UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 x
          QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For
the quarterly period ended October 31, 2009
 
 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 No. 000-52877
 
 CLEAR-LITE
HOLDINGS, INC.
 (Exact
name of registrant in its charter)
 
 Nevada
              
              20-8257363(State
      or other jurisdiction of
              
              (IRS
      EmployerIncorporation
      or organization)
              
              Identification
      No.)
 
 102
NE 2nd
Street #400, Boca Raton, Florida 33432-3908
 (Address
of Principal Executive Offices)(Zip Code)
 
 (561)
544-6966
 (Registrant’s
telephone number, including area code)
 
 Copies
to:




Indicate
by check mark whether the registrant (1) has 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 the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x   
 No o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o   No
o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
 
 Large
      accelerated filer
               ̈
              Accelerated
      filer
               ̈Non-accelerated
      filer
               ̈
              Smaller
      reporting company
              x(Do
      not check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o    Nox
 
 As
of December 21, 2009, there were 56,494,528shares outstanding of
the registrant’s common stock.
 
 
 
 
 CLEAR-LITE
HOLDINGS, INC.
 
 FORM
10-Q
 October
31, 2009
 
 
 
 PART
I-- FINANCIAL INFORMATION
 
 Item
      1.
              Financial
      StatementsItem
      2.
              Management’s
      Discussion and Analysis of Financial ConditionItem
      3.
              Quantitative
      and Qualitative Disclosures About Market RiskItem
      4.
              Control
      and Procedures
 
 PART
II-- OTHER INFORMATION
 
 Item
      1.
              Legal
      ProceedingsItem
      1A.
              Risk
      FactorsItem
      2.
              Unregistered
      Sales of Equity Securities and Use of ProceedsItem
      3.
              Defaults
      Upon Senior SecuritiesItem
      4.
              Submission
      of Matters to a Vote of Security HoldersItem
      5.
              Other
      InformationItem
      6.
              Exhibits
      and Reports on Form 8-K
 
 SIGNATURE
 
 
 
 
 
 ITEM
1. FINANCIAL STATEMENTS.
 
 CLEAR-LITE
HOLDINGS, INC. AND SUBSIDIARY
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE QUARTERLY PERIOD ENDED OCTOBER 31, 2009
 
 
 
     
 
 
  Page(s)Consolidated
      Balance Sheets as of October 31, 2009 (unaudited) (Consolidated) and July
      31, 2009 (audited) –
                  1Statements
      of Operations For the Three Months Ended – October 31, 2009 (Consolidated)
      and October 31, 2008 (unaudited)
                  2Statements
      of Cash Flows For the Three Months Ended – October 31, 2009 (Consolidated)
      and October 31, 2008 (unaudited)
                  3Notes
      to the Consolidated Financial Statements (unaudited)
                  4-22
 
  
 
 
 
 Clear-Lite
      Holdings, Inc. and SubsidiaryBalance SheetsJuly
      31, 2009October
      31, 2009
                  
                  
                  Restated(Unaudited)
                  
                  
                  (Audited)AssetsAssets:Cash
                  
                  $
                  340,102
                  
                  
                  $
                  83,587Accounts
      receivable
                  
                  
                  305,177
                  
                  
                  
                  -Total
      Current Assets
                  
                  
                  645,279
                  
                  
                  
                  83,587Debt
      issue costs - net
                  
                  
                  64,304
                  
                  
                  
                  11,728Total
      Assets
                  
                  $
                  709,583
                  
                  
                  $
                  95,315Liabilities and Stockholders' Equity
      (Deficit)Liabilities:Accounts
      payable and accrued expenses
                  
                  $
                  299,400
                  
                  
                  $
                  61,816Loans
      payable - related parties
                  
                  
                  14,084
                  
                  
                  
                  32,309Note
      payable - other - net of debt discount
                  
                  
                  29,315
                  
                  
                  
                  16,712Accrued
      interest payable
                  
                  
                  1,245
                  
                  
                  
                  710Derivative
      liabilities
                  
                  
                  23,552,595
                  
                  
                  
                  10,440,356Total
      Current Liabilities
                  
                  
                  23,896,639
                  
                  
                  
                  10,551,903Convertible
      notes payable - net of debt discount
                  
                  
                  308,569
                  
                  
                  
                  156,493Total
      Liabilities
                  
                  
                  24,205,208
                  
                  
                  
                  10,708,396Preferred
      Stock, $0.001 par value, 5,000,000 shares authorizedno
      shares issued or outstanding
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, $0.001 par value, 195,000,000 shares authorized,56,494,528
      and 51,944,528 shares issued and outstanding
                  
                  
                  56,494
                  
                  
                  
                  51,945Additional
      paid in capital
                  
                  
                  8,189,678
                  
                  
                  
                  2,810,302Accumulated
      deficit
                  
                  
                  (31,741,797
                  )
                  
                  
                  (13,475,328
                  )Total
      Stockholders'  Equity (Deficit)
                  
                  
                  (23,495,625
                  )
                  
                  
                  (10,613,081
                  )Total
      Liabilities and Stockholders' Equity (Deficit)
                  
                  $
                  709,583
                  
                  
                  $
                  95,315
 
 See
accompanying notes to financial statements
 -1-
 
 
 Clear-Lite
      Holdings, Inc. and SubsidiaryStatements
      of Operations(unaudited)Three
      Months EndedOctober
      31, 2009 (Consolidated)
                  
                  
                  October
      31, 2008Sales
                  
                  $
                  305,114
                  
                  
                  $
                  44,066Cost
      of sales
                  
                  
                  218,753
                  
                  
                  
                  25,945Gross
      profit
                  
                  
                  86,361
                  
                  
                  
                  18,121General
      and administrative expenses
                  
                  
                  5,865,953
                  
                  
                  
                  190,412Loss
      from operations
                  
                  
                  (5,779,592
                  )
                  
                  
                  (172,291
                  )Other
      income (expense) - netOther
      income
                  
                  
                  13,000
                  
                  
                  
                  -Interest
      expense
                  
                  
                  (172,638
                  )
                  
                  
                  -Change
      in fair value of derivative liability
                  
                  
                  (2,110,337
                  )
                  
                  
                  -Derivative
      expense
                  
                  
                  (10,216,902
                  )
                  
                  
                  -Total
      other expense - net
                  
                  
                  (12,486,877
                  )
                  
                  
                  -Net
      loss
                  
                  $
                  (18,266,469
                  )
                  
                  $
                  (172,291
                  )Net
      Loss per Common Share - Basic and Diluted
                  
                  $
                  (0.34
                  )
                  
                  $
                  (0.00
                  )Weighted
      Average Number of Common Shares Outstanding
                  
                  
                  53,428,224
                  
                  
                  
                  51,094,528
 See
accompanying notes to financial statements
 -2-
 
 
 Clear-Lite Holdings, Inc. and
      SubsidiaryStatements
      of Cash Flows(unaudited)Three
      Months EndedOctober
      31, 2009 (Consolidated)
                  
                  
                  October
      31, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (18,266,469
                  )
                  
                  $
                  (172,291
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Amortization
      of debt issue costs
                  
                  
                  7,424
                  
                  
                  
                  -Amortization
      of debt discount
                  
                  
                  164,679
                  
                  
                  
                  -Stock
      issued for services
                  
                  
                  3,458,000
                  
                  
                  
                  -Warrants
      issued for services
                  
                  
                  1,925,925
                  
                  
                  
                  -Gain
      or (loss) on derivative liability
                  
                  
                  12,327,239
                  
                  
                  
                  -Changes
      in operating assets and liabilities:(Increase)
      Decrease in:Accounts
      receivable
                  
                  
                  (305,177
                  )
                  
                  
                  -Increase
      (Decrease) in:Accounts
      payable and accrued expenses
                  
                  
                  237,584
                  
                  
                  
                  3,539Accrued
      interest payable
                  
                  
                  535
                  
                  
                  
                  -Net
      Cash Used in Operating Activities
                  
                  
                  (450,260
                  )
                  
                  
                  (168,752
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Repayments
      on loans payable - related parties
                  
                  
                  (18,225
                  )
                  
                  
                  (982
                  )Proceeds
      from issuance of convertible notes
                  
                  
                  785,000
                  
                  
                  
                  -Payment
      of debt issue costs in cash
                  
                  
                  (60,000
                  )
                  
                  
                  -Net
      Cash Provided By Financing Activities
                  
                  
                  706,775
                  
                  
                  
                  (982
                  )Net
      Increase (Decrease) in Cash
                  
                  
                  256,515
                  
                  
                  
                  (169,734
                  )Cash
      and Cash Equivalents - Beginning of Period
                  
                  
                  83,587
                  
                  
                  
                  203,277Cash
      and Cash Equivalents - End of Period
                  
                  $
                  340,102
                  
                  
                  $
                  33,543SUPPLEMENTARY CASH FLOW
      INFORMATION:Cash
      Paid During the Period for:Income
      taxes
                  
                  $
                  -
                  
                  
                  $
                  -Interest
                  
                  $
                  -
                  
                  
                  $
                  -SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND
      FINANCING ACTIVITIES:Debt
      discount recorded on convertible notes
                  
                  $
                  785,000
                  
                  
                  $
                  -Original
      issue discount
                  
                  
                  157,000
                  
                  
                  $
                  -
 See
accompanying notes to financial statements
 -3-
 
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 Note
1Basis of
Presentation and Nature of Operations
 
 Nature
of operations
 
 Clear-Lite
Holdings, Inc. ("Holdings”, or “ClearLite”), (formerly known as AirtimeDSL) is a
Nevada corporation incorporated on December 28, 2006.  On April 15,
2009 Clear-Lite acquired TAG Industries, Inc. (the “Company”, “TAG”) a Florida
corporation incorporated on July 15, 2005.  See Note 4 for information
regarding a reverse acquisition and recapitalization with a public shell
corporation.
 The
Company offers a broad range of energy saving and environmentally friendly
lighting products. Currently, the Company sells its product through internal
sales staff, dedicated sales representatives, online, and through a variety of
indirect sales channels.
 
 In
connection with the reverse acquisition and recapitalization, all share and per
share amounts have been retroactively restated.  TAG Industries, Inc.
has remained the accounting acquirer through the reverse acquisition
discussed.
 
 Note 2 Summary of
Significant Accounting Policies
  Basis
of Presentation
 
 These
financial statements and related notes are presented in accordance with
accounting principles generally accepted in the United States. Clear-Lite has a
July 31 fiscal year end.
 
 Principles
of consolidation
 
 All
significant intercompany accounts and transactions have been eliminated in
consolidation.
 
 Use
of estimates
 
 The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.
 
 Such
estimates and assumptions impact, among others, the following: the fair value of
warrants granted in connection with various financing transactions, share-based
payments, and the fair value of derivative liabilities.
 
 Making
estimates requires management to exercise significant judgment. It is at least
reasonably possible that the estimate of the effect of a condition, situation or
set of circumstances that existed at the date of the financial statements, which
management considered in formulating its estimate could change in the near term
due to one or more future confirming events. Accordingly, the actual results
could differ significantly from estimates.
   -4-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 Risks
and uncertainties
 
 The
Company operates in an industry that is subject to intense competition and
change in consumer demand. The Company's operations are subject to significant
risk and uncertainties including financial and operational risks including the
potential risk of business failure.
 
 The
Company has experienced, and in the future expects to continue to experience,
variability in sales and earnings. The factors expected to contribute to this
variability include, among others, (i) the intense competition and consumer
acceptance of evolving technology in the lighting industry, (ii) general
economic conditions in the various local markets in which the Company competes,
including the general downturn in the economy over the past year, and
(iii) the volatility of prices pertaining to the lighting space in
connection with the Company’s distribution of product. These factors, among
others, make it difficult to project the Company’s operating results on a
consistent basis.
 
 Cash
and cash equivalents
 
 The
Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.  There were no cash
equivalents at October 31, 2009 and July 31, 2009, respectively.
  The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits.
 
 Accounts
receivable and allowance for doubtful accounts
 
 Accounts
receivable represents trade obligations from customers that are subject to
normal trade collection terms. The Company periodically evaluates the
collectability of its accounts receivable and considers the need to establish an
allowance for doubtful accounts based upon historical collection experience and
specific customer information. Accordingly, the actual amounts could vary from
the recorded allowances. The Company does not charge interest on past due
receivables. Receivables are determined to be past due based on payment terms of
original invoices.
 
 At
October 31, 2009 and July 31, 2009, the Company did not record an allowance for
doubtful accounts.
 
 Debt
Issue Costs and Debt Discount
 
 The
Company has paid debt issue costs, and recorded a debt discount in connection
with raising funds through the issuance of convertible debt during
2009.  These costs are amortized over the life of the debt to interest
expense. If a conversion of the underlying debt occurs, a proportionate share of
the unamortized amounts are immediately expensed.
  -5-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 Original
Issue Discount
 
 For
certain convertible debt issued in 2009, the Company provided the debt holder
with an original issue discount.  The original issue discount was
recorded to debt discount reducing the face amount of the note and is being
amortized to interest expense over the maturity period of the debt.
 
 Fair
value of financial instruments
 
 The
carrying amounts of the Company’s short-term financial instruments, including
the Company’s current assets (exclusive of cash) and current liabilities,
approximate fair value due to the relatively short period to maturity for these
instruments.
 
 Warrants
and Derivative Liabilities
 
 The
Company reviews any common stock purchase warrants and other freestanding
derivative financial instruments at each balance sheet date and will classify on
the balance sheet as:
 
 a)
                Equity
      if they (i) require physical settlement or net-share settlement, or
      (ii) gives us a choice of net-cash settlement or settlement in our
      own shares (physical settlement or net-share settlement), or
      as
  b)
                Assets
      or liabilities if they (i) require net-cash settlement (including a
      requirement to net cash settle the contract if an event occurs and if that
      event is outside our control), or (ii) give the counterparty a choice of
      net-cash settlement or settlement in shares (physical settlement or
      net-share settlement).
  The
Company assesses classification of our common stock purchase warrants and other
freestanding derivatives at each reporting date to determine whether a change in
classification between assets and liabilities is required.
 
 Segment
information
 
 During
2010 and 2009, the Company only operated in one segment; therefore, segment
information has not been presented.
 
 Revenue
recognition
 
 The
Company records sales when all of the following have occurred: (1) persuasive
evidence of an arrangement exists, (2) the product is delivered, (3) the sales
price to the customer is fixed or determinable, and (4) collectability of the
related customer receivable is reasonably assured.  There is no stated
right of return for products.  Sales are recognized upon
shipment.
    -6-
 
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
  Cost
of Sales
 
 Cost of
sales represents costs directly related to the production of the Company’s
products.  Costs include product development, packaging and print
production incurred by the Company’s third party manufacturer.
 
 Advertising
 
 Costs
incurred for producing and communicating advertising for the Company are charged
to operations as incurred. Advertising expense for the three months ended
October 31, 2009 and 2008, was $16,896 and $5,636, respectively.
 
 Share
Based Payments
 
 Generally,
all forms of share-based payments, including stock option grants, restricted
stock grants and stock appreciation rights, are measured at their fair value on
the awards’ grant date, and based on the estimated number of awards that are
ultimately expected to vest. Share-based payment awards issued to non-employees
for services rendered are recorded at either the fair value of the services
rendered or the fair value of the share-based payment, whichever is more readily
determinable. The expense resulting from share-based payments are recorded as a
component of general and administrative expense.
 
 Earnings
per Share
 
 Basic
earnings per share (“EPS”) is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the period, excluding the effects of any potentially dilutive securities.
Diluted EPS gives effect to all dilutive potential of shares of common stock
outstanding during the period including stock options or warrants, using the
treasury stock method (by using the average stock price for the period to
determine the number of shares assumed to be purchased from the exercise of
stock options or warrants), and convertible debt or convertible preferred stock,
using the if-converted method. Diluted EPS excludes all dilutive potential of
shares of common stock if their effect is anti-dilutive.
 
 
 -7-
 
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
  The
computation of basic and diluted loss per share for the quarter ended October
31, 2009 and for the year ended July 31, 2009 excludes the following potentially
dilutive securities because their inclusion would be anti-dilutive due to the
Company’s net loss during the period:
 
 October 31, 2009
                
                
                July 31, 2009Convertible
      notes
                
                
                5,540,000
                
                
                
                2,400,000Stock
      warrants
                
                
                22,706,344
                
                
                
                13,891,694Total
      common stock equivalents
                
                
                28,246,344
                
                
                
                16,291,694
 
 Recent
accounting pronouncements
 
 In
September 2009, the FASB issued Update No. 2009-13,
“Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force” (ASU 2009-13). It updates the existing multiple-element
revenue arrangements guidance currently included under ASC 605-25, which
originated primarily from the guidance in EITF Issue No. 00-21, “Revenue
Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance
primarily provides two significant changes: 1) eliminates the need for objective
and reliable evidence of the fair value for the undelivered element in order for
a delivered item to be treated as a separate unit of accounting, and 2)
eliminates the residual method to allocate the arrangement consideration. In
addition, the guidance also expands the disclosure requirements for revenue
recognition. ASU 2009-13 will be effective for the first annual reporting period
beginning on or after June 15, 2010, with early adoption permitted provided
that the revised guidance is retroactively applied to the beginning of the year
of adoption. The Company is currently assessing the future impact of this new
accounting update to its financial statements.
 
 Effective
July 1, 2009, the Company adopted The “FASB Accounting Standards
Codification” and the Hierarchy of Generally Accepted Accounting Principles (ASC
105). This standard establishes only two levels of U.S. generally accepted
accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB
Accounting Standards Codification (the “Codification”) became the source of
authoritative, nongovernmental GAAP, except for rules and interpretive releases
of the SEC, which are sources of authoritative GAAP for SEC registrants. All
other non-grandfathered, non-SEC accounting literature not included in the
Codification became nonauthoritative. The Company began using the new guidelines
and numbering system prescribed by the Codification when referring to GAAP in
the third quarter of fiscal 2009. As the Codification was not intended to change
or alter existing GAAP, it did not have a material impact on the Company’s
financial statements.
  
 -8-
 Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 
 Effective
June 30, 2009, the Company adopted three accounting standard updates which
were intended to provide additional application guidance and enhanced
disclosures regarding fair value measurements and impairments of securities.
They also provide additional guidelines for estimating fair value in accordance
with fair value accounting. The first update, as codified in ASC 820-10-65,
provides additional guidelines for estimating fair value in accordance with fair
value accounting. The second accounting update, as codified in ASC 320-10-65,
changes accounting requirements for other-than-temporary-impairment
(OTTI) for debt securities by replacing the current requirement that a
holder have the positive intent and ability to hold an impaired security to
recovery in order to conclude an impairment was temporary with a requirement
that an entity conclude it does not intend to sell an impaired security and it
will not be required to sell the security before the recovery of its amortized
cost basis. The third accounting update, as codified in ASC 825-10-65, increases
the frequency of fair value disclosures. These updates were effective for fiscal
years and interim periods ended after June 15, 2009. The adoption of these
accounting updates did not have a material impact on the Company’s financial
statements.
 
 Effective
June 30, 2009, the Company adopted a new accounting standard for subsequent
events, as codified in ASC 855-10. The update modifies the names of the two
types of subsequent events either as recognized subsequent events (previously
referred to in practice as Type I subsequent events) or non-recognized
subsequent events (previously referred to in practice as Type II subsequent
events). In addition, the standard modifies the definition of subsequent events
to refer to events or transactions that occur after the balance sheet date, but
before the financial statements are issued (for public entities) or available to
be issued (for nonpublic entities). It also requires the disclosure of the date
through which subsequent events have been evaluated. The update did not result
in significant changes in the practice of subsequent event disclosures, and
therefore the adoption did not have a material impact on the Company’s financial
statements.
 
 Effective
January 1, 2009, the Company adopted an accounting standard update
regarding the determination of the useful life of intangible assets. As codified
in ASC 350-30-35, this update amends the factors considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under intangibles accounting. It also requires a
consistent approach between the useful life of a recognized intangible asset
under prior business combination accounting and the period of expected cash
flows used to measure the fair value of an asset under the new business
combinations accounting (as currently codified under ASC 850). The update also
requires enhanced disclosures when an intangible asset’s expected future cash
flows are affected by an entity’s intent and/or ability to renew or extend the
arrangement. The adoption did not have a material impact on the Company’s
financial statements.
   -9-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 In
February 2008, the FASB issued an accounting standard update that delayed
the effective date of fair value measurements accounting for all non-financial
assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until the beginning of the first quarter of fiscal 2009. These
include goodwill and other non-amortizable intangible assets. The Company
adopted this accounting standard update effective January 1, 2009. The
adoption of this update to non-financial assets and liabilities, as codified in
ASC 820-10, did not have a material impact on the Company’s financial
statements.
 
 Effective
January 1, 2009, the Company adopted a new accounting standard update
regarding business combinations. As codified under ASC 805, this update requires
an entity to recognize the assets acquired, liabilities assumed, contractual
contingencies, and contingent consideration at their fair value on the
acquisition date. It further requires that acquisition-related costs be
recognized separately from the acquisition and expensed as incurred; that
restructuring costs generally be expensed in periods subsequent to the
acquisition date; and that changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after the measurement
period be recognized as a component of provision for taxes. The adoption did not
have a material impact on the Company’s financial statements.
 
 In
September 2009, the FASB issued Update No. 2009-13,
“Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force” (ASU 2009-13). It updates the existing multiple-element
revenue arrangements guidance currently included under ASC 605-25, which
originated primarily from the guidance in EITF Issue No. 00-21, “Revenue
Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance
primarily provides two significant changes: 1) eliminates the need for objective
and reliable evidence of the fair value for the undelivered element in order for
a delivered item to be treated as a separate unit of accounting, and 2)
eliminates the residual method to allocate the arrangement consideration. In
addition, the guidance also expands the disclosure requirements for revenue
recognition. ASU 2009-13 will be effective for the first annual reporting period
beginning on or after June 15, 2010, with early adoption permitted provided
that the revised guidance is retroactively applied to the beginning of the year
of adoption. The Company is currently assessing the future impact of this new
accounting update to its financial statements.
 
 Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification(the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
 
  -10-
 
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
  Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Company’s results of operations or financial condition.
 
 Note 3 Going Concern and
Liquidity
 
 As
reflected in the accompanying consolidated financial statements, the Company has
a net loss of $18,266,469 and net cash used in operations of $450,260 for the
three months ended October 31, 2009; a working capital deficit of $23,251,360,
and has and a stockholders’ deficit of $23,495,625 at October 31,
2009.
 
 The
ability of the Company to continue its operations is dependent on Management's
plans, which include the raising of capital through debt and/or equity markets
with some additional funding from other traditional financing sources, including
term notes and convertible notes, until such time that funds provided by
operations are sufficient to fund working capital requirements.  The
Company may need to incur additional liabilities with certain related parties to
sustain the Company’s existence.
 
 The
Company will require additional funding to finance the growth of its current and
expected future operations as well as to achieve its strategic
objectives.  The Company believes its current available cash along
with anticipated revenues may be insufficient to meet its cash needs for the
near future.  There can be no assurance that financing will be
available in amounts or terms acceptable to the Company, if at all. The Company
believes that the utilization of its products may provide future positive cash
flows. The Company currently has limited customers, in the event that these
relationships with these customers were to cease to exist, there are no
assurances that a new customer group could be obtained.
 
 The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.  These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
   -11-
 Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 In
response to these problems, management has taken the following
actions:
  ●
                Raising
      additional capital through convertible note
  offerings
  ●
                the
      Company is aggressively signing up new international
      distributors
  ●
                The
      Company has re-commenced sales during August
  2009
 
 Note 4 Reverse Acquisition
and Recapitalization and Share Purchase Agreement
 
 On April
15, 2009, Clear-Lite, (formerly known as AirtimeDSL), a then public shell
corporation, merged with TAG Industries, Inc. and TAG became the surviving
corporation, in a transaction treated as a reverse acquisition. Clear-Lite did
not have any operations and majority-voting control was transferred to TAG. The
transaction required a recapitalization of TAG. Since TAG acquired a controlling
voting interest, it was deemed the accounting acquirer, while Clear-Lite was
deemed the legal acquirer. The historical financial statements of the Company
are those of TAG, and of the consolidated entities from the date of merger and
subsequent.
 
 Since the
transaction is considered a reverse acquisition and recapitalization, accounting
guidance does not apply for purposes of presenting pro-forma financial
information.
 
 Pursuant
to the merger, Clear-Lite two majority stockholders cancelled 40,050,000 shares
of common stock and concurrently issued 22,671,875 shares of common stock to
TAG.  Upon the closing of the reverse acquisition, TAG stockholders
held 52% of the issued and outstanding shares of common stock.  TAG is
deemed the accounting acquirer and the 24,062,500 shares of Clear-Lite were
retrospectively included in the common stock issuances of the Company to
properly reflect the outstanding shares of common stock prior to the reverse
acquisition and recapitalization.
 
 Note 5Debt
 
 (A)
                Loans
      Payable – Related Parties
 
 The
Company is indebted to an officer, director and shareholder for cash advances
and unreimbursed expenses incurred on its behalf. The Company owed $14,084 and
$32,309 at October 31, 2009 and July 31, 2009, respectively. These loans are
unsecured, non interest bearing and due upon demand.
 
 (B)
                Loans
      Payable – Other
 
 On March
31, 2009, the Company issued a loan of $100,000.  The loan bears
interest at Prime plus one percent. The note is unsecured and due on
demand.  This loan was repaid in full on November 6,
2009.
  -12-
 Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 a.
                The
      loan is subject to voluntary conversion if, at any time after closing, a
      reverse acquisition with a public shell company, the Company completes a
      private placement (“new financing”) of private placement offering of an
      aggregate amount of $500,000. The holder will obtain all the rights
      granted within such offering.
 
 b.
                In
      connection with the voluntary conversion, the Company has determined that
      fair value is applicable.
 
 c.
                The
      Company computed the fair value of the conversion feature and the
      potential warrants  based on the following management
      assumptions:
 
 Expected
      dividends
                0%Expected
      volatility
                319%Expected
      term: conversion feature
                2
      yearsExpected
      term: warrants
                5
      yearsRisk
      free interest rate
                0.88%
      - 2.46%
  d.
                The
      Company classified the conversion feature and warrants as a derivative
      liability due to management’s assessment that the Company may not have the
      authorized number of shares required to net-share settle.  See
      Note 5(C)(3) for valuation and
expense.
 
 (C)
                Convertible
      Debt and Warrants
 
 1.
                During
      the period ended July 31, 2009, the Company issued $720,000 convertible
      notes with a maturity of 2 years and bearing interest at 10% for cash
      proceeds of $600,000.  These notes are
  unsecured.
 
 a.
                The
      original issue discount was recorded to debt discount, reducing the
      carrying amount of the note, and is being amortized over the life of the
      note.
 b.
                The
      notes are convertible at $0.30 per share, or 2,400,000 shares of common
      stock.
 c.
                The
      notes contain a provision in which the conversion price can be reduced in
      any future event the Company issues any security or debt instrument with a
      lower consideration per share.
 d.
                Noteholder
      received Series “A” and Series “B”
warrants
 i.
                The
      Noteholder is entitled to 1 Series “A” and 1 Series “B” warrant for each
      share that the convertible debt converts
into
 ii.
                Conversion
      price is $0.30 per share for Series “A” and $0.60 per share for Series
      “B”.
 iii.
                Expiration
      of 5 years
 iv.
                As
      a result, the Company issued 2,400,000 Series “A” warrants and 2,400,000
      Series “B” warrants
  -13-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 2.
                During
      the quarter ended October 31, 2009, the Company issued $942,000
      convertible notes with a maturity of 2 years and bearing interest at 10%
      for cash proceeds of $785,000.  These notes are
      unsecured.
 
 a.
                The
      original issue discount was recorded to debt discount, reducing the
      carrying amount of the note, and is being amortized over the life of the
      note.
 b.
                The
      notes are convertible at $0.30 per share, or 3,140,000 shares of common
      stock.
 c.
                The
      Notes contain a provision in which the conversion price will be reduced in
      any event the Company issues any security or debt instrument with a lower
      consideration per share.
 d.
                Noteholder
      received Series “A” and Series “B”
warrants
 i.
                The
      Noteholder received 1 Series “A” and 1 Series “B” warrant for each
      convertible share
 ii.
                Conversion
      price is $0.30 per share for Series “A” and $0.60 per share for Series
      “B”.
 iii.
                Expiration
      of 5 years
 iv.
                As
      a result, the Company issued 3,140,000 Series “A” warrants and 3,140,000
      Series “B” warrants
 e.
                The
      Company has determined that fair value accounting is applicable. The
      Company classified the conversion feature and warrants as a derivative
      liability due to management’s assessment that the Company may not have the
      authorized number of shares required to net-share
  settle.
 f.
                The
      Company computed the fair value of the conversion feature and the
      warrants  based on the following management
      assumptions:
 
 Expected
      dividends
                0%Expected
      volatility
                319%Expected
      term: conversion feature
                2
      yearsExpected
      term: warrants
                5
      yearsRisk
      free interest rate
                0.88%
      - 2.46%
 
 3.
                The
      Company identified conversion features embedded within the convertible
      notes and warrants previously granted. The Company determined that the
      embedded conversion feature and the warrant grants (ratchet down of
      exercise price based upon lower exercise price in any future offerings)
      are not indexed to the Company’s own stock and, therefore, is an embedded
      derivative financial liability (the “Embedded Derivative”), which requires
      bifurcation and to be separately accounted for pursuant to ASC
      815-40-25.  At the commitment date, the Company originally
      recorded these debt instruments as conventional convertible
      debt.  However, the Company has determined that the features
      associated with the embedded conversion option and warrants should be
      accounted for at fair value as a derivative liability.  At each
      reporting period, the Company marks these derivative financial instruments
      to fair value.As a result of the application of ASC 815-40-15, the fair value of the
      conversion features and warrants are summarized as
      follow:
   -14-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 Fair
      value at the commitment date for convertible notes and warrants issued
      during the period January 1, 2009 to July 31, 2009
                
                $
                8,532,567Fair
      value mark to market adjustment at July 31, 2009
                
                
                1,907,790Derivative
      liability balance at July 31, 2009
                
                
                10,440,357Fair
      value at the commitment date for convertible notes and warrants issued
      during the three months ended October 31, 2009
                
                
                11,001,902Fair
      value mark to market adjustment at October 31, 2009
                
                
                2,110,337Derivative
      liability balance at October 31, 2009
                
                $
                23,552,595
 
 The
Company recorded the derivative liability to debt discount to the extent of the
face amount of the notes and expensed immediately the remaining value of the
derivative as it exceeded the face amount of the note.  The Company
recorded a derivative expense for the period January 1, 2009 to July 31, 2009 in
the amount of $7,832,567, and $10,216,902 for the quarter ended October 31,
2009.
 
 The
Company measured the fair value of the conversion features and warrants using a
Black-Scholes valuation model based upon the date in which ASC 815-40-15, if
effective, would have established a commitment date since these warrants were
not indexed to the Company’s own stock. The fair value at issuance was based
upon the following management assumptions:
 
 Expected
      dividends
                0%Expected
      volatility
                319%Expected
      term: conversion feature
                2
      yearsExpected
      term: warrants
                5
      yearsRisk
      free interest rate
                0.88%
      - 2.46%
 
 Mark
to Market
 
 At July
31, 2009 and October 31, 2009,  the Company remeasured the conversion
features and  recorded a fair value adjustment of $1,907,790 and
$2,110,337, respectively.  The following management assumptions were
considered:
  -15-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 July 31,
2009:
 
 Exercise
      price
                $0.30
      - $0.60Expected
      dividends
                0%Expected
      volatility
                319%Risk
      fee interest rate
                1.13
      - 2.53%Expected
      life of conversion features in years
                1.67
      - 1.81Expected
      life of warrants in years
                4.67
      – 4.82
  October
31, 2009:
 
 Exercise
      price
                $0.30
      - $0.60Expected
      dividends
                0%Expected
      volatility
                319%Risk
      fee interest rate
                0.90
      - 2.29%Expected
      life of conversion features in years
                1.41
      – 1.95Expected
      life of warrants in years
                4.42
      – 4.95Expected
      forfeitures
                0%
 
 Note 6 Fair
Value
 
 The
Company has categorized our assets and liabilities recorded at fair value based
upon the fair value hierarchy specified by GAAP.
 
 The
levels of fair value hierarchy are as follows:
 
 ●
                Level
      1 inputs utilize unadjusted quoted prices in active markets for identical
      assets or liabilities that the Company has the ability to
      access;
  ●
                Level
      2 inputs utilize other-than-quoted prices that are observable, either
      directly or indirectly. Level 2 inputs include quoted prices for similar
      assets and liabilities in active markets, and inputs such as interest
      rates and yield curves that are observable at commonly quoted intervals;
      and
  ●
                Level
      3 inputs are unobservable and are typically based on our own assumptions,
      including situations where there is little, if any, market
      activity.
  In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the Company categorizes such
financial asset or liability based on the lowest level input that is significant
to the fair value measurement in its entirety. Our assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or
liability.
  Both
observable and unobservable inputs may be used to determine the fair value of
positions that are classified within the Level 3 category. As a result, the
unrealized gains and losses for assets within the Level 3 category
presented in the tables below may include changes in fair value that were
attributable to both observable and unobservable inputs.
   -16-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
   The
following are the major categories of liabilities measured at fair value on a
nonrecurring basis during the year ended October 31, 2009 and July 31, 2009,
using quoted prices in active markets for identical liabilities (Level 1);
significant other observable inputs (Level 2); and significant unobservable
inputs (Level 3):
  
  Level 1:
                  Quoted Prices in Active Markets for Identical
      Liabilities
                
                
                Level 2:
                  Significant Other Observable
      Inputs
                
                
                Level 3:
                  Significant Unobservable
    Inputs
                
                
                Total at October 31, 2009Derivative
      Liabilities
                
                $
                -
                
                
                $
                -
                
                
                $
                23,552,595
                
                
                $
                23,552,595Total
                
                $
                -
                
                
                $
                -
                
                
                $
                23,552,595
                
                
                $
                23,552,595
 
 
 Level 1:
                  Quoted Prices in Active Markets for Identical
      Liabilities
                
                
                Level 2:
                  Significant Other Observable
      Inputs
                
                
                Level 3:
                  Significant Unobservable
    Inputs
                
                
                Total at July 31, 2009Derivative
      Liabilities
                
                $
                -
                
                
                $
                -
                
                
                $
                10,440,356
                
                
                $
                10,440,356Total
                
                $
                -
                
                
                $
                -
                
                
                $
                10,440,356
                
                
                $
                10,440,356
 
 (D)
                Debt
      Issuance Costs
 
 During
the period ended July 31, 2009, in connection with raising convertible debt, the
Company paid debt issue costs totaling $15,500.  During the period
January 1, 2009 to July 31, 2009, the Company amortized $3,772.
 
 During
the quarter ended October 31, 2009, in connection with raising convertible debt,
the Company paid debt issue costs totaling $60,000.  During the
quarter ended October 31, 2009, the Company amortized $7,424.
   -17-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 Total
debt issue costs are as follows:
 
 Debt
      issue costs – net – July 31, 2009
                
                $
                11,728Debt
      issue costs paid - 2010
                
                
                60,000Amortization
      of debt issue costs - 2010
                
                
                (7,424
                )Debt
      issue costs – net - October 31, 2009
                
                $
                64,304
 
 Note 7 Stockholders’ Equity
(Deficit)
 
 (A)
                Common
      Stock
 
 For
the Period Ended July 31, 2009
 
 On April
21, 2009, the Company issued 100,000 common shares to a strategic partner for
services rendered, having a fair value of $101,000
($1.01/share).  Fair value was based upon the quoted closing trading
price of the Company’s common stock.
 
 On July
15, 2009, the Company issued 150,000 common shares in connection with certain
convertible debt holders waiving their underlying registration rights on their
convertible debt. The fair value of these stock issuances was $151,500
($1.01/share), based upon the quoted closing trading price of the Company’s
common stock.
 
 On July
31, 2009, the Company issued 300,000 common shares to a strategic partner for
services rendered, having a fair value of $375,000
($1.25/share).  Fair value was based upon the quoted closing trading
price of the Company’s common stock.
 
 On July
31, 2009, the Company issued 300,000 common shares to the Company’s new Chief
Financial Officer as a sign on bonus, having a fair value of $375,000
($1.25/share).  Fair value was based upon the quoted closing trading
price of the Company’s common stock.
 
 For
the Three Months Ended October  31, 2009
 
 On
October 1, 2009, the Company issued 4,550,000 common shares for services
rendered, having a fair value of $3,458,000 ($0.76/share).  Fair value
was based upon the quoted closing trading price of the Company’s common
stock.
 
 (B)
                Warrants
      Issued for Services
 
 On
October 31, 2009, the Company granted 2,534,650, five year stock purchase
warrants, to purchase shares of the Company’s common stock at an exercise price
of $0.30.
 
 The
Company determined the fair value of these warrants was $1,925,925, based upon
the following management assumptions:
 
 Expected
      dividends
                0%Expected
      volatility
                319%Expected
      term
                5
      yearsRisk
      free interest rate
                2.31%
 
  -18-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 (C)
                Warrants
 
 The
following is a summary of the Company’s warrant activity:
 
 Warrants
                
                
                Weighted Average
                  Exercise PriceBalance
      - December 31, 2008
                
                
                9,091,694
                
                
                $
                0.25Granted
                
                
                4,800,000
                
                
                $
                0.45Exercised
                
                
                -
                
                
                $
                -Forfeited/Cancelled
                
                
                -
                
                
                $
                -Outstanding
      – July 31, 2009
                
                
                13,891,694
                
                
                $
                0.32Exercisable
      - July 31, 2009
                
                
                13,891,694
                
                
                $
                0.32Granted
                
                
                8,814,650
                
                
                $
                0.41Exercised
                
                
                -
                
                
                $
                -Forfeited/Cancelled
                
                
                -
                
                
                $
                -Outstanding
      – October 31, 2009
                
                
                22,706,344
                
                
                $
                0.35Exercisable
      – October 31, 2009
                
                
                22,706,344
                
                
                $
                0.35
   Warrants Outstanding
                  
                  
                  Warrants ExercisableRange
      of
                    exercise price
                  
                  
                  Number
                    Outstanding
                  
                  Weighted Average Remaining
                    Contractual Life
                    (in years)
                  
                  Weighted Average
                    Exercise Price
                  
                  
                  Number
                    Exercisable
                  
                  
                  Weighted Average
                    Exercise Price$0.25
      - $0.60
                  
                  
                  
                  22,706,344
                  
                  4.47
      years
                  
                  
                  $0.35
                  
                  
                  
                  22,706,344
                  
                  
                  
                  $0.35
  At
October 31, 2009 and July 31, 2009, the total intrinsic value of warrants
outstanding and exercisable was $22,180,119 and $13,012,694,
respectively.
 
 Note 8
Concentrations
 
 The
Company had the following concentrations:
 
 (A) Accounts
Receivable
 
 Customer
                October 31, 2009
                July 31, 2009A
                50%
                -%B
                50%
                -%
   -19-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 (B) Sales
 
 Customer
                October 31, 2009
                October 31, 2008A
                50%
                100%B
                50%
                -%
 
 (C)  Accounts Payable
 
 Vendor
                October 31, 2009
                July 31, 2009A
                99%
                -%
 
 (D)  Purchases
  Vendor
                October 31, 2009
                October 31, 2008A
                98%
                72%
 
 Note 9 Commitments and
Contingencies
 
 Litigations,
Claims and Assessments
 
 From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. The Company is
currently not aware of any such legal proceedings or claims that they believe
will have, individually or in the aggregate, a material adverse affect on its
business, financial condition or operating results.
 
 Employment
Agreement
 
 On July
31, 2009, the Company entered into an employment agreement with its Chief
Financial Officer. The terms of the agreement are as follows:
 
 ●      2
year term
 ●
                Cash
      for services rendered by the CFO’s accounting firm at $34,000 for the
      period July 31, 2009 through December 31, 2009 dependant on the need for
      additional services not outlined in the employment
      contract.  During 2010, the services will be performed for a
      $48,000.
 ●
                300,000
      shares of the Company’s common stock (see Note
  6(A))
   -20-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 
 Note 10
Restatement
  During
November 2009, the Company discovered a misclassification requiring a
restatement of previously issued financial statements issued for the period
January 1, 2009 to July 31, 2009. The accompanying financial statements have
been adjusted to reflect the restated amounts.
  The
Company identified conversion features embedded within the convertible notes and
warrants previously granted. The Company determined that the embedded conversion
feature and the warrant grants (ratchet down of exercise price based upon lower
exercise price in any future offerings) are not indexed to the Company’s own
stock and, therefore, is an embedded derivative financial liability (the
“Embedded Derivative”), which requires bifurcation and to be separately
accounted for pursuant to ASC 815-40-25.  At the commitment date, the
Company originally recorded these debt instruments as conventional convertible
debt.  However, the Company has determined that the features
associated with the embedded conversion option and warrants should be accounted
for at fair value as a derivative liability.  At each reporting
period, the Company marks these derivative financial instruments to fair
value.
  The
following is a summary of accounts affected by the restatement:
 
 As Restated
                
                
                Adjustment
                
                
                As Previously ReportedLoans
      payable – other – net of debt discount
                
                $
                16,712
                
                
                $
                (83,288
                )
                
                $
                100,000Derivative
      liabilities
                
                $
                10,440,356
                
                
                $
                10,440,356
                
                
                $
                -Accumulated
      deficit
                
                $
                (13,475,328
                )
                
                $
                (9,757,068
                )
                
                $
                (3,718,260
                )Total
      stockholders’ deficit
                
                $
                (10,613,082
                )
                
                $
                (10,357,068
                )
                
                $
                (256,014
                )Derivative
      expense
                
                $
                9,740,356
                
                
                $
                9,740,356
                
                
                $
                -Interest
      expense
                
                $
                329,227
                
                
                $
                16,712
                
                
                $
                312,515Net
      Loss
                
                $
                (11,634,996
                )
                
                $
                (9,757,068
                )
                
                $
                (1,877,928
                )Net
      loss per share- Basic and Diluted
                
                $
                (0.23
                )
                
                $
                (0.20
                )
                
                $
                (0.03
                )
  Note 11 Subsequent
Events
  The
Company has evaluated for subsequent events between the balance sheet date of
October 31,  2009 and December 21, 2009, the date the financial
statements were issued.
 
 (A)
                Convertible
      Debt and Warrants
 
 Debt
Issued with Series A and B Warrants
 
 1.
                During
      the
      period ended November 1, 2009 through December 21, 2009, the Company
      issued $150,000 convertible notes with a maturity of 2 years and bearing
      interest at 10% for cash proceeds of $125,000.  These notes are
      unsecured.
   -21-
  Clear-Lite
Holdings, Inc. and Subsidiary
 Notes
to Consolidated Financial Statements
 October
31, 2009
 (unaudited)
 a.
                The
      original issue discount was recorded to debt discount, reducing the
      carrying amount of the note, and is being amortized over the life of the
      note.
 b.
                The
      notes are convertible at $0.30 per share, or 500,000 shares of common
      stock.
 c.
                The
      Notes contain a provision in which the conversion price will be reduced in
      any event the Company issues any security or debt instrument with a lower
      consideration per share.
 d.
                Noteholder
      received Series “A” and Series “B”
warrants
 i.
                The
      Noteholder received 1 Series “A” and 1 Series “B” warrant for each
      convertible share
 ii.
                Conversion
      price is $0.30 per share for Series “A” and $0.60 per share for Series
      “B”.
 iii.
                Expiration
      of 5 years.
 iv.
                As
      a result, the Company issued 500,000 Series “A” warrants and 500,000
      Series “B” warrants.
 e.
                The
      Company has determined that fair value accounting is applicable. The
      Company classified the conversion feature and warrants as a derivative
      liability due to management’s assessment that the Company may not have the
      authorized number of shares required to net-share
  settle.
 f.
                The
      Company computed the fair value of the conversion feature and the
      warrants  based on the following management
      assumptions:
 
 Expected
      dividends
                0%Expected
      volatility
                319%Expected
      term conversion features
                2
      yearsExpected
      term warrants
                5
      yearsRisk
      free interest rate
                0.73%
      - 2.39%
 
 g.
                The
      Company identified conversion features embedded within the convertible
      notes and warrants. The Company determined that the embedded conversion
      feature and the warrant grants (ratchet down of exercise price based upon
      lower exercise price in any future offerings) are not indexed to the
      Company’s own stock and, therefore, is an embedded derivative financial
      liability (the “Embedded Derivative”), which requires bifurcation and to
      be separately accounted for pursuant to ASC 815-40-25.  At the
      commitment date, the Company originally recorded these debt instruments as
      conventional convertible debt.  However, the Company has
      determined that the features associated with the embedded conversion
      option and warrants should be accounted for at fair value as a derivative
      liability.  At each reporting period, the Company will mark
      these derivative financial instruments to fair
  value.
 -22-
 ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
 
 Forward-Looking
Information
 
 You
should read the following discussion and analysis of our financial condition and
plan of operations together with our financial statements and related notes
appearing elsewhere in this Quarterly Report.  Various statements have been
made in this Quarterly Report on Form 10-Q that may constitute “forward-looking
statements”. Forward-looking statements may also be made in Clear-Lite’s other
reports filed with or furnished to the United States Securities and Exchange
Commission (the "SEC") and in other documents. In addition, from time to time,
Clear-Lite through its management may make oral forward-looking statements.
Forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ materially from such statements. The words
“believe,” “expect,” “anticipate,” “optimistic,” “intend,” “plan,” “aim,”
“will,” “may,” “should,” “could,” “would,” “likely” and similar expressions are
intended to identify forward-looking statements. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date on which they are made. Clear-Lite undertakes no obligation to
update or revise any forward-looking statements.
 
 Plan of
Operation
 
 We are
positioned as a green lighting alternative that offers environmentally friendly
lighting products.  The Company, with the ClearLite(R) brand and
private brands, will sell energy-efficient and technologically advanced lighting
products including lamps and light fixtures to the retail and I/C
markets.
 
 Our goal
is to provide an easy pathway for consumers and organizations to adopt as many
green lighting solutions as their budgets will accommodate. To do this, the
Company will offer both retail and industrial/commercial solutions that
emphasize the importance of the environment, costs savings and better light
alternatives.
 
 We plan
to focus on developing the following operational characteristics:
 
 •  Rapid
turnaround from concept to delivery; first to market.
 •  Prompt,
high quality, one-call customer service.
 •  Highly
informed sales people with great tips for greening.
 •  Strong
communication and collaboration among product distributors and service providers
to ensure a seamless customer
 experience.
 •  Outsourced
technical support and quality control.
 
 All of
the above will be supported by our fulfillment partners. They will own and
maintain the proper inventory levels. They will also provide the day-to-day
inventory management and order processing controls, such as EDI.
 
 Our plan
of action over the next twelve months is to continue its operations to
manufacture and distribute energy saving and environmentally friendly lighting
products and raise additional capital financing, if necessary, to sustain
operations.
 
 Results
of Operations
 Summary
Income Statement for the three months ended October 31, 2009 and
2008.
 
 October
      31, 2009
              
              
              October
      31, 2008Sales
              
              $
              305,114
              
              
              $
              44,066Gross
      profit
              
              $
              86,361
              
              
              $
              18,121General
      and administrative expenses
              
              $
              5,865,953
              
              
              $
              190,412Other
      Income
              
              $
              13,000
              
              
              $
              -Interest
      expense
              
              $
              (172,638)
              
              
              $
              -Change
      in fair value of derivative liability
              
              $
              (12,327,239
              )
              
              $
              -Net
      loss
              
              $
              (18,266,469
              )
              
              $
              (172,291
              )Loss
      per Share
              
              $
              (0.34
              )
              
              $
              (0.00
              )
 
  -23-
  For the
three months ended October 31, 2009 as compared to the three months ended
October 31, 2008, the Company reported a net loss of $(18,266,469), or $(0.34)
per share and a net loss of $(172,291) or $(0.00) per share, respectively. The
change in net loss between periods was primarily attributable to four
significant events:  The Company prepared for and completed a reverse
acquisition with a public company on April 15, 2009.  The Company
experienced significant professional expenses with this undertaking, both in
cash compensation as well as equity based payments. As management prepared for
this event, significant time, effort and focus was shifted from marketing the
product line to completing the transaction and establishing proper controls for
a publicly traded company.  During this period, management also
enhanced the company’s product line, resulting in a more comprehensive product
being offered to the marketplace.  Throughout 2009, the Company raised
capital through several convertible note offerings.  Embedded within
the terms of each note offerings were terms that the company had to account for
at fair value, resulting in tremendous non-cash
expenses.  Finally,   the economic marketplace
significantly declined during the fourth quarter of 2008 and during the period
January 1, 2009 through July 31, 2009.  As a result, sales declined
significantly.
 Sales:
Sales increased $261,048 during the three months ended October 31, 2009, up from
$44,066 during the three months ended October 31, 2008.  The increase
in sales is attributable to the Company completing product enhancements and
changing focus from completing the reverse acquisition with a public company
toward establishing a position in the marketplace. The Company re-commenced
sales in August of 2009.  Subsequent October 31, 2009, the Company had
additional gross sales of $152,177.
 
 Gross
profit: Gross profit increased $68,240 during the three months ended October 31,
2009, up from $18,121 during the three months ended October 31,
2008.  The increase in gross profit is reflective of increased sales
since the Company re-entered the marketplace.
 
 General
and Administrative Expense: General and administrative expenses increased
$5,675,541 to $5,865,953 during the three months ended October 31, 2009, up from
$190,412 during the three months ended October 31, 2008.  The increase
in general and administrative expenses is primarily attributable to an increase
in stock based compensation of approximately $5,384,000, an increase in salaries
and wages and related payroll expenses of approximately $67,000, an increase in
travel related expenses of approximately $35,000, a increase in insurances of
approximately $53,000, an increase in consulting and professional fees of
approximately $102,000, an increase in promotional expenses of approximately
$12,000, and an increase in commissions of approximately $23,000.
 
 Interest
expense: Interest expense increased by approximately $172,638 to $172,638 for
three months ended October 31, 2009 as compared to $0 during the three months
ended October 31, 2008.  The increase is primarily attributable to the
interest accrued on the Company’s convertible notes and loans payable,
amortization of debt discount of the discounts incurred on the issuance of the
convertible notes, and amortization of debt issuance costs incurred on the raise
of convertible notes.
 
 Loss on
derivative liability:  Throughout 2009, the Company raised capital
through a convertible note offering.  Embedded within the terms of the
note offering were terms that the company had to account for at fair value,
resulting in tremendous non-cash expenses.
 
 Going
Concern: As shown in the accompanying financial statements, the Company incurred
a net loss of $(18,266,469) during the three months ended October 31, 2009, and
as of that date, the Company had a working capital deficit of $23,251,360 and an
accumulated deficit of $(31,741,797) Those factors raise substantial doubt about
the Company’s ability to continue as a going concern.
 
 Management
of the Company plans to address this concern by doing the
following:
 
 Raising
additional capital through convertible note offerings.
 The
Company recommenced sales during August of 2009.
 Continuing
to increase brand awareness for the Company’s product lines.
 The
ability of the Company to continue as a going concern is dependent on its
ability to do all or most of the above listed steps. As illustrated above, the
Company has already been successful in setting its plan in action and looks
forward to further progress as the year progresses.
  Liquidity
and Capital Resources
 The
following table summarizes total current assets, liabilities and working capital
at October 31, 2009 compared to July 31, 2009.
 
 October
      31,
                2009
              
              
              July 31,
                2009
              
              
              Increase/(Decrease)Current
      Assets
              
              $
              645,279
              
              
              $
              83,587
              
              
              $
              561,692Current
      Liabilities
              
              $
              23,896,639
              
              
              $
              10,551,903
              
              
              $
              13,344,736Working
      Capital (Deficit)
              
              $
              (23,251,360
              )
              
              $
              (10,468,316)
              
              
              $
              (12,783,044)
 
 As of
October 31, 2009, we had working capital deficit of $(23,251,360) as compared to
a working capital deficit of $(10,468,316) as of July 31, 2009, an decrease of
$(12,783,044). The decrease is primarily a result the recognition of derivative
liabilities embedded in the company’s financial instruments, offset by of an
increase in cash of $256,515 and an increase in accounts receivable of $305,177,
offset by an increase in accounts payable and accrued expenses of
$228,085.
   -24-
 
 Net cash
used for operating activities for the three months ended October 31, 2009 was
$(450,260). The Net loss for the three months ended October 31, 2009 was
$(18,266,469).
 
 Net cash
obtained through all financing activities for the three months ended October 31,
2009 was $706,775 as compared to $0 for the three months ended October 31,
2008.
 
 Management
anticipates being able to fund the Company’s foreseeable liquidity requirements
through the financing it will continue to obtain during the rest of 2009.
However, the Company can give no assurances that any more financing will be
consummated. The Company continues to explore potential expansion opportunities
in the industry in order to boost sales, while leveraging distribution systems
to consolidate lower costs.  We expect that our operations will
require approximately $50,000 per month for the next twelve months. We do not
have sufficient cash reserves for the next twelve months and we plan to seek
additional capital from the issuance of our debt or equity
instruments.
 
 Critical Accounting Policies
and Estimates
 
 We have
identified critical accounting principles that affect our consolidated
financial statements by considering accounting policies that involve the most
complex or subjective decisions or assessments as well as considering newly
adopted principals.  They are:
 
 Use of
Estimates, Going Concern Consideration – The preparation of financial statements
in conformity with generally accepted accounting principles 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 and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.  Among the estimates we have made in the
preparation of the financial statements is an estimate of our projected
revenues, expenses and cash flows in making the disclosures about our liquidity
in this report.  As an early stage company, many variables may affect
our estimates of cash flows that could materially alter our view of our
liquidity and capital requirements as our business develops.  Our
consolidated financial statements have been prepared assuming we are a “going
concern”.  No adjustment has been made in the consolidated financial
statements which could result should we be unable to continue as a going
concern.
 
 Share-Based
Compensation - US GAAP requires public companies to expense employee
share-based payments (including options, restricted stock units and performance
stock units) based on fair value.  We must use our judgment to
determine key factors in determining the fair value of the share-based payment,
such as volatility, forfeiture rates and the expected term in which the award
will be outstanding.
 Warrants
and derivative liabilities - The Company reviews any common stock purchase
warrants and other freestanding derivative financial instruments at each balance
sheet date and will classify on the balance sheet as:
 
 a)       Equity
if they (i) require physical settlement or net-share settlement, or
(ii) gives us a choice of net-cash settlement or settlement in our own
shares (physical settlement or net-share settlement), or as
 
 b)       Assets
or liabilities if they (i) require net-cash settlement (including a
requirement to net cash settle the contract if an event occurs and if that event
is outside our control), or (ii) give the counterparty a choice of net-cash
settlement or settlement in shares (physical settlement or net-share
settlement).
 The
Company assesses classification of our common stock purchase warrants and other
freestanding derivatives at each reporting date to determine whether a change in
classification between assets and liabilities is required.
 
 Revenue
recognition-The
Company follows the guidance of the Securities and Exchange Commission’s Staff
Accounting Bulletin No. 104 for revenue recognition and records revenue when all
of the following have occurred: (1) persuasive evidence of an arrangement
exists, (2) the product is delivered, (3) the sales price to the customer is
fixed or determinable, and (4) collectability of the related customer receivable
is reasonably assured.  There is no stated right of return for
products.  Sales are recognized upon shipment of products to
customers.
 
 Off-Balance Sheet
Arrangements
 
 We do not
have any off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).
 
 
 -25-
 
 ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
 We do not
hold any derivative instruments and do not engage in any hedging
activities.
 
 ITEM
4. CONTROLS AND PROCEDURES.
 
 (a) Evaluation of Disclosure Controls
and Procedures. Our Chief Executive Officer and Chief Financial Officer
evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, our Chief
Executive and Chief Financial Officer concluded that our disclosure controls and
procedures as of the end of the period covered by this report were ineffective
such that the information required to be disclosed by us in reports filed 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 our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding disclosure. A controls system
cannot provide absolute assurance, however, that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected.
 
 Our
management is Our Chief Executive Officer and Chief Financial Officer are
responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States.
 
 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 of achieving their control
objectives. Furthermore, smaller reporting companies face additional
limitations. Smaller reporting companies employ fewer individuals and find it
difficult to properly segregate duties. Often, one or two individuals control
every aspect of the Company's operation and are in a position to override any
system of internal control. Additionally, smaller reporting companies tend to
utilize general accounting software packages that lack a rigorous set of
software controls.
 
 Our Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of the
Company's internal control over financial reporting as of October 31,
2009. In making this assessment, our Chief Executive Officer and Chief
Financial Officer used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated Framework.  Based on this evaluation, Our Chief Executive
Officer and Chief Financial Officer concluded that, as of October 31, 2009,
our internal control over financial reporting was effective.
 
 (b)  Changes in Internal
Control over Financial Reporting. There were no changes in
our internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act, during our most recently completed fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
 
 PART
II - OTHER INFORMATION
 
 ITEM
1. LEGAL PROCEEDINGS.
 
 We are
currently not involved in any litigation that we believe could have a material
adverse effect on our financial condition or results of operations. There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock, any
of our subsidiaries or of our companies or our subsidiaries’ officers or
directors in their capacities as such, in which an adverse decision could have a
material adverse effect.
 
 ITEM
1A. RISK FACTORS.
 
 We
believe there are no changes that constitute material changes from the risk
factors previously disclosed in our Annual Report of Form 10-K for the year
ended July 31, 2009, filed with the SEC on November 16, 2009.
 
 ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
 There
were no unregistered sales of Equity Securities and Use of Proceeds during the
period ended October 31, 2009.
 
 ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
 
 There
were no defaults upon senior securities during the period ended October 31,
2009.
 
 ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
 There
were no matters submitted for a vote of our security holders during the period
ended October 31, 2009.
 
  -26-
   ITEM
5. OTHER INFORMATION.
 
 There is
no other information required to be disclosed under this item which was not
previously disclosed.
 
 ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K.
 
 ExhibitNumber
              Description of Document31.1
              Rule
      13a-14(a)/ 15d-14(a) Certification of Thomas J. Irvine, Principal
      Executive Officer of the Company.31.2
              Rule
      13a-14(a)/ 15d-14(a) Certification of David Briones, Principal Financial
      Officer of the Company.32.1
              Certification
      Pursuant to 18 U.S.C. section 1350 of Thomas J. Irvine, Principal
      Executive Officer of the Company.32.2
              Certification
      Pursuant to 18 U.S.C. section 1350 of David Briones, Principal Financial
      Officer of the Company.
 
 
 
 -27-
 
 
 SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
 
 CLEAR-LITE
      HOLDINGS, INC.Date:
      December 21, 2009
              By:
              /s/ Thomas J.
      IrvineThomas
      J. Irvine
                Chief
      Executive OfficerBy:
              /s/ David
      BrionesDavid
      Briones
                Chief
      Financial Officer
 
 
       -28-