UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended January 31, 2010





OR





oTRANSITION 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 oNo 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
o
Accelerated filer
oNon-accelerated filer
o
Smaller reporting company
x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    Nox





As of March 17, 2010, there were 59,544,531shares of the registrant’s common stock issued and outstanding.







CLEAR-LITE HOLDINGS, INC.


FORM 10-Q


January 31, 2010





PART I-- FINANCIAL INFORMATION





Item 1.
Financial Statements
5Item 2.
Management’s Discussion and Analysis of Financial Condition
24Item 3.
Quantitative and Qualitative Disclosures About Market Risk
29Item 4.
Control and Procedures
29





PART II-- OTHER INFORMATION





Item 1.
Legal Proceedings
30Item 1A.
Risk Factors
30Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30Item 3.
Defaults Upon Senior Securities
30Item 5.
Other Information
30Item 6.
Exhibits
30





SIGNATURE




2


CLEAR-LITE HOLDINGS, INC. AND SUBSIDIARY
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2010 AND 2009
          3
  Page(s)Consolidated Balance Sheets as of January 31, 2010 (unaudited) (Consolidated)and July 31, 2009 (audited)
5Statements of Operations For the Three and Six Months Ended –January 31, 2010 (Unaudited) (Consolidated) and January 31, 2009 (unaudited)
6Statements of Cash Flows For the Six Months Ended –January 31, 2010 (Unaudited) (Consolidated) and January 31, 2009 (unaudited)
7Notes to the Consolidated Financial Statements (unaudited)
8


4




Clear-Lite Holdings, Inc. and Subsidiary


Balance Sheets






Item 1. Financial Statements.




January 31,

2010


July 31,

2009(Unaudited)


(Audited)AssetsAssets:Cash

$
1,069


$
83,587Accounts receivable


644



-Prepaid expenses


614,191



-Total Current Assets


615,904



83,587Equipment - net


12,826



-Debt issue costs - net


53,163



11,728Total Assets

$
681,893


$
95,315Liabilities and Stockholders' DeficitLiabilities:Accounts payable and accrued expenses

$
58,164


$
61,816Loans payable - related parties


40,187



32,309Note payable - other - net of debt discount


-



16,712Accrued interest payable


-



710Derivative liabilities


18,552,898



10,440,356Total Current Liabilities


18,651,249



10,551,903Convertible notes payable - net of debt discount


784,360



156,493Total Liabilities


19,435,609



10,708,396Stockholders' DeficitPreferred 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,58,744,531 and 51,944,528 shares issued and outstanding


58,744



51,945Additional paid in capital


12,995,932



2,810,302Accumulated deficit


(31,808,392
)


(13,475,328
)Total Stockholders' Deficit


(18,753,716
)


(10,613,081
)Total Liabilities and Stockholders' Deficit

$
681,893


$
95,315


5






Clear-Lite Holdings, Inc. and SubsidiaryStatements of Operations(unaudited)Three Months Ended


Six Months EndedJanuary 31, 2010 (Unaudited) (Consolidated)


January 31, 2009


January 31, 2010 (Unaudited) (Consolidated)


January 31, 2009(Unaudited)


(Unaudited)Sales

$
152,821


$
566,080


$
457,934


$
610,146Cost of sales


119,832



310,802



338,585



336,747Gross profit


32,988



255,278



119,349



273,399General and administrative expenses


3,237,828



383,344



9,103,878



573,704Loss from operations


(3,204,840
)


(128,066
)


(8,984,529
)


(300,305
)Other income (expense) - netOther income


710



-



13,270



48Interest expense


(557,617
)


(493
)


(729,720
)


(593
)Change in fair value of derivative liability


4,707,922



-



2,596,900



-Derivative expense


1,012,770



-



11,228,987



-Total other expense - net


3,138,245



(493
)


(9,348,537
)


(545
)Net income/(loss)

$
(66,595
)

$
(128,559
)

$
(18,333,066
)

$
(300,850
)Net Loss per Share - Basic and Diluted


(0.00
)


(0.00
)


(0.33
)


(0.01
)Weighted Average Number of Shares OutstandingDuring the Period - Basic and Diluted


57,472,789



51,094,528



55,450,506



51,094,528








6
  
 Clear-Lite Holdings, Inc. and SubsidiaryStatements of Cash Flows(unaudited)
  Six Months EndedJanuary 31, 2010


January 31, 2009(Consolidated)


(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(18,333,066
)

$
(300,850
)Adjustments to reconcile net loss to net cash used in operating activities:Amortization of debt issue costs


18,564



-Amortization of debt discount


711,155



-Depreciation


453Stock issued for services


5,311,000



140,177Warrants issued for services


2,852,383



-Change in fair value of derivative liability


(2,596,900
)Derivative expense


11,228,987



-Changes in operating assets and liabilities:(Increase) Decrease in:Prepaid expenses


(14,691
)


-Accounts receivable


(644
)


-Increase (Decrease) in:Accounts payable and accrued expenses


(3,652
)


48,602Accrued interest payable


(710
)


-Net Cash Used in Operating Activities


(827,121
)


(112,071
)CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of equipment


(13,277
)


-Net Cash Used in Investing Activities


(13,277
)


-CASH FLOWS FROM FINANCING ACTIVITIES:Payments of loans payable - related parties


(12,121
)


(19,333
)Proceeds from loans payable - related party


20,000



-Proceeds from issuance of convertible notes


910,000



-Repayment of convertible note with embedded derivative


(100,000
)Payment of debt issue costs in cash


(60,000
)


-Net Cash Provided By Financing Activities


757,879



(19,333
)Net Increase (Decrease) in Cash


(82,518
)


(131,404
)Cash and Cash Equivalents - Beginning of Period


83,587



203,277Cash and Cash Equivalents - End of Period

$
1,069


$
71,873SUPPLEMENTARY 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

$
910,000


$
-Original issue discount

$
182,000


$
-Issuance of stock for future services

$
599,500


$
-Reclassification of derivative liability to additional paid in capital

$
1,429,545


$
-
  7
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 Note 1Basis of Presentation and Nature of Operations
 
 Nature of operations
 
 Clear-Lite Holdings, Inc. ("ClearLite"), (formerly known as AirtimeDSL) is a Nevada corporation incorporated on December 28, 2006.  On April 15, 2009, ClearLite 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. ClearLite 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.
  8
 
 Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (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 January 31, 2010 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 January 31, 2010 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 is immediately expensed.
 9
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 Original Issue Discount
 
 For certain convertible debt issued in 2009 and 2010, 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) give 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.
  10
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (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 January 31, 2010 and 2009 was $35,430 and $6,009, respectively. Advertising expense for the six months ended January 31, 2010 and 2009 was $52,326 and $11,646, 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 is 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.
 
 The computation of basic and diluted loss per share for the quarter ended January 31, 2010 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:
 
 January 31,

2010


July 31,

2009Convertible notes


6,040,000



2,400,000Stock warrants


23,556,344



13,891,694Total common stock equivalents


29,596,344



16,291,694
  11
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 Recent accounting pronouncements
 
 In April 2009, the FASB issued guidance now codified as FASB ASC Topic 820, “Fair Value Measurements and Disclosures,”which amends previous guidance to require disclosures about fair value of financial instruments in interim as well as annual financial statements in the current economic environment. This pronouncement was effective for periods ending after June 15, 2009. The adoption of this pronouncement did not have a material impact on the Company’s business, financial condition or results of operations; however, these provisions of FASB ASC Topic 820 resulted in additional disclosures with respect to the fair value of the Company’s financial instruments.
 
 In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This pronouncement was effective for interim or fiscal periods ending after June 15, 2009. The adoption of this pronouncement did not have a material impact on the Company’s business, results of operations or financial position; however, the provisions of FASB ASC Topic 855 resulted in additional disclosures with respect to subsequent events.
 
 In June 2009, the Financial Accounting Standards Board (FASB) issued guidance now codified as FASB Accounting Standards Codification (ASC) Topic 105, “Generally Accepted Accounting Principles,” as the single source of authoritative non-governmental U.S. GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the FASB Codification will be considered non-authoritative. These provisions of FASB ASC Topic 105 were effective for interim and annual periods ending after September 15, 2009 and, accordingly, were effective for the Company for the current fiscal reporting period. The adoption of this pronouncement did not have an impact on the Company’s business, financial condition or results of operations, but will impact the Company’s financial reporting process by eliminating all references to pre-codification standards. On the effective date of FASB ASC Topic 105, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.
  In January 2010, the Financial Accounting Standards Board ("FASB") issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update will become effective for the Company with the interim and annual reporting period beginning January 1, 2010, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will become effective for the Company with the interim and annual reporting period beginning January 1, 2011. The Company will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures, adoption of this update will not have a material effect on the Company's consolidated financial statements.
  12
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 Note 3 Going Concern and Liquidity
 
 As reflected in the accompanying consolidated financial statements, the Company has a net loss of $18,333,066 and net cash used in operations of $827,121 for the six months ended January 31, 2010; a working capital deficit of $18,035,345, and has and a stockholders’ deficit of $18,753,716at January 31, 2010.
 
 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.
  13
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 In response to these problems, management has taken the following actions:
  ●
Raising additional capital through convertible note offerings and bridge loans;
  ●
The Company is signing up new international logistic, distribution, and fulfillment partners;
  
 ●
Reviewing opportunities to diversify into other environmentally friendly product lines; and
  ●
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 $40,187 and $32,309 at January 31, 2010 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 was unsecured and due on demand.  This loan was repaid in full on November 6, 2009,the time of repayment, the Company fully amortized the remaining debt discount on the note ($40,548) and the Company marked to market the derivative liability, then took that balance and reclassified the balance of the derivative liability ($1,429,545) to additional paid in capital.
  14
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (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% - 354%Expected term: conversion feature
2 yearsExpected term: warrants
5 yearsRisk free interest rate
0.81% - 2.53%
  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 secured.
 
 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 event the Company issues any security or debt instrument with a lower consideration per share.
  15
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 d.
Note holder received Series “A” and Series “B” warrants
  i.
The Note holder is entitled to 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 2,400,000 Series “A” warrants and 2,400,000 Series “B” warrants.
  2.
During the six months ended January 31, 2010, the Company issued $1,092,000 convertible notes with a maturity of 2 years and bearing interest at 10% for cash proceeds of $910,000.  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 3,640,000 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.
Note holder received Series “A” and Series “B” warrants
  i.
The Note holder 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 3,640,000 Series “A” warrants and 3,640,000 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
319-354%Expected term: conversion feature
2 yearsExpected term: warrants
5 yearsRisk free interest rate
0.74% - 2.51%
 
 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:
  16
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (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 six months ended January 31, 2010


22,579,344Fair value mark to market adjustment at January 31, 2010


(2,596,900
)Subtotal


19,982,445Reclassification of note due to repayment


(1,429,545
)Derivative liability balance at January 31, 2010

$
18,552,899
 
 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 three and six months ended January 31, 2010 in the amounts of $1,012,770 and $11,228,987, respectively.
 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
354%Expected term: conversion feature
2 yearsExpected term: warrants
5 yearsRisk free interest rate
0.86% - 2.38%
 
 Mark to Market
 
 At July 31, 2009, and January 31, 2010, the Company remeasured the conversion features and recorded a fair value adjustment of $1,907,790 and $(2,596,900), respectively.  The following management assumptions were considered:
  17
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (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
  January 31, 2010:
 
 Exercise price

$
0.30 - $0.60Expected dividends


0
%Expected volatility


354
%Risk fee interest rate


0.86 - 2.38
%Expected life of conversion features in years


1.16 – 1.84Expected life of warrants in years


4.16 – 4.84Expected forfeitures


0
%
 
 Note 6 Fair Value
  The fair value of the Company's financial assets and liabilities reflects the Company's estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company's assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
  Level 1:

Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.Level 2:

Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.Level 3:

Unobservable inputs based on the Company's assessment of the assumptions that market participants would use in pricing the asset or liability.
  18
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 The Company's investment strategy is focused on capital preservation. The Company intends to invest in instruments that meet credit quality standards.  The current expectation is to maintain cash and cash equivalents, once these resources are available.
  The following are the major categories of liabilities measured at fair value on a nonrecurring basis during the six months ended January 31, 2010 and the year ended 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 January 31,

2010Derivative Liabilities

$
-


$
18,552,898


$
-


$
18,552,898Total

$
-


$
18,552,898


$
-


$
18,552,898
  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 three and six months ended January 31, 2010, in connection with raising convertible debt, the Company paid debt issue costs totaling $0 and $60,000, respectively.  During the three and six months ended January 31, 2010, the Company amortized $11,141 and $18,564, respectively.
  19
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (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


(18,565
)Debt issue costs – net - January 31, 2010

$
53,163
 
 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 Six Months Ended January 31, 2010
 
 On October 1, 2009, the Company issued 4,550,000 common shares for services rendered by employees and strategic partners, 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.
 
 On January 31, 2010, the Company issued 2,250,000 common shares to strategic partners for services rendered, having a fair value of $2,452,500 ($1.09/share).  Fair value was based upon the quoted closing trading price of the Company’s common stock.
  20
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 (B)
Warrants Issued for Services
 
 For the six months ended January 31, 2010, the Company granted 3,384,650, five year stock purchase warrants, to purchase shares of the Company’s common stock at an exercise price of $0.30.  The Company granted these warrants to key employees and strategic partners.
 The Company determined the fair value of these warrants was $2,852,385, based upon the following management assumptions:
 
 Expected dividends
0%Expected volatility
319-354%Expected term
5 yearsRisk free interest rate
2.31-2.49%
  (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


9,664,650


$
0.41Exercised


-


$
-Forfeited/Cancelled


-


$
-Outstanding – January 31, 2010


23,556,344


$
0.36Exercisable – January 31, 2010


23,556,344


$
0.36
  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



23,556,344

4.24 years

$
0.36



23,556,344


$
0.36
  At January 31, 2010 and July 31, 2009, the total intrinsic value of warrants outstanding and exercisable was $17,274,596 and $13,012,694, respectively.
  21
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 Note 8 Concentrations
 
 The following concentrations are reported as of January 31, 2010 and 2009:
   (A)
Accounts Receivable
  Customer

2010

2009A

100%

-%
  (B)
Sales


Customer

2010

2009A

66%

-%B

34%

100%
  (C)
Accounts Payable


Vendor

2010

2009A

-%

-%
 (D)
Purchases
 Vendor

2010

2009A

30%

9%B

68%

-%C

-%

43%D

-%

31%E

-%

17%
 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  $48,000; and●
300,000 shares of the Company’s common stock (see Note 6(A)).
 22
  Clear-Lite Holdings, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 January 31, 2010
 (unaudited)
 Note 10 Subsequent Events
  The Company has evaluated for subsequent events between the balance sheet date of January 31, 2010 and March 15, 2010, the date the financial statements were issued.
 
 Convertible Debt
  On February 26, 2010, the Company issued a $100,000 convertible note with a maturity on November 26, 2010 and bearing interest at 8% per annum for cash proceeds of $100,000. The notes are convertible into shares of the Company’s common stock at a 42% discount of the average of the lowest 3 trading prices (the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market) for the Company’s common stock during the ten trading day period ending one trading day prior to the date the conversion notice is sent by the noteholder to the Company. The Company has analyzed the contract and has concluded that a derivative liability exists. The Company is in the process of determining the fair value of the derivative liability at issuance.
 
 Conversion of Convertible Promissory Notes to Common Stock
 
 On March 15, 2010, two convertible promissory notes, each with a face value of $120,000, were converted into 800,000 shares of the Company’s common stock.  The conversion price per share was equal to $0.30.


23





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 six months ended January 31, 2009 and 2008.





January 31, 2010


January 31, 2009Sales

$
457,934


$
610,146Gross profit

$
119,349


$
273,399General and administrative expenses

$
9,103,878


$
573,704Interest expense

$
(729,720
)

$
(593
)Derivative expense

$
(11,288,987
)

$
-Change in fair value of derivative liability

$
2,596,900


$
-Net loss

$
(18,333,066
)

$
(300,850
)Loss per Share

$
(0.33
)

$
(0.01
)





24




For the six months ended January 31, 2010 as compared to the six months ended January 31, 2009, the Company reported a net loss of $(18,333,066), or $(0.33) per share and a net loss of $(300,850) or $(0.01) 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 decreased $152,212 during the six months ended January 31, 2010, down from $610,146 during the six months ended January 31, 2009. The decrease in sales is attributable to the Company halting sales in order to complete product enhancements and change 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.





Gross profit: Gross profit decreased $154,050 during the six months ended January 31, 2010, down from $273,399 during the six months ended January 31, 2009.  The decrease in gross profit is reflective of decreased sales since the Company re-entered the marketplace.





General and Administrative Expense: General and administrative expenses increased $8,529,639 to $9,103,878 during the six months ended January 31, 2010, up from $573,704 during the six months ended January 31, 2009.  The increase in general and administrative expenses is primarily attributable to an increase in stock based compensation of approximately $8,023,000, an increase in salaries and wages and related payroll expenses of approximately $142,000, an increase in travel related expenses of approximately $55,600, a increase in insurances of approximately $59,000, an increase in consulting and professional fees of approximately $126,000, an increase in promotional expenses of approximately $40,700, and an increase in commissions of approximately $43,000.





Interest expense: Interest expense increased by approximately $729,662 to $729,720 for six months ended January 31, 2010 as compared to $593 during the six months ended January 31, 2009.  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.





Change in fair value 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 $(18,333,066) during the six months ended January 31, 2010, and as of that date, the Company had a working capital deficit of $18,035,345 and an accumulated deficit of $(18,753,716). 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.




25





Summary Income Statement for the three months ended January 31, 2010 and 2009.





January 31, 2010


January 31, 2009Sales

$
152,821


$
566,080Gross profit

$
32,988


$
255,278General and administrative expenses

$
3,237,828


$
383,344Interest expense

$
(557,617)


$
493Derivative expense

$
1,012,770


$Change in fair value of derivative liability

$
(4,707,922
)

$
-Net loss

$
(66,595)


$
(128,559)Loss per Share

$
(0.00)


$
(0.00)


26





For the three months ended January 31, 2010, as compared to the three months ended January 31, 2009, the Company reported a net loss of $(66,595), or $(0.00) per share and a net loss of $(128,559) 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 decreased $413,259 during the three months ended January 31, 2010, down from $566,080 during the three months ended January 31, 2009.  The decrease 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.





Gross profit: Gross profit decreased $222,290 during the three months ended January 31, 2010, down from $255,278 during the three months ended January 31, 2009.  The decrease in gross profit is reflective of decreased sales since the Company re-entered the marketplace.





General and Administrative Expense: General and administrative expenses increased $2,854,484 to $3,237,828 during the three months ended January 31, 2010, up from $383,344 during the three months ended January 31, 2009.  The increase in general and administrative expenses is primarily attributable to an increase in stock based compensation of approximately $2,600,00, an increase in salaries and wages and related payroll expenses of approximately $83,500, an increase in travel related expenses of approximately $20,600, a increase in insurances of approximately $6,000, an increase in consulting and professional fees of approximately $24,000, an increase in promotional expenses of approximately $29,000, and an increase in commissions of approximately $20,000.





Interest expense: Interest expense increased by $557,124 to $557,617 for three months ended January 31, 2010 as compared to $493 during the three months ended January 31, 2009.  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.





Change in fair value 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.





Liquidity and Capital Resources




The following table summarizes total current assets, liabilities and working capital at January 31, 2010 compared to July 31, 2009.





January 31,

2010


July 31,

2009


Increase/

(Decrease)Current Assets

$
615,904


$
83,587


$
532,317Current Liabilities

$
18,651,249


$
10,551,903


$
8,099,346Working Capital (Deficit)

$
(18,035,345)


$
(10,468,316)


$
(7,567,029)





As of January 31, 2010, we had working capital deficit of $(18,035,345) as compared to a working capital deficit of $(10,468,316) as of July 31, 2009, a decrease of $(7,567,029). The decrease is primarily a result the recognition of derivative liabilities embedded in the company’s financial instruments, a decrease in cash of $82,518, offset by an increase in prepaid commission expense of $599,500.




27




Net cash used for operating activities for the six months ended January 31, 2010 was $(827,121). The Net loss for the six months ended January 31, 2010 was $(18,333,066).







Net cash obtained through all financing activities for the six months ended January 31, 2010 was $757,879 as compared to $0 for the six months ended January 31, 2009.





Management anticipates being able to fund the Company’s foreseeable liquidity requirements through the financing it will continue to obtain during the rest of 2010. 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 $95,000per 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.  Significant amounts of our shares of common stock are issued as payment to employees and non-employees for services and periodically as consideration for acquisition of assets.  These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in our consolidated financial statements for certain of our assets and expenses.  For historic fiscal years when there was not an observable active, liquid market for our shares, the valuation of the shares issued in a non-cash share payment transaction relied on observation of arms-length transactions where cash was received for our shares, before and after the non-cash share payment date.





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.




28





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).





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 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 January 31, 2010. 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 January 31, 2010, 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.




29





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 January 31, 2010.





Item 3. Defaults Upon Senior Securities.





There were no defaults upon senior securities during the period ended January 31, 2010.





Item 4. (Removed and Reserved).





Item 5. Other Information.





On March 16, 2010, the Company’s Board of Directors, acting with full capacity and authority, obtained unanimous written consent in lieu of a special meeting of the Board of Directors to amend certain provisions of the Company’s bylaws, attached hereto as Exhibit 3.1.
  •
Amended Article I, Section 1, to change the location of the Company’s principal corporate offices to Boca Raton, Florida;•
Amended Article II, Section1, to change the time of the Company’s annual meeting;•
Amended Article II, Section 3, to change the place of the Company’s annual meeting;•
Amended Article III, Section 1, to change the number of directors sitting on the Company’s Board of Directors to a total of not less than one (1) or more than five (5);•
Amended Article III, Section 12, to change the Company’s director compensation policy to allow for director compensation; and•
• Amended Article IV, to change the Officer’s section to reflect the current management structure of the Company.


Item 6. Exhibits and Reports on Form 8-K.





Exhibit Number

Description of Document3.1

Bylaws, Amended and Restated as of March 16, 201031.1

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.




30





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: March 17, 2010
By:
/s/ Thomas J. IrvineThomas J. IrvineChief Executive OfficerBy:
/s/ David BrionesDavid BrionesChief Financial Officer