. The increase in income is mainly related to the strategic shift we initiated in fiscal year 2008 migrating 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 continued profitability as well as allow for additional resources for continued research and development.

Interest expense for the quarter ended November 30, 2008 was $3,366 as compared to $0 for the quarter ended November 30, 2007. Interest income was $391 for the quarter ended November 30, 2008 as compared to $1,286 in interest income for the quarter ended November 30, 2007. These changes were related to the establishment of a line of credit which we obtained in fiscal year 2008 and the decrease in cash deposits.

Net Income (Loss)

Net income for the quarter ended November 30, 2008 was $65,807 as compared to $19,788 for the quarter ended November, 2007. Earnings per share was $0 for both of the quarters ended November, 2008 and 2007.

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 November 30, 2008, we had cash and equivalents of $290,079.

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

The accompanying condensed 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 November 30, 2008, we had an accumulated deficit of $5,222,854 and negative working capital of $395,330. These factors, among others, raise doubt about our ability to continue as a going concern. In response to these problems, the Company is expanding its revenue base beyond direct sales to OEM and third party sales, aggressively signing up new international distributors through our International Distributor Program and seeking third party financing.

Net cash provided by operating activities was $178,192 and $20,956 for the quarters ended November 30, 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 quarters ended November 30, 2008 and 2007 was $0 and $10,461, respectively.

The Company did not receive or use cash from financing activities during the . . .