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 January 31, 2011

¨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 Employer
	Incorporation or organization)		Identification No.)

102 NE 2nd Street, PMB 400

Boca Raton, Florida 33432-3908

(Address of Principal Executive Offices)(Zip Code)

(561) 544-6966

(Registrant’s telephone number, including area code)

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 ¨

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 ¨ No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of March 22, 2011, there were 132,287,614 shares of the registrant’s common stock issued and outstanding.

CLEAR-LITE HOLDINGS, INC.

FORM 10-Q

JANUARY 31, 2011

PART I-- FINANCIAL INFORMATION

Item 1.	Financial Statements.	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	20
Item 4.	Control and Procedures.	20

PART II-- OTHER INFORMATION

Item 1.	Legal Proceedings.	22
Item 1A.	Risk Factors.	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	22
Item 3.	Defaults Upon Senior Securities.	22
Item 4.	(Removed and Reserved).	22
Item 5.	Other Information.	22
Item 6.	Exhibits.	22

SIGNATURES

Item 1. Financial Statements.

CLEAR-LITE HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2011 AND 2010

(UNAUDITED)

	Page(s)
Consolidated Balance Sheets as of January 31, 2011 (unaudited) and July 31, 2010	2

Consolidated Statements of Operations Three and Six Months Ended January 31, 2011 and 2010 (unaudited)	3

Consolidated Statements of Cash Flows Six Months Ended January 31, 2011 and 2010 (unaudited)	4

Notes to the Consolidated Financial Statements (unaudited)	5

Clear-Lite Holdings, Inc. and Subsidiary

Consolidated Balance Sheets


	January 31, 2011			July 31, 2010
	(unaudited)
Assets

Assets:
Cash	$	394		$	3,148
Prepaid expenses		-			27,913
Total Current Assets		394			31,061

Equipment - net		10,626			11,726

Debt issue costs - net		-			5,216

Total Assets	$	11,020		$	48,003

Liabilities and Stockholders' Deficit

Liabilities:
Accounts payable and accrued expenses	$	669,646		$	211,411
Loans payable - related parties		58,085			18,388
Demand loans		96,000			-
Convertible note payable - net of debt discount		547,628			658,930
Accrued interest payable		15,197			5,600
Derivative liabilities		1,764,305			2,298,159
Total Current Liabilities		3,150,861			3,192,488

Stockholders' Deficit:
Preferred Stock, $0.001 par value, 5,000,000 shares authorized,
no shares issued or outstanding		-			-
Common stock, $0.001 par value, 195,000,000 shares authorized,
114,605,194 and 72,000,741 shares issued and outstanding, respectively		114,605			72,000
Additional paid in capital		27,956,310			27,238,020
Accumulated deficit		(31,210,756	)		(30,454,505	)
Total Stockholders' Deficit		(3,139,841	)		(3,144,485	)

Total Liabilities and Stockholders' Deficit	$	11,020		$	48,003

See accompanying notes to consolidated financial statements

Clear-Lite Holdings, Inc. and Subsidiary

Consolidated Statements of Operations

(unaudited)

	Three Months Ended						Six Months Ended
	January 31, 2011			January 31, 2010			January 31, 2011			January 31, 2010

Sales	$	-		$	152,821		$	-		$	457,934

Cost of sales		-			119,832			-			338,585

Gross profit		-			32,989			-			119,349

General and administrative expenses		239,166			3,237,828			653,889			9,103,878

Loss from operations		(239,166	)		(3,204,839	)		(653,889	)		(8,984,529	)

Other income (expense) - net
Other income		-			710			-			13,270
Interest expense		(102,406	)		(557,617	)		(208,587	)		(729,720	)
Change in fair value of derivative liability		(678,301	)		4,707,922			180,564			2,596,900
Derivative expense		-			(1,012,770	)		(74,339	)		(11,228,987	)
Total other income (expense) - net		(780,707	)		3,138,245			(102,362	)		(9,348,537	)

Net loss	$	(1,019,873	)	$	(66,594	)	$	(756,251	)	$	(18,333,066	)

Net loss per Common Share - Basic and Diluted	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.33	)

Weighted Average Number of Common Shares Outstanding
Basic and Diluted		101,420,380			57,472,789			89,667,760			55,450,506

See accompanying notes to consolidated financial statements

Clear-Lite Holdings, Inc. and Subsidiary

Consolidated Statements of Cash Flows

(unaudited)

	Six Months Ended
	January 31, 2011			January 31, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(756,251	)	$	(18,333,066	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		1,100			453
Amortization of debt issue costs		5,216			18,564
Amortization of debt discount		193,764			711,155
Stock issued for services		18,200			5,311,000
Warrants issued for services		-			2,852,383
Change in fair value of derivative liability		(180,564	)		(2,596,900	)
Derivative expense		74,339			11,228,987
Changes in operating assets and liabilities:
Increase (Decrease) in:
Accounts receivable		-			(643	)
Prepaid expenses		27,913			(14,691	)
Increase in:
Accounts payable and accrued expenses		458,235			(3,652	)
Accrued interest payable		9,597			(710	)
Net Cash Used in Operating Activities		(148,451	)		(827,120	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		-			(13,277	)
Net Cash Used in Investing Activities		-			(13,277	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from loans payable - related parties		39,697			20,000
Repayments of loans payable - related parties		-			(12,121	)
Payment of debt issue costs in cash		-			(60,000	)
Repayment of convertible note with embedded derivative		-			(100,000	)
Proceeds from issuance of convertible notes		106,000			910,000
Net Cash Provided By Financing Activities		145,697			757,879

Net Decrease in Cash		(2,754	)		(82,518	)

Cash - Beginning of Period		3,148			83,587

Cash - End of Period	$	394		$	1,069

SUPPLEMENTARY 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	$	106,000		$	910,000
Original issue discount	$	-		$	182,000
Issuance of stock for future services	$	-		$	599,500
Conversion of debt to common stock	$	209,066		$	-
Reclassification of convertible notes to demand notes	$	122,000		$	-
Reclassification of derivative liability to additional paid in capital	$	533,629		$	1,429,545

See accompanying notes to consolidated financial statements

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

Note 1 Nature of Operations and Basis of Presentation

The Company sells energy saving and environmentally friendly lighting products. The Company utilizes the services of multiple third party manufacturers to produce the Company’s product line.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that may affect the amounts reported in its consolidated financial statements and accompanying notes. Actual results may differ from these estimates under different assumptions or conditions.

The financial information as of July 31, 2010 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10-K for the year ended July 31, 2010. Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair statement of the results of the interim periods presented. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended July 31, 2010 and 2009, as presented in the Company’s Annual Report on Form 10-K. Operating results for the three and six months ended January 31, 2011 are not necessarily indicative of the results that may be expected for the entire fiscal year ending July 31, 2011.

Note 2 Summary of Significant Accounting Policies

Principles of Consolidation

All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of these unaudited consolidated financial statements in conformity with generally accepted accounting principles in the United States 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. The Company regularly evaluates estimates and assumptions related to valuation allowances on accounts receivable and valuation allowances on deferred income taxes. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

Risks and Uncertainties

The Company has had a difficult time operating 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. Over the past year, the Company continued to exhaust resources without generating any sales.

Debt Issue Costs and Debt Discount

The Company has paid debt issue costs, and recorded debt discounts in connection with raising funds through the issuance of convertible debt. 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.

Original Issue Discount

For certain convertible debt issued, the Company provides 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 life of the debt.

Fair value of financial instruments

The Company applies the accounting guidance under Financial Accounting Standards Board (“FASB”) ASC 820-10, “Fair Value Measurements”, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

The guidance also establishes a fair value hierarchy for measurements of fair value as follows:

●	Level 1 – quoted market prices in active markets for identical assets or liabilities

●	Level 2 – inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

●	Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of January 31, 2011 and July 31, 2010, the Company’s derivative liabilities are considered level 2.

The Company's financial instruments consisted primarily of cash, accounts payable, accrued liabilities, and debt. The carrying amounts of the Company's financial instruments generally approximate their fair values as of January 31, 2011 and July 31, 2010, due to the short term nature of 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:

Equity if they (i) require physical settlement or net-share settlement, or (ii) gives the choice of net-cash settlement or settlement in the Company’s own shares (physical settlement or net-share settlement), or as

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 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.

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, 2011 and 2010 was $1,185 and $35,430, respectively. Advertising expense for the six months ended January 31, 2011 and 2010 was $16,689 and $52,326, respectively.

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

Share Based Payments

Generally, all forms of share-based payments, including stock option grants, warrants, 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.

The computation of basic and diluted loss per share for the three and six months ended January 31, 2011 and 2010, 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, 2011		January 31, 2010
Convertible notes		489,372,941		6,040,000
Stock warrants		20,329,010		23,556,344
Total common stock equivalents		509,701,951		29,596,344

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

Recent Accounting Pronouncements

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 newdisclosures 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 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 interim and annual reporting period beginning January 1, 2011. We 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 our unaudited consolidated financial statements.

In August 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-05, Measuring Liabilities at Fair Value, or ASU 2010-05, which amends ASC 820 to provide clarification of a circumstance in which a quoted price in an active market for an identical liability is not available. A reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities (or similar liabilities when traded as assets) and/or 2) a valuation technique that is consistent with the principles of ASC 820. ASU 2010-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption did not have a material impact on our unaudited consolidated financial statements.

Note 3 Going Concern

As reflected in the accompanying unaudited consolidated financial statements, the Company has a net loss of $756,251 and net cash used in operations of $148,451 for the six months ended January 31, 2011; a working capital deficit of $3,150,467, and a stockholders’ deficit of $3,139,841 at January 31, 2011.

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 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 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 re-generate sales, while leveraging distribution systems to consolidate lower costs. The Company expects that operations will require at least $35,000 per month for the next six months in the plan to re-evaluate the current business model. We do not have sufficient cash reserves for the next six months and we plan to seek additional capital from the issuance of our debt or equity instruments.

In response to these problems, management has taken the following actions:

·	Raising additional capital through convertible note offerings,

·	The Company continues to analyze and evaluate the current business and determine the viability in the current economic marketplace

The accompanying unaudited consolidated 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.

Note 4 Debt

(A)	Loans Payable – Related Parties

The Company is indebted to a former officer, director and current shareholder for $72,908 and $18,388 for cash advances and unreimbursed expenses as of January 31, 2011 and July 31, 2010, respectively. These loans are unsecured, non-interest bearing and due upon demand.

(B)	Demand Loans

During the six months ended January 31, 2011, convertible notes with a face amount of $122,000 matured on November 23, 2010, January 11, 2011 and January 22, 2011. Upon maturity, these notes were reclassified as demand notes, the derivative liability ceased to exist and was revalued and reclassified to additional paid in capital in the amount of $374,438. After the maturity date of these notes, the noteholders converted principal of $26,000 into 13,410,326 shares of the Company’s common stock. At conversion, the Company fully amortized the remaining debt discount associated with each convertible note. There is a balance of $96,000 remaining associated with these notes as of January 31, 2011.

(C)	July 2010 Convertible Promissory Note

On July 19, 2010, the Company entered into a convertible promissory note facility of up to $650,000 with one investor. On August 26, 2010, the Company issued the investor 1 convertible promissory note with principal of $31,000 maturing on July 19, 2013. The convertible promissory note bears interest at a rate of 10%. The investor is entitled at its option to convert all or part of the principal and accrued interest into shares of the Company’s common stock at a conversion price equal to the lesser of $0.10 or 65% of the average of the two lowest closing prices of the common stock in the 22 trading days (the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market) immediately prior to the conversion. The Company classified the embedded conversion feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares common stock required to net-share settle. This Note is currently in default; since the Company does not have an effective registration statement.

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

(D)	October 2010 Convertible Promissory Note

On October 4, 2010, the Company issued a convertible promissory note with principal of $50,000 maturing on July 6, 2011. This note is unsecured and bears interest at 8%. 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) of 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 classified the embedded conversion feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares common stock required to net-share settle.

(E)	October Convertible Promissory Note With Warrants

On October 13, 2010, the Company issued a convertible promissory note with principal of $25,000 maturing on October 13, 2011. The note is convertible into shares of the Company’s common stock at a 35% 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) of 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 classified the embedded conversion feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares common stock required to net-share settle. The note is secured by the assets of the Company. In addition to the convertible note, the Company issued the investor 2,500,000 five-year warrants to purchase common stock with an exercise price of $0.01/warrant. 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. The Company classified the warrant feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle.

(F)	Conversion of Convertible Debt to Common Stock

During the six months ended January 31, 2011, 3 convertible note holders converted the principal of their notes into shares of common stock. The noteholders converted principal of $183,066 at a conversion rate ranging from $0.0016 - $0.019 into 28,844,127 shares of the Company’s common stock. At conversion, the Company fully amortized the remaining debt discount associated with each convertible note, revalued the derivative liability with a mark to market adjustment through the statement of operations, and reclassified the fair value of the derivative liability to additional paid in capital in the amount of $159,191.

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

(G)	Summary of Convertible Notes Payable - Net of Debt Discount

Convertible note payable - net of debt discount balance at July 31, 2010	$	658,930
Convertible notes issued during the six months ended January 31, 2011		106,000
Reclassification of Convertible notes to Demand loans upon maturity		(96,000	)
Conversion of debt during the six months ended January 31, 2011		(209,066	)
Debt discount during the six months ended January 31, 2011		(106,000	)
Amortization of debt discount during six months ended January 31, 2011		193,764
Convertible note payable - net of debt discount balance at January 31, 2011	$	547,628

(H)	Derivative Liability

The Company identified conversion features embedded within convertible debt, warrants and convertible promissory notes. 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:

Derivative liability balance at July 31, 2010	$	2,298,159
Fair value at the commitment date for convertible notes and warrants issued during the six months ended January 31, 2011		180,339
Fair value mark to market adjustment at January 31, 2011		(180,564	)
Reclassification of derivative liability to additional paid in capital due to conversion and maturity		(533,629	)
Derivative liability balance at January 31, 2011	$	1,764,305

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 in the amount of $0 and $74,339 for the three and six months ended January 31, 2011, respectively and $1,012,770 and $11,228,987 for the three and six months ended January 31, 2010, 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	319%- 484%
Expected term: conversion feature	0.75 – 3 years
Expected term: warrants	5 years
Risk free interest rate	0.22% - 1.13%

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

(I)	Mark to Market

At January 31, 2011, the Company remeasured the conversion features and warrants and recorded a fair value adjustment of $180,564. The following management assumptions were considered:

Expected dividends	0%
Expected volatility	484%
Risk fee interest rate	0.15% - 0.98%
Expected life of conversion features in years	0.22 – 2.47
Expected life of warrants in years	3.22 – 4.70
Expected forfeitures	0%

At January 31, 2010, the Company remeasured the conversion features and warrants and recorded a fair value adjustment of $2,596,900. The following management assumptions were considered:

Expected dividends	0%
Expected volatility	354%
Risk fee interest rate	0.86 – 2.38%
Expected life of conversion features in years	1.16 – 1.84
Expected life of warrants in years	4.16 – 4.84
Expected forfeitures	0%

(J)	Debt Issuance Costs

During the year ended July 31, 2010 and from January 1, 2009 to July 31, 2009, in connection with raising convertible debt, the Company paid debt issue costs totaling $67,500 and $15,500, respectively.

Total debt issue costs are as follows:

Debt issue costs – net – July 31, 2010	$	5,216
Amortization of debt issue costs during the six months ended January 31, 2011		(5,216	)
Debt issue costs – net – January 31, 2011	$	-

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

Note 5 Stockholders’ Deficit

(A)	Common Stock

In addition to the common stock issuances described in Note 4 (B) and 4(F) (Conversions of debt to common stock), the Company issued the following during the six months ended January 31, 2011

Issuance of Shares for Services

On August 14, 2010, the Company issued 350,000 common shares for services rendered, having a fair value of $18,200 ($0.052/share). Fair value was based upon the quoted closing trading price of the Company’s common stock.

(B)

Warrants

The following is a summary of the Company’s warrant activity:

	Warrants		Weighted Average Exercise Price
Outstanding – July 31, 2010		17,829,010	$	0.21
Exercisable – July 31, 2010		17,829,010	$	0.21
Granted		2,500,000	$	0.01
Exercised		-	$	-
Forfeited/Cancelled		-	$	-
Outstanding – January 31, 2011		20,329,010	$	0.18
Exercisable – January 31, 2011		20,329,010	$	0.18

Warrants Outstanding				Warrants Exercisable
Range of exercise price	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$0.01 - $0.60	20,329,010	3.35 years	$ 0.18	20,329,010	$ 0.18

At January 31, 2011 and July 31, 2010, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.

Note 6 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 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.

Clear-Lite Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

January 31, 2011

(Unaudited)

Employment Agreement

On October 1, 2010, the Company entered into a verbal employment agreement with its Chief Financial Officer. The terms of the agreement are as follows:

● $4,000/month for financial statement preparation services

● Hourly charges for services in excess of financial statement preparation

The terms of the agreement were verbally revised for the period January 1, 2011 through current, in which the Chief Financial Officer was to receive $5,000 per month for financial statement preparation services.

Note 7 Subsequent Events

During the period February 1, 2011 to March 22, 2011, 2 convertible note holders converted the principal of their notes into shares of common stock. The noteholders converted principal of $30,000 at a conversion rate ranging from $0.0018 - $0.0019 into 16,182,425 shares of the Company’s common stock. At conversion, the Company fully amortized the remaining debt discount associated with each convertible note, revalued the derivative liability with a mark to market adjustment through the statement of operations, and reclassified the fair value of the derivative liability to additional paid in capital.

On February 17, 2011, the Company issued an original discount convertible promissory note with principal of $75,000 maturing on February 17, 2013. The purchase price of the note was $50,000. The note is convertible into shares of the company’s common stock at the average closing price of the company’s common stock (the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market) on the five trading days prior to the date the conversion notice is sent by the noteholder to the Company. The Company classified the embedded conversion feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares common stock required to net-share settle.

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.

Background

Clear-Lite Holdings Inc., through its TAG Industries Inc. subsidiary, sources products through global, high-quality, green-technology contract manufacturers and manufacturing outsourcing relationships in order to offer Earth-Friendly lighting products, generate cost efficiencies, deliver products faster, more cost efficiently, better serve customers as well as meet the needs of Eco-Friendly customers in targeted segments and geographical areas throughout the world. This ensures the efficient use of and return on capital.

To maintain our competitiveness, we continuously strive to improve our products, technology, manufacturing, and logistics. In addition, the company works with various parties to conduct product, research and development to help acquire access to intellectual property by way of licensing agreements, patents, trademarks, copyrights and trade secrets.

In addition, we sell our products and services through indirect sales channels and utilize the services of an extensive network sales and marketing agencies and related support groups.

Plan of Operation

We are positioned as a green lighting alternative that offers environmentally friendly lighting products. The Company, with the ClearLite® brand and private brands, sells 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 offers both retail and industrial/commercial solutions that emphasize the importance of the environment, costs savings and better light alternatives.

Our plan includes focusing on developing the following operational characteristics:

●	Rapid turnaround from concept to delivery;

●	High quality customer service;

●	Highly informed sales people;

●	Strong communication and collaboration among product distributors and service providers to ensure a seamless customer experience; and

●	Outsourced technical support and quality control.

All of the above is 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 six months is to continue operations to manufacture and distribute energy saving and environmentally friendly lighting products. It is imperative that the Company raises additional capital financing in order to sustain operations.

Results of Operations

Summary Statements of Operations for the three months ended January 31, 2011 and 2010.

	January 31, 2011 Unaudited			January 31, 2010 Unaudited
Sales	$	-		$	152,821
Gross profit	$	-		$	32,989
General and administrative expenses	$	239,166		$	3,237,828
Other income (expenses) - net	$	(780,707	)	$	3,138,245
Net loss	$	(1,019,873)		$	(66,594)
Net Loss per Common Share – Basic and Diluted	$	(0.01)		$	(0.00)

For the three months ended January 31, 2011, as compared to the three months ended January 31, 2010, the Company reported a net loss of $(1,019,873) or $0.01 per share and a net loss of $(66,594) or $(0.00) per share, respectively. The change in net loss between periods was primarily attributable to the following: decrease in sales from $152,821 to $0; a substantial decrease in stock-based compensation in the amount of $1,853,000, and a substantial increase in derivate expenses of $1,012,770 offset by a decrease in the change in fair value of derivative liabilities of $5,386,223.

Sales: Sales decreased $152,821 during the three months ended January 31, 2011, down from $152,821 during the three months ended January 31, 2010. The decrease in sales is attributable to the difficulty selling the Company’s product line, including:

●	The Company is experiencing difficulty penetrating the domestic and international markets at the current time.

●	The Company believes that most consumers are not ready to pay a premium price for high quality products in the lighting industry during the current economic times.

●	The Company is also having difficulty establishing a presence in major retail and mass market locations both domestically and abroad due to the cost structure that it would take these retailers to substitute our product from their current vendor offerings.

●

The Company believes those retailers that are willing to accept new vendors, the signup, enrollment, market test, and integration process is taking longer than anticipated. Many organizations are running leaner so there is less headcount/headroom to make changes. As a result, the process is taking longer.

●	The sales cycle is much longer than we anticipated, from a forecasted 6-to-9 months to 18+ months.

Gross profit: Gross profit decreased $32,989 during the three months ended January 31, 2011, down from $32,989 during the three months ended January 31, 2010. The decrease in gross profit is reflective of the decreased sales.

General and Administrative Expense: General and administrative expenses decreased $2,998,662 to $239,166 during the three months ended January 31, 2011, down from $3,237,828 during the three months ended January 31, 2010. The decrease in general and administrative expenses is primarily attributable to a considerable decrease in stock based compensation of approximately $1,853,000, and a decrease in other general and administrative expenses due to the Company’s limited capital resources.

Other income (expenses) – net decreased by $3,918,952. The decrease is primarily attributable to an increase in derivate expenses of $1,012,770 offset by a decrease in the change in fair value of derivative liabilities of $5,386,223.

Summary Statements of Operations for the six months ended January 31, 2011 and 2010.

	January 31, 2011 Unaudited		January 31, 2010 Unaudited
Sales	$	-	$	457,934
Gross profit	$	-	$	119,349
General and administrative expenses	$	653,889	$	9,103,878
Other expenses - net	$	(102,362)	$	(9,348,537)
Net loss	$	(756,251)	$	(18,333,066)
Net Loss per Common Share – Basic and Diluted	$	(0.01)	$	(0.33)

For the six months ended January 31, 2011, as compared to the six months ended January 31, 2010, the Company reported a net loss of $(756,251) or $(0.01) per share and a net loss of $(18,333,066) or $(0.33) per share, respectively. The change in net loss between periods was primarily attributable to the following: decrease in sales from $457,934 to $0; a substantial decrease in stock-based compensation in the amount of $5,292,800, and a substantial decrease in derivative expense by $11,154,648.

Sales: Sales decreased $457,934 during the six months ended January 31, 2011, down from $457,934 during the six months ended January 31, 2010. The decrease in sales is attributable to the difficulty selling the Company’s product line, including:

●	The Company is experiencing difficulty penetrating the domestic and international markets at the current time.

●	The Company believes that most consumers are not ready to pay a premium price for high quality products in the lighting industry during the current economic times.

●	The Company is also having difficulty establishing a presence in major retail and mass market locations both domestically and abroad due to the cost structure that it would take these retailers to substitute our product from their current vendor offerings.

●

●	The sales cycle is much longer than we anticipated, from a forecasted 6-to-9 months to 18+ months.

Gross profit: Gross profit decreased $119,349 during the six months ended January 31, 2011, down from $119,349 during the six months ended January 31, 2010. The decrease in gross profit is reflective of the decreased sales.

General and Administrative Expense: General and administrative expenses decreased $8,449,989 to $653,889 during the six months ended January 31, 2011, down from $9,103,878 during the six months ended January 31, 2010. The decrease in general and administrative expenses is primarily attributable to a considerable decrease in stock based compensation of $8,145,183 and a decrease in other general and administrative expenses due to the Company’s limited capital resources.

Other income (expenses) – net decreased by $9,246,175. The decrease is primarily attributable to an increase in derivate expenses of $11,154,648 offset by a decrease in the change in fair value of derivative liabilities of $2,416,336.

Going Concern: As shown in the accompanying unaudited consolidated financial statements, the Company incurred a net loss from operations of $(756,251) during the six months ended January 31, 2011. As of that date, the Company had a working capital deficit of $3,150,467 and an accumulated deficit of $31,210,756. 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 continues to analyze and evaluate the current business and determine the viability in the current economic marketplace

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. It is imperative that the company raise additional capital in the near term to continue executing the current business plan.

Liquidity and Capital Resources

The following table summarizes total current assets, liabilities and working capital at January 31, 2011 compared to July 31, 2010.

	January 31, 2011 (Unaudited)		July 31, 2010 (Audited)		Increase/ (Decrease)
Current Assets	$	394	$	31,061	$	(30,667)
Current Liabilities	$	3,150,861	$	3,192,488	$	41,627
Working Capital (Deficit)	$	(3,150,467)	$	(3,161,427)	$	10,960

As of January 31, 2011, we had working capital deficit of $(3,150,467) as compared to a working capital deficit of $(3,161,427) as of July 31, 2010, an increase of $10,690. The increase is primarily a result of the change in fair market value of the derivative liabilities embedded in the Company’s convertible notes outstanding.

Net cash used for operating activities for the six months ended January 31, 2011, was $148,451. The Company had limited capital during the six months ended January 31, 2011 and limited expenses and activity to conserve the limited resources.

Net cash obtained through all financing activities for the six months ended January 31, 2011, was $145,697. The Company had difficulty raising additional capital during the six months ended January 31, 2011.

Financing Transactions:

On July 19, 2010, the Company entered into a convertible promissory note facility of up to $650,000 with one investor. On August 26, 2010, the Company issued the investor 1 convertible promissory note with principal of $31,000 maturing on July 19, 2013. The convertible promissory note bears interest at a rate of 10%. The company has classified all long-term debt as current due to the current liquidity of the Company. The investor is entitled at its option to convert all or part of the principal and accrued interest into shares of the Company’s common stock at a conversion price equal to the lesser of $0.10 or 65% of the average of the two lowest closing prices of the common stock in the 22 trading days (the closing bid price on the Over-the-Counter Bulletin Board or applicable trading market) immediately prior to the conversion.

On October 13, 2010, the Company issued a convertible promissory note with principal of $25,000 maturing on October 13, 2011. The notes are convertible into shares of the Company’s common stock at a 35% 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) of 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 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 re-generate sales, while leveraging distribution systems to consolidate lower costs. We expect that our operations will require at least $35,000 per month for the next six months in the plan to re-evaluate the current business model. We do not have sufficient cash reserves for the next six 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 unaudited 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.

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 life of the debt.

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, 2011. 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, 2011, 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.

Other than listed below, 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.

On June 15, 2010, Orion Energy Systems, Inc. petitioned to cancel the Company’s United States Trademark Registration No. 3,804,378 for ARMORLITE, alleging prior use in commerce. Orion, however, failed to allege a sufficiently early date of use to prevail on its petition. On December 15, 2010, Orion’s motion for leave to amend its petition to allege an earlier and legally sufficient date was granted in Cancellation No. 92-052556. The company answered the petition as required by January 15, 2011 and trial of Orion’s contentions of prior use in commerce is scheduled to begin in November, 2011.

Item 1A. Risk Factors.

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended July 31, 2010, filed with the SEC on November 15, 2010, and subsequently amended on March 17, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of the Company’s equity securities during the quarter ended January 31, 2011 that were not otherwise disclosed on a Form 8-K.

Item 3. Defaults Upon Senior Securities.

There were no defaults upon senior securities during the period ended January 31, 2011.

Item 4. (Removed and Reserved).

Item 5. Other Information.

There is no other information required to be disclosed under this item which was not previously disclosed.

Item 6. Exhibits.

Exhibit No.	Description

31.1	Rule 13a-14(a)/ 15d-14(a) Certification of the Principal Executive Officer of the Company.

31.2	Rule 13a-14(a)/ 15d-14(a) Certification of the Principal Accounting Officer of the Company.

32.1	Certification Pursuant to 18 U.S.C. Section 1350 of the Principal Executive Officer of the Company.

32.2	Certification Pursuant to 18 U.S.C. Section 1350 of the Principal Accounting Officer of the Company.

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 22, 2011	By:	/s/ Paul E. Niedermeyer
		Paul E. Niedermeyer Chief Executive Officer Principal Executive Officer Chief Financial Officer Principal Accounting Officer

CLEAR-LITE HOLDINGS, INC. 10-Q