UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2009.


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

COMMISSION FILE NUMBER: 000-32089

PURERAY CORPORATION

(Exact name of registrant as specified in its charter)


Washington		91-2023071
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

3490 PIEDMONT ROAD, SUITE 1120
ATLANTA, GA 30305
(Address of principal executive office)
(404) 869-6242
(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 þ No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of the issuer’s Common Stock, $0.0001 par value per share, outstanding as of March 17, 2009 was 35,500,000.

TABLE OF CONTENTS


	Page
PART I — FINANCIAL INFORMATION		1

Item 1. Consolidated Financial Statements		1
Consolidated Balance Sheets as of January 31, 2009 (unaudited), and April 30, 2008		F-1
Consolidated Statements of Operations (unaudited) for the three and nine month periods ended January 31, 2009 and 2008 and for the period from September 19, 2007 (inception of PureCanada) through January 31, 2009		F-2
Consolidated Statements of Cash Flows (unaudited) for the nine month periods ended January 31, 2009 and 2008 and for the period from September 19, 2007 (inception of PureCanada) through January 31, 2009		F-3
Consolidated Statements of Stockholders’ Equity (unaudited) for the period from September 19, 2007 (inception of PureCanada) through January 31, 2009		F-4
Notes to Consolidated Financial Statements (unaudited)		F-5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1
Item 3. Quantitative and Qualitative Disclosures about Market Risk		11
Item 4T. Controls and Procedures		11

PART II — OTHER INFORMATION		12

Item 1. Legal Proceedings		12
Item 1A. Risk Factors		12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		12
Item 3. Defaults upon Senior Securities		12
Item 4. Submission of Matters to a Vote of Security Holders		12
Item 5. Other Information		12
Item 6. Exhibits		14

SIGNATURES		16

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Reference is made to our consolidated financial statements and accompanying notes beginning on Page F-1 of this report.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Form 10-Q.

This Form 10-Q contains forward-looking statements regarding the plans and objectives of management for future operations. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and we cannot assure you that these projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors.

We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this Quarterly Report on Form 10-Q, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities and Exchange Commission (“SEC”), including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

PureRay Corporation (the “Company”), formerly known as North American Natural Gas, Inc. (“NAGA”), was incorporated under the laws of the State of Washington on March 24, 2000 under the name FAR Group Inc. We are in the development stage. As a development stage company, management devotes most of its activities in developing a market for our products. As described more fully below, following the Acquisition (as defined below) the Company is engaged in the development, manufacture and sale of rechargeable lighting products for the developing world. The Company has not yet generated sales from its planned principal activities.

Except as noted below, during the period from March 24, 2000 through January 31, 2009, we engaged in no significant operations other than organizational activities, acquisition of the rights to market Vitamineralherb.com, preparation for registration of our securities under the Securities Act of 1933, as amended (the “Securities Act”), preparation of a supplementary business plan and completing a private placement to fund this secondary division. We did not receive any revenues during this period.

On April 13, 2000, we acquired a License Agreement with Vitamineralherb.com from our former President in consideration of the assumption of a note payable of $35,000. The note was subsequently forgiven. The License Agreement granted an exclusive right to distribute Vitamineralherb.com products to health and fitness professionals in Minnesota via the Internet. Vitamineralherb.com had agreed to provide certain business administrative services to us, including product development, store inventory, website creation and maintenance, establishment of banking liaisons, and development and maintenance of an order fulfillment system, thereby enabling us to focus strictly on marketing and sales. The license was for an initial three-year period and was renewed in 2003 for an additional three-year term.

During the fourth quarter of fiscal 2003, we changed our name to North American Natural Gas, Inc. as it was anticipated that we would undertake a new business purpose in the oil and gas exploration industry. We entered into agreements to purchase interests in two oil and gas exploration opportunities subject to raising a minimum of US$11,000,000 in a private offering. We were unsuccessful in our efforts to raise the minimum amount and all funds received were subsequently returned to the original subscribers. All agreements were terminated.

Subsequent to the end of 2003, as we were unsuccessful in our efforts to raise the required capital to change our business purpose, we had reverted back to our original business to determine the feasibility of marketing and selling Vitamineralherb.com products in various markets, and, if the products proved to be in demand, beginning marketing and selling Vitamineralherb.com products. In light of the numerous delays with the Vitamineralherb.com website and initial reaction to our preliminary market survey, we decided to no longer try to exploit the license to market and sell vitamins and other health related products. The license was valid until April 2006, but upon its expiration, we did not renew the license.

On July 24, 2008, we acquired (the “Acquisition”) PureRay Corporation, a corporation formed under the laws of Canada (“PureCanada”), pursuant to a Share Purchase Agreement (as defined below). The purchase price was paid by the issuance of one Exchangeable Share (as defined below) for each PureCanada Share acquired, for a total of 35,855,000 Exchangeable Shares. In connection with the Acquisition, we changed our name to PureRay Corporation on July 24, 2008.

In connection with the Acquisition, the following transactions were completed:

1.		PureCanada issued 35,855,000 shares to founders and investors, of which 15,185,000 shares were issued for $0.00001 per share in cash and 20,670,000 shares were issued as consideration for the transfer to PureCanada of certain intangible assets by the founders of PureCanada. The Exchangeable Shares include 4,355,000 shares (the “Escrowed Shares”) issued to Kairos Partners, LLC (“Kairos”) pursuant to an Escrow and Share Purchase Agreement (as defined below), under which the Escrowed Shares will be held in escrow and incrementally released upon the occurrence of certain performance-based milestone events. A further discussion of the accounting treatment for the Escrowed Shares is included in Note 4 to the Consolidated Financial Statements beginning on page F-1 hereunder.

2.		We declared a 1.76 forward split of our Common Stock on May 23 2008, after which there were 34,870,000 shares of our Common Stock outstanding.

3.		Jim Glavas, our former President and a former director of the Company, contributed 21,370,000 post-split restricted shares of our Common Stock to us as a capital contribution for no consideration, after which there were 13,500,000 shares of our Common Stock outstanding.

4.		Through an indirect wholly-owned subsidiary, we acquired all of the PureCanada Shares by issuing one Exchangeable Share for each PureCanada Share. The Exchangeable Shares are non-voting but have other rights and privileges on a basis pari passu with our Common Stock.

5.		Under an Exchange Agreement (as defined below), we issued 8,963,750 shares of our Special Voting Stock (as defined below) to a trustee to be held for and on behalf of the registered holders of the Exchangeable Shares.

6.		We completed a private placement (the “Offering”) of 2,000,000 Units at a price of $1.00 per Unit, whereby each Unit is comprised of one share of our Common Stock and one share purchase warrant at an exercise price of $1.00 per share for a period of six months. As of January 24, 2009, the share purchase warrants have expired.

7.		Jim Glavas, our former sole director, appointed Jefrey M. Wallace, Derek Blackburn, Mickael Joasil and Frank O’Dea to our Board of Directors, and subsequently resigned from the Board of Directors.

As discussed more fully in the Notes to the Consolidated Financial Statements beginning on page F-1 of this Quarterly Report on Form 10-Q, because the Company’s acquisition of PureCanada resulted in the PureCanada shareholders having an effective ownership interest in the Company greater than 50%, the transaction is a public shell merger, whereby PureCanada is deemed the accounting acquirer. Under generally accepted accounting principles for reverse acquisitions, the historical financial statements presented for the registrant are those of the accounting acquirer (PureCanada) and the combination of PureCanada and the Company is accounted for as an acquisition by PureCanada of the net assets of the Company, excluding goodwill and any other intangible assets. The financial statements and footnotes to the financial statements reflect the background and financial information of PureCanada.

Business Operations

We are engaged in the design, manufacture and sale of proprietary multiplexing light bulbs and light bulb charging stations designed to meet the demand for off-grid lighting in the developing world (the “PureRay Technology”). The PureRay Technology is designed to provide high intensity LED lighting utilizing solar energy and a multiplexing chip. The PureRay Technology, which is focused primarily on developing world residential lighting applications, provides a safe, cost-effective, solar-powered alternative to kerosene lighting that is currently in use in off-grid structures throughout the developing world. In addition to applications in off-grid situations, the PureRay Technology can also accommodate on-grid residences that are subject to blackouts and brownouts. The charging stations are powered by solar panels and are capable of charging three bulbs at a time. They can also be used to power cell phones and other small electronic devices.

As of the date of the Acquisition, both NAGA and PureCanada were Development Stage Companies as defined by Statement of Financial Accounting Standard No. 7 “Accounting and Reporting for Enterprises in the Development Stage.” From the dates of inception of NAGA and PureCanada through the date of the Acquisition, their only activities had been organizational, directed at acquiring principal business assets, raising initial capital and developing business plans. NAGA and PureCanada had not commenced commercial operations, had no full time employees and owned no real estate. After the Acquisition, we remain a Development Stage Company. Our ability to emerge from the development stage with respect to any planned principal business activity is dependent upon our successful efforts to raise additional equity financing and/or attain profitable operations. There is no guarantee that we will be able to raise any equity financing or sell any of our products at a profit. There is substantial doubt regarding our ability to continue as a going concern.

Since the Acquisition, we have been engaged in activities to finalize product prototypes and to secure manufacturing and distribution agreements for the Company’s products. We have contracted with an engineering firm for certain design, engineering, and product testing services. We have also contracted with a manufacturing company for offshore production of the Company’s products and accessories. We intend to initially manufacture our products in China through IMCG Global.

We have completed initial product development and received an initial sales order for 10,000 units. The order is expected to be shipped in February 2009. We are continuing to explore various distribution strategies and are engaged in discussions with a number of third parties with respect to distribution of the product.

Proposed Divestiture

The board of directors of the Company has determined to unwind the Acquisition, divest its holdings in PureRay Holdings and PureCanada (each as defined below) and place the Company in, as nearly as practical, the same position it was in prior to the entering into the Share Purchase Agreement and related agreements. On March 17, 2009, the Company entered into a Divestiture Agreement (the “Divestiture Agreement”) to effect the unwind and divestiture. After the closing of the Divestiture Agreement, the Company will have no ongoing operations and will revert to a blank check company and a shell company and will no longer hold any interest in the PureRay subsidiaries or any of the assets held by the PureRay subsidiaries. The terms of the Divestiture Agreement are set forth below under Item 5 of Part II of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Results of Operations

The Acquisition is a public shell merger that is treated for accounting purposes as a recapitalization, with PureCanada as the accounting acquirer and the Company as the surviving company for legal purposes. Accordingly our financial statements and management’s discussion and analysis of financial condition and results of operations include the historical results of operations of PureCanada, the accounting acquirer, except that with respect to Shareholders’ Equity (Deficit) as of April 30, 2008, share and dollar amounts have been converted to shares of the Company based on the applicable Acquisition ratios.

From Inception of PureCanada on September 19, 2007 to January 31, 2009

As of the date of this report, the Company has yet to generate any revenues from its business operations. From its inception in 2007, the Company has incurred $2,034,083 in operating expenses, including $337,155 of transaction costs related to the Acquisition and $1,696,928 of operating expenses incurred in connection with start up and management of the Company and in product development and marketing activities to bring the Company’s principal product to market.

For the three-month period ended January 31, 2009, we had total expenses of $547,333, including $357,952 of management and professional fees, $72,339 of product development expenses and $117,042 of marketing and other operating expenses. For the remainder of the current fiscal year ending April 30, 2009, ongoing operating expenses associated with the business development activities described above will result in continuing operating losses. For the nine-month period ended January 31, 2009, we had total expenses of $1,904,240 including $337,155 in transaction costs, $1,050,927 in management and professional fees, and $516,158 in product development, marketing and other operating expenses. The Company had no operations during the three and nine month periods ended January 31, 2008, and accordingly, comparative results for the year earlier periods are not presented herein.

The Company has incurred $226,165 during the period from inception to January 31, 2009 in product development costs, principally in design and development of product prototypes, in addition to substantial time and expenses incurred by founders of PureCanada in design, development and patent applications related to the PureRay Technology. In connection with the Acquisition, the intellectual property related to the PureRay Technology was transferred by the founders to PureCanada as consideration for the issuance to the founders of 20,670,000 common shares by PureCanada. The intellectual assets transferred to PureCanada were valued at $3.1 million by an independent appraiser. Under generally accepted accounting principles, property contributed by founders or promoters is valued at predecessor cost and is not stepped up to fair value.

The Company’s manufacturing agreement requires advance payments against an initial production commitment of 10,000 units. Through January 31, 2009, we have made cumulative advance payments of $240,250 against the initial production order which are reflected in prepaid expenses.

Through January 31, 2009, we had yet to generate any revenues. We have received our initial sales order and we expect to recognize revenues in our fiscal quarter ending April 31, 2009. We expect to incur ongoing administrative and professional charges associated with required periodic financial and disclosure reports and in continuing product development, manufacturing and marketing efforts. There can be no assurance that we will have sufficient cash on hand to meet our cash requirements for the next twelve months or until revenue commences from operations. Management is exploring a variety of options to meet the Company’s future capital requirements, including the possibility of equity offerings and debt financing.

Our failure to generate sufficient revenue since inception to fund operations raises substantial doubt about our ability to continue as a going concern. We will require substantial working capital, and currently have inadequate capital to fund all of our business strategies, which could severely limit our operations.

Liquidity and Capital Resources

From Inception of PureCanada on September 19, 2007 to January 31, 2009

From its inception in 2007, the Company has funded its start up and product development activities principally from the proceeds of the Offering ($2 million). After transaction costs ($337,155), net proceeds available for operations were $1,662,845. We used cash for operations of $387,317 and $1,496,039, excluding transaction costs, during the three and nine month periods ended January 31, 2009, respectively. We had cash on hand of $109,296 and working capital of $(184,073) as of January 31, 2009. As of January 31, 2009, we had total liabilities of $533,619 as compared to $241,083 as of April 30, 2008.

As described more fully under Results of Operations above, the Company has used the proceeds of the Offering to fund product and business development activities. At our current cash level, we will not have sufficient cash to successfully bring the product to market and reach break-even cash flow from operations. We project that we will require additional capital from issuance of equity or debt to successfully market the product and reach a breakeven level of sales. As described more fully under Proposed Divestiture, we are currently engaged in efforts to divest PureCanada so it can seek sources of private capital and the Company can seek new business opportunities. If we are unable to complete the transaction or secure additional financing, it will be necessary for the Company to scale back or halt operating activities until financing can be obtained or assets can be sold.

At April 30, 2008, $100,000 was outstanding under a non-interest bearing demand loan from an unrelated third party. We subsequently borrowed an additional $150,000 under the loan to pay transaction costs prior to closing of the Acquisition. The loan was repaid from proceeds of the Offering.

As of January 31, 2009, the Company had an outstanding balance of $49,500 on a loan from Jim Glavas, our former President, which was used for working capital purposes. The loan is non-interest bearing, unsecured and due on demand. To date, we have not made any principal payments on the loan.

Entry Into Share Purchase Agreement

On July 24, 2008, we entered into a Share Purchase Agreement (the “Share Purchase Agreement”) by and among the Company, PureRay Acquisition Inc., a corporation formed under the laws of Canada (“PureRay Acquisition”) and a wholly-owned subsidiary of PureRay Holdings ULC, an unlimited liability corporation formed under the laws of the Province of Alberta and a wholly-owned subsidiary of the Company (“PureRay Holdings”), PureCanada, and Mickael Joasil, Derek Blackburn, F.W.F. Robinson, Frank O’Dea, as trustee of the O’Dea Family Trust, Kairos, Thomas J. Broeski, Raj Kurichh, Megs Padiachy, Ramila Padiachy, Patrick Pierre and Matthew Sicoli (together, the “PureCanada Shareholders”), whereby PureRay Acquisition acquired all of the outstanding shares of PureCanada (the “PureCanada Shares”) from the PureCanada Shareholders.

Pursuant to the terms of the Share Purchase Agreement, PureRay Acquisition acquired all of the PureCanada Shares. The purchase price was paid by the issuance of one exchangeable share of PureRay Acquisition (each, an “Exchangeable Share”) for each PureCanada Share acquired, for a total of 35,855,000 Exchangeable Shares. The Share Purchase Agreement contains customary representations and warranties by each of the parties.

The PureCanada Shareholders will fully indemnify the Company on an after-tax basis against (i) all loss, liability and expense arising out of any misrepresentation or breach of warranty by the PureCanada Shareholders and (ii) all liabilities of the Company including liabilities for any taxes, in each case including reasonable fees and expenses, including attorneys’ fees, in connection with any action or proceeding against the Company, PureCanada or PureRay Acquisition under the Share Purchase Agreement. The Company will fully indemnify the PureCanada Shareholders on an after-tax basis against any loss, liability or expense arising out of any misrepresentation or breach of warranty or covenant of the Company or PureRay Acquisition under the Share Purchase Agreement.

In connection with the Share Purchase Agreement, on July 24, 2008, the Company, PureRay Holdings, PureRay Acquisition and Derek Blackburn, as trustee (the “Trustee”), entered into a Voting and Exchange Trust Agreement (the “Exchange Agreement”). Pursuant to the Exchange Agreement, the Company issued shares of preferred stock of the Company, par value $0.0001 per share (the “Special Voting Stock”), in a ratio of a quarter (1/4) share of Special Voting Stock for each Exchangeable Share issued in connection with the Acquisition (for a total of 8,963,750 shares of Special Voting Stock) to the Trustee to be held for and on behalf of the registered holders of the Exchangeable Shares (the “Beneficiaries” and each a “Beneficiary”).

The Trustee, for the use and benefit of the Beneficiaries, is entitled to all of the Voting Rights (as defined below), including the right to vote in person or by proxy the Company’s Special Voting Stock on any matters, questions, proposals or propositions that may properly come before the shareholders of the Company at a meeting of the shareholders of the Company or in connection with a consent of the shareholders of the Company. The Voting Rights will be exercised by the Trustee on the basis of instructions received from the Beneficiaries entitled to instruct the Trustee with respect to a meeting or consent of the shareholders of the Company. Each Beneficiary is entitled to instruct the Trustee to cast and exercise one of the votes comprising the Voting Rights for each Exchangeable Share held as of the applicable record date. To the extent that no instructions are received from a Beneficiary, the Trustee may not exercise the Voting Rights with respect to such Exchangeable Shares. The Company will communicate to the Trustee and each of the Beneficiaries in the same manner as the Company communicates to holders of the Company’s common stock, par value $0.0001 per share (“Common Stock”), with respect to a meeting or consent of the shareholders of the Company, and will deliver to the Trustee and each Beneficiary all proxy materials, information statements and other written communications that are distributed from time to time to holders of the Company’s Common Stock. Each Beneficiary is also entitled to attend any meeting of the shareholders of the Company and personally exercise the Voting Rights to which such Beneficiary is entitled.

The Exchange Agreement grants the Trustee, for the use and benefit of the Beneficiaries, the right (the “Exchange Right”) to require PureRay Acquisition to purchase from such Beneficiary all or any part of the Exchangeable Shares held by such Beneficiary upon the occurrence and during the continuance of an Insolvency Event (defined generally as the institution of a proceeding to have PureRay Acquisition adjudicated as bankrupt, insolvent or to be wound up, and the failure by PureRay Acquisition to contest in good faith any such proceeding within 30 days of becoming aware thereof). The purchase price payable for each Exchangeable Share purchased by PureRay Acquisition under the Exchange Right equals the market price of a share of the Company’s Common Stock on the business day before the purchase of such Exchangeable Share, plus the full amount of all declared and unpaid dividends on such Exchangeable Share (the “Exchangeable Share Purchase Price”). The Exchangeable Share Purchase Price is payable only by PureRay Acquisition delivering or causing to be delivered to the relevant Beneficiary one share of the Company’s Common Stock for each Exchangeable Share purchased plus a cash amount equal to the amount of all accrued and unpaid dividends on such Exchangeable Share (the “Exchange Consideration”). The Trustee may only exercise the Exchange Right on the basis of instructions received from Beneficiaries entitled to instruct the Trustee as to the exercise thereof and only upon receipt of the Exchangeable Shares to be exchanged by each Beneficiary. To the extent that no instructions are received from a Beneficiary with respect to the Exchange Right, the Trustee will not exercise or permit the exercise of the Exchange Right.

The Exchange Agreement also grants the Trustee, for the use and benefit of the Beneficiaries, an automatic right (the “Automatic Exchange Right”) to exchange the Exchangeable Shares for shares of the Company’s Common Stock upon the occurrence of a Liquidation Event (defined generally a voluntary liquidation, dissolution or winding up of the Company or a threatened or instituted proceeding to effect the same). Under the Automatic Exchange Right, PureRay Holdings will purchase on the fifth business day before the effective date of a Liquidation Event all of the then outstanding Exchangeable Shares at the Exchangeable Share Purchase Price payable in the Exchange Consideration.

In connection with the Share Purchase Agreement, on July 24, 2008, the Company, PureRay Holdings and PureRay Acquisition entered into a Support Agreement (the “Support Agreement”). Pursuant to the Support Agreement, the Company made the following covenants for so long as any Exchangeable Shares remain outstanding: (i) the Company will not declare or pay any dividends on the Company’s Common Stock unless PureRay Acquisition is able to declare and pay and simultaneously declares or pays, as the case may be, an equivalent dividend on the Exchangeable Shares; (ii) the Company will advise PureRay Acquisition in advance of the declaration of any dividend on the Company’s Common Stock and ensure that the declaration date, record date and payment date for dividends on the Exchangeable Shares are the same as those for the Company’s Common Stock; (iii) the Company will ensure that the record date for any dividend declared on the Company’s Common Stock is not less than 10 days after the declaration date of such dividend; (iv) the Company will take all actions and do all things reasonably necessary or desirable to enable and permit PureRay Acquisition to make any required payments to the holders of Exchangeable Shares; (v) the Company will take all actions and do all things reasonably necessary or desirable to enable and permit PureRay Holdings to perform its obligations with respect to the Exchangeable Shares; and (vi) the Company will not exercise its vote as a shareholder of PureRay Acquisition to initiate the voluntary liquidation, dissolution or winding-up of PureRay Acquisition nor take any action that is designed to result in the liquidation, dissolution or winding up of PureRay Acquisition.

The Support Agreement further provides that, without the prior approval of PureRay Acquisition and the holders of Exchangeable Shares, the Company will not issue or distribute (i) additional shares of the Company’s Common Stock, (ii) securities exchangeable for or convertible into or carrying rights to acquire the Company’s Common Stock or rights to subscribe therefor, (iii) any other class of securities of the Company, (iv) evidences of indebtedness of the Company or (v) other assets of the Company to all or substantially all holders of the Company’s Common Stock, nor change the Company’s Common Stock, unless the same or an economically equivalent distribution on or change to the Exchangeable Shares (or in the rights of the holders thereof) is made simultaneously on a per share basis.

In the event of any proposed tender offer, share exchange offer, issuer bid, take-over bid or similar transaction with respect to the Company’s Common Stock which is recommended by the Company’s board of directors, or is otherwise effected or to be effected with the consent or approval of the Company’s board of directors, and in connection with which the Exchangeable Shares are not redeemed by PureRay Acquisition or purchased by PureRay Holdings or the Company, the Company will use reasonable efforts to enable holders of Exchangeable Shares to participate in such transaction to the same extent and on an economically equivalent basis as the holders of the Company’s Common Stock.

In connection with the Share Purchase Agreement, on July 24, 2008, Jim Glavas and the Company entered into a Capital Contribution Agreement (the “Contribution Agreement”) whereby Mr. Glavas contributed 21,370,000 shares of the Company’s Common Stock to the Company as a capital contribution, for which Mr. Glavas received no consideration. The contributed shares returned to authorized but unissued shares of the Company’s Common Stock. Mr. Glavas continues to hold 300,000 shares of the Company’s Common Stock.

In connection with the Share Purchase Agreement, on July 24, 2008, Kairos, PureCanada and Wildeboer Dellelce LLP (the “Escrow Agent”), entered into an Escrow and Share Purchase Agreement (the “Escrow Agreement”). Jefrey M. Wallace, a director and the Chief Executive Officer of the Company, holds an approximate 28% membership interest in and is a managing member of Kairos. Pursuant to the Escrow Agreement, Kairos delivered 4,355,000 PureCanada Shares (the “Escrowed Shares”) to the Escrow Agent to be held in escrow and incrementally released upon the occurrence of certain performance-based milestone events with respect to PureCanada and the Company. As a result of the Acquisition, the PureCanada Shares held in escrow have been exchanged with Exchangeable Shares. The Escrow Agreement was amended and restated immediately following completion of the Acquisition to substitute PureRay Acquisition in the place of PureCanada.

Under the Escrow Agreement, as amended, Kairos has appointed the Secretary of PureRay Acquisition to exercise the limited voting rights attaching to the Exchangeable Shares and Voting Rights of the Special Voting Stock issued with respect to the Exchangeable Shares held in escrow until such shares are released to Kairos. Kairos also has no right to dividends or other distributions or payments made on the Exchangeable Shares held in escrow until such shares are released to Kairos.

The Escrowed Shares will be released to Kairos as follows:

•		545,000 Escrowed Shares, within 120 days after the end of the financial year of PureCanada in which the sales of PureCanada and its affiliates are at least US$8,000,000;

•		545,000 Escrowed Shares, within 120 days after the end of the financial year of PureCanada in which the minimum EBITDA of PureCanada and its affiliates for such financial year, on a consolidated basis, is at least US$1,000,000;

•		545,000 Escrowed Shares, within 120 days after the end of the financial year of PureCanada in which the minimum EBITDA of PureCanada and its affiliates for such financial year, on a consolidated basis, is at least US$2,500,000;

•		545,000 Escrowed Shares, within 120 days after the end of the financial year of PureCanada in which the minimum EBITDA of PureCanada and its affiliates for such financial year, on a consolidated basis, is at least US$5,000,000; and

•		2,175,000 Escrowed Shares, within five days after the day on which the shares of Common Stock of the Company are listed and posted for trading on the Nasdaq Stock Market.

In the event of Jefrey M. Wallace’s termination, resignation, or inability to perform the duties of Chief Executive Officer of PureCanada or any of its affiliates (including the Company), or at any time after the fifth anniversary of the date of the Escrow Agreement, PureCanada has the right, but not the obligation, to require Kairos to sell to PureRay Acquisition or its designee the Escrowed Shares remaining in escrow for a price equal to CDN$0.00001 per share.

Except as required by applicable law, the Exchangeable Shares issued in connection with the Acquisition have no voting rights with respect to meetings or consents of shareholders of PureRay Acquisition. Dividends on Exchangeable Shares will be declared in the event a dividend is declared on shares of the Company’s Common Stock. Dividends will be declared and paid on each Exchangeable Share in like type and amount as are declared and paid on each share of the Company’s Common Stock, except that cash dividends will be paid on Exchangeable Shares in Canadian Dollars and stock dividends will be paid on Exchangeable Shares in additional Exchangeable Shares. Subject to the Exchange Right, the Exchangeable Shares have priority over shares of PureRay Acquisition which by their designation rank junior to the Exchangeable Shares, including without limitation the common shares of PureRay Acquisition, with respect to payments or distributions on the liquidation, dissolution or winding-up of PureRay Acquisition.

Each holder of Exchangeable Shares has the right (the “Retraction Right”) at any time to require PureRay Acquisition to redeem any or all of the Exchangeable Shares registered in the name of such holder at the Exchangeable Share Purchase Price payable in the Exchange Consideration. The Company and PureRay Holdings each have an overriding right, in the event that a holder of Exchangeable Shares exercises its Retraction Right, to purchase from such holder all but not less than all of the Exchangeable Shares tendered for redemption at the Exchangeable Share Purchase Price payable in the Exchange Consideration.

PureRay Acquisition may establish a date (the “Redemption Date”), which may be no less than 5 years after the initial issuance of the Exchange Shares, on which PureRay Acquisition will redeem the Exchangeable Shares at the Exchangeable Share Purchase Price payable in the Exchange Consideration. PureRay Acquisition may also establish a Redemption Date within 5 years after the initial issuance of the Exchangeable Shares in the event that less than 10% of the aggregate number of Exchangeable Shares issued remain outstanding, there is a change in control of the Company (defined generally as (i) a person, including its affiliates, becoming the beneficial owner of securities carrying in excess of 50.1% of the total voting rights attaching to all securities of the Company or (ii) the Company consolidating or amalgamating with, or merging with or into, another person resulting in the transferee person holding securities carrying in excess of 50.1% of the total voting rights attaching to all securities of the Company), and upon the occurrence of certain other events. The Company and PureRay Holdings each have an overriding right to purchase from the holder thereof all but not less than all of the Exchangeable Shares on the Redemption Date at the Exchangeable Share Purchase Price payable in the Exchange Consideration.

For so long as the Exchangeable Shares are outstanding, PureRay Acquisition has agreed not to take certain actions without the prior approval of the holders of a majority of the Exchangeable Shares, voting together as a single class, including:

•		paying any dividends on common stock or any other shares which by their designation rank junior to the Exchangeable Shares, other than stock dividends payable in common stock or any such other shares ranking junior to the Exchangeable Shares;

•		redeeming or purchasing or making any capital distribution in respect of common stock or any other shares which by their designation rank junior to the Exchangeable Shares with respect to the payment of dividends or on any liquidation distribution;

•		redeeming or purchasing any other shares which by their designation rank equally with the Exchangeable Shares with respect to the payment of dividends or on any liquidation distribution.

The above restrictions shall only apply if dividends shall have been declared on the Company’s Common Stock and all dividends on the outstanding Exchangeable Shares corresponding to such dividends on the Common Stock have not been declared on the Exchangeable Shares and paid in full.

The Special Voting Stock was issued in connection with the Acquisition to provide holders of the Exchangeable Shares with the right to vote at meetings of the shareholders of the Company or in connection with a consent of the shareholders of the Company. Each share of Special Voting Stock issued entitles the holder of record to four votes, equal to four shares of the Company’s Common Stock, and each quarter (1/4) share of Special Voting Stock entitles the holder of record to one vote, equal to one share of the Company’s Common Stock, at a meeting or in connection with a consent of the shareholders of the Company (the “Voting Rights”). The Special Voting Stock will vote together with the Company’s Common Stock as a single class. The Special Voting Stock is not entitled to receive dividends or any payments or distributions upon any liquidation, dissolution or winding up of the Company. Upon the acquisition by PureRay Acquisition of Exchangeable Shares, or upon the exchange by the Company or any of its affiliates of the Company’s Common Stock for Exchangeable Shares, the Company will redeem one quarter (1/4) share of the Special Voting Stock from the holdings of the holder of such Exchangeable Share for each Exchangeable Share acquired by the Company or any of its affiliates for an amount equal to US$0.000001 per share. As of the date when there are no Exchangeable Shares issued and outstanding, the Special Voting Stock will be cancelled, retired and eliminated from the shares which the Company is authorized to issue.

The foregoing summary of the Acquisition, Share Purchase Agreement, Exchange Agreement, Support Agreement, Contribution Agreement and Escrow Agreement (the “Acquisition Agreements”) is a summary of the material provisions of the Acquisition Agreements and is qualified in its entirety by the full text of the Acquisition Agreements, which are attached as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5, respectively, to our Current Report on Form 8-K/A filed on October 9, 2008, and are incorporated by reference herein.

Entry Into Divestiture Agreement

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to long lived assets, stock based compensation and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe 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 recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

We believe the following are critical accounting policies that require us to make significant estimates or assumptions in the preparation of our consolidated financial statements.

Stock-Based Compensation

As permitted by SFAS 123R we use the Black-Scholes option pricing model to estimate the fair value of our stock options and stock purchase warrants. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The expected life of equity awards is based on historical and other economic data trended into the future. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected terms of our equity awards. The dividend yield assumption is based on our history and expectation of no dividend payouts. We will evaluate the assumptions used to value stock awards on a quarterly basis. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense.

Long-lived Assets

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted SFAS No. 109 “Accounting for Income Taxes” as of its inception. Pursuant to SFAS No. 109 the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these consolidated financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

Related Party Transactions

Messrs. O’Dea (as trustee of the O’Dea Family Trust), Joasil and Blackburn and Kairos were parties to the Share Purchase Agreement in their capacities as PureCanada Shareholders. Pursuant to the Share Purchase Agreement, Messrs. O’Dea (as trustee of the O’Dea Family Trust), Joasil and Blackburn and Kairos acquired a beneficial interest in 1,000,000, 12,835,000, 12,835,000 and 5,355,000 Exchangeable Shares, respectively, and 250,000, 3,208,750, 3,208,750 and 1,338,750 shares of our Special Voting Stock, respectively. Jefrey M. Wallace, a director and our Chief Executive Officer, President and Secretary, may be deemed to have beneficial ownership of the Exchangeable Shares, Special Voting Stock and shares of our Common Stock beneficially owned by Kairos pursuant to his approximate 28% membership interest in Kairos. Mr. Wallace is also a managing member of Kairos.

Kairos was a party to the Escrow Agreement, whereby 4,355,000 of the Exchangeable Shares held by Kairos have been placed into escrow and will be incrementally released upon the occurrence of certain performance benchmarks achieved by PureCanada. Kairos has appointed the Secretary of PureRay Acquisition to exercise the limited voting rights attaching to the Exchangeable Shares and Voting Rights of the Special Voting Stock issued with respect to the Exchangeable Shares held in escrow until such shares are released. Kairos has no right to dividends or other distributions or payments made on the Exchangeable Shares held in escrow until such shares are released. Jefrey M. Wallace, a director and our Chief Executive Officer, President and Secretary, may be deemed to have beneficial ownership of the Exchangeable Shares, Special Voting Stock and shares of our Common Stock beneficially owned by Kairos pursuant to his approximate 28% membership interest in Kairos. Mr. Wallace is also a managing member of Kairos.

Effective January 2008, the Company agreed to pay Kairos certain fees and reimburse Kairos for certain expenses it incurred in connection with the Acquisition (the “Kairos Pre-Acquisition Arrangement”). The Company paid $79,314 to Kairos pursuant to the Kairos Pre-Acquisition Arrangement, which amount was paid directly by PureCanada using funds advanced by the Company to PureCanada prior to the Acquisition. Jefrey M. Wallace, a director and the Chief Executive Officer of the Company, holds an approximate 28% membership interest in and is a managing member of Kairos.

Effective June 1, 2008, the Company agreed to reimburse (the “Administrative Services Arrangement”) Kairos for the Company’s allocable cost of office facilities, equal to $1,500 per month, and other overhead and expenses. Pursuant to the Administrative Services Arrangement, the Company also agreed to reimburse Kairos for the allocable portion of Jefrey M. Wallace’s salary for his services as Chief Executive Officer, President and Secretary of the Company and Chief Executive Officer of PureCanada. Mr. Wallace currently receives a salary of $20,000 per month plus an automobile allowance of $1,500 per month for his services on behalf of the Company and PureCanada, which amounts are reimbursed by the Company to Kairos in accordance with the Administrative Services Arrangement. Mr. Wallace receives no compensation for his services as a director of the Company. Mr.Wallace holds an approximate 28% membership interest in and is a managing member of Kairos.

Effective May 1, 2008, the Company agreed to pay (the “Blackburn Arrangement”) Derek Blackburn, the Chief Financial Officer, Treasurer and a director of the Company, $12,500 per month for his services as Chief Financial Officer and Treasurer of the Company, and as an employee of the Company and PureCanada, in which capacity Mr. Blackburn is primarily responsible for leading the marketing and sales efforts for the PureRay Technology. Pursuant to the Blackburn Arrangement, Mr. Blackburn is also reimbursed for certain travel and other expenses. Mr. Blackburn will receive no compensation for his services as a director of the Company.

Effective May 1, 2008, the Company agreed to pay (the “Joasil Arrangement”) Mickael Joasil, a director of the Company, $12,500 per month for his services as an employee of the Company and PureCanada, in which capacity Mr. Joasil is primarily responsible for continued research and development of the PureRay Technology and continued product innovation. Pursuant to the Joasil Arrangement, Mr. Joasil is also reimbursed for certain travel and other expenses. Mr. Joasil will receive no compensation for his services as a director of the Company.

As of January 31, 2009, the Company had an outstanding balance of $49,500 on a loan from Jim Glavas, our former President, for working capital purposes. The loan is non-interest bearing, unsecured and due on demand. To date, we have not made any principal payments on the loan.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not Applicable.

Item 4T. Controls and Procedures.

As of January 31, 2009, we, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934). Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

There have been no changes in our internal control over financial reporting (as defined in Rule 13-15(f) of the Securities Exchange Act of 1934) that occurred during the quarter ended January 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

Item 1A. Risk Factors.

There has been no material change in the Risk Factors set forth in the “Risk Factors” section of Item 2.01 of the Company’s Current Report on Form 8-K/A filed on October 9, 2008.

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

Recent Sales of Unregistered Securities

The Special Voting Stock and Exchangeable Shares issued in connection with the Acquisition were not registered under the Securities Act. For information about the Acquisition, Special Voting Stock and Exchangeable Shares, please see the information set forth above under Item 2 of Part I of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference. The Special Voting Stock and Exchangeable Shares were issued in reliance upon the exemption from registration contained in Rule 506 under Regulation D and Section 4(2) of the Securities Act.

On July 24, 2008, the Company completed a private placement of 2,000,000 Units, each Unit consisting of one share of the Company’s Common Stock and a warrant to purchase an additional share of the Company’s Common Stock, at a purchase price of US$1.00 per Unit for an aggregate offering price of US$2,000,000 (the “Private Placement”). Proceeds received by the Company in connection with the Private Placement will be used for general working capital purposes. The Units issued pursuant to the Private Placement were issued in reliance upon the exemption from registration contained in Rule 903 under Regulation S of the Securities Act.

The information with respect to the Alley Private Placement (as defined below) set forth in Item 5 of Part II is incorporated herein by reference.

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of stockholders during the quarter ended January 31, 2009.

Item 5. Other Information.

On March 17, 2009, the Company executed a Divestiture Agreement with PureRay Holdings, PureCanada, Derek Blackburn in his capacity as Trustee under the Exchange Agreement and Mickael Joasil, Derek Blackburn, F.W.F. Robinson, Frank O’Dea, Kairos Partners, LLC, Thomas J. Broeski, Raj Kurichh, Megs Padiachy, Ramila Padiachy, Patrick Pierre and Matthew Sicoli (the “Principals”). Under the Divestiture Agreement (i) the Company will divest its direct holdings in PureRay Holdings and its indirect holdings in PureCanada; (ii) the Exchange

Agreement and the Support Agreement will be terminated; (iii) PureRay Holdings (or its successor) will purchase or redeem all of its issued and outstanding shares from the Company for an aggregate purchase price of CDN$100; (iv) the Company will purchase for cancellation all of its issued and outstanding Special Voting Stock (all of which are registered in the name of the Trustee); and (v) the Principals will become the holders of all of the issued and outstanding shares of PureCanada (or its successor), all as per the terms and conditions of the Divestiture Agreement.

The Special Voting Stock issued in connection with the Acquisition will be returned to the Company and cancelled. Concurrently with closing of the Divestiture Agreement, PureRay Holdings and PureCanada intend to amalgamate under the federal laws of Canada and the Exchangeable Shares will be converted into common shares of the resulting amalgamated corporation, also to be known as PureRay Corporation, a corporation organized under the laws of Canada.

After the closing of the Divestiture Agreement, the Company will have no ongoing operations and will revert to a blank check company and a shell company and will no longer hold any interest in the PureRay subsidiaries or any of the assets held by the PureRay subsidiaries. Further, the Principals and current officers and directors of the Company will not hold any interest in the Company after the closing of the Divestiture Agreement. All of the current assets of the Company will follow the PureRay subsidiaries pursuant to the Divestiture Agreement and as a result, the Company will have no nominal assets after the closing of the Divestiture Agreement.

The Divestiture Agreement contains customary representations and warranties by the Principals. The closing of the Divestiture Agreement is subject to several conditions with respect to the Company, PureRay Holdings, PureCanada and the Principals as set forth in the Divestiture Agreement, including the condition that the Divestiture Agreement be approved by two-thirds of the outstanding voting power of the Company pursuant to Section 12.020(5) of the Washington Business Corporation Act. Further, existing shareholders have the right to dissent pursuant to Section 13.020(1)(c) of the Washington Business Corporation Act.

The description of the Divestiture Agreement described in this Quarterly Report on Form 10-Q does not purport to be complete and is qualified in its entirety by reference to the Divestiture Agreement which is attached hereto as Exhibit 10.1 and incorporated herein by reference. The Divestiture Agreement has been included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the Company, PureRay Holdings, or PureCanada.

The Company intends to hold its 2009 annual meeting of shareholders (the “2009 Annual Meeting”) on or about April 22, 2009, for the purpose of considering and voting on (i) a proposal to approve the execution and completion of the Divestiture Agreement, (ii) a proposal to elect David Alley as the sole member of the Company’s board of directors to hold office until the 2010 annual meeting of shareholders or until his successor is duly elected and qualified and (iii) the transaction of such other business as may properly come before the 2009 Annual Meeting and any adjournments or postponements thereof.

In connection with the Divestiture Agreement, on March 17, 2009, the Company entered into a subscription agreement (the “Alley Private Placement”) with David Alley pursuant to which Mr. Alley purchased 20,000,000 restricted shares of Common Stock (the “Alley Shares”) from the Company in consideration of $20,000.00 (the “Purchase Price”). The shares were sold to Mr. Alley pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended. Mr. Alley is a sophisticated investor who understands the Company’s business and is capable of reading and understanding financial statements. Mr. Alley was furnished with copies of all of the Company’s filings with the Securities and Exchange Commission. Proceeds received by the Company in connection with the private placement will be used to cover expenses of the Company related to the Divestiture Agreement.

Mr. Alley has executed a proxy with respect to the Alley Shares in favor of Jefrey M. Wallace, the Company’s Chief Executive Officer, President and Secretary, which will allow Mr. Wallace to vote the Alley Shares at the Company’s 2009 Annual Meeting with respect to the approval of the Divestiture Agreement, the election of Mr. Alley as the sole director of the Company and any other business as may properly come before the 2009 Annual Meeting and any adjournments or postponements thereof. Additionally, in the event that the Divestiture Agreement is not approved by shareholders at the 2009 Annual Meeting, the Alley Shares will be redeemed and cancelled by the Company and the Purchase Price will be returned to Mr. Alley.

Item 6. Exhibits.


Number		Description
3.1		Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement No. 333-38534 filed on June 2, 2000).

3.2		Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 25, 2003).

3.3		Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K/A filed on October 9, 2008).

3.4		Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement No. 333-38534 filed on June 2, 2000).

4.1		Certificate of Designation of Special Voting Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K/A filed on October 9, 2008).

10.1		Share Purchase Agreement dated July 24, 2008 among the Company, PureRay Acquisition Inc., PureRay Corporation, Mickael Joasil, Derek Blackburn, F.W.F. Robinson, Frank O’Dea, Kairos Partners, LLC, Thomas J. Broeski, Raj Kurichh, Megs Padiachy , Ramila Padiachy, Patrick Pierre and Matthew Sicoli (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on October 9, 2008).

10.2		Voting and Exchange Trust Agreement dated July 24, 2008 among the Company, PureRay Holdings ULC, PureRay Acquisition Inc. and Derek Blackburn (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed on October 9, 2008).

10.3		Support Agreement dated July 24, 2008 among the Company, PureRay Holdings ULC and PureRay Acquisition Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K/A filed on October 9, 2008).

10.4		Capital Contribution Agreement dated July 24, 2008 between the Company and Jim Glavas (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K/A filed on October 9, 2008).

10.5		Escrow and Share Purchase Agreement dated July 24, 2008 among Kairos Partners, LLC, PureRay Acquisition Inc. and Wildeboer Dellelce LLP (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K/A filed on October 9, 2008).

10.6		Assignment of Application dated July 2, 2008 between Mickael Joasil and PureRay Corporation (incorporated by reference to Exhibit 10.6 to PureRay Corporation’s Current Report on Form 8-K/A filed on October 9, 2008).

10.7		Assignment of Application dated July 2, 2008 between Mickael Joasil and PureRay Corporation (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K/A filed on October 9, 2008).


Number		Description
10.8		Trademark Assignment dated July 16, 2008 (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K/A filed on October 9, 2008).

10.9		Employment Agreement dated October 10, 2008 between the Company and John McIlwaine (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 17, 2008).

10.10		2008 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 17, 2008).

10.11		Divestiture Agreement dated March 17, 2009 among the Company, Pure Ray Holdings ULC, PureRay Corporation, Derek Blackburn in has capacity as Trustee, Mickael Joasil, Derek Blackburn, F.W.F. Robinson, Frank O’Dea, Kairos Partners, LLC, Thomas J. Broeski, Raj Kurichh, Megs Padiachy, Ramila Padiachy, Patrick Pierre and Matthew Sicoli.

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	PURERAY CORPORATION (Registrant)
Date: March 17, 2009	By:	/s/ Jefrey M. Wallace
		Jefrey M. Wallace
		Principal Executive Officer



Date: March 17, 2009	By:	/s/ Derek Blackburn
		Derek Blackburn
		Principal Financial Officer

EXHIBIT INDEX


Number		Description
10.1		Divestiture Agreement dated March 17, 2009 among the Company, Pure Ray Holdings ULC, PureRay Corporation, Derek Blackburn in has capacity as Trustee, Mickael Joasil, Derek Blackburn, F.W.F. Robinson, Frank O’Dea, Kairos Partners, LLC, Thomas J. Broeski, Raj Kurichh, Megs Padiachy, Ramila Padiachy, Patrick Pierre and Matthew Sicoli.

31.1		Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

31.2		Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

32.1		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

PURERAY CORPORATION
(a development stage company)

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars)


	January 31, 2009			April 30, 2008
	$			$
	Unaudited
ASSETS

Current Assets
Cash		109,296			—
Prepaid expenses		240,250			11,240
Due from related parties		—			100,150

Total Current Assets		349,546			111,390


Other Assets
Patents		19,200			—



Total Assets		368,746			111,390


LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities

Accounts payable		337,003			59,751
Accrued liabilities		147,116			70,092
Due to a related party (Note 5)		49,500			11,240
Note payable (Note 5)		—			100,000



Total Liabilities		533,619			241,083


Contingencies and Commitments (Notes 4 and 5)
Going Concern (Note 2)

Stockholders’ Equity (Deficit)

Preferred Stock; Par value $0.0001 per share; 8,963,750 shares issued and outstanding		896			—
Common Stock; Par value $0.0001 per share; 15,500,000 and 15,185,000 shares issued and outstanding		1,550			1,519
Additional Paid-in Capital		1,862,763			—
Stock Subscription Receivable		—			(1,369	)
Deficit Accumulated During the Development Stage		(2,030,082	)		(129,843	)


Total Stockholders’ Deficit		(164,873	)		(129,693	)


Total Liabilities and Stockholders’ Deficit		368,746			111,390

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

F-1

PURERAY CORPORATION
(a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in U.S. dollars)

(unaudited)


													Accumulated From
	Three Months				Three Months		Nine Months				Nine Months		September 19, 2007
	Ended				Ended		Ended				Ended		(Date of Inception)
	January 31, 2009				January 31, 2008		January 31, 2009				January 31, 2008		To January 31, 2009
	$				$		$				$		$
Revenue		—				—		—				—		—


Expenses

Professional fees		80,742				—		722,596				—		722,596
Management and consulting fees		277,210				—		665,486				—		715,486
Product development		57,077				—		195,407				—		195,407
Marketing		72,339				—		156,073				—		226,165
Other		59,965				—		164,678				—		174,429



Total Expenses		547,333				—		1,904,240				—		2,034,083


Net Loss Before Other Income (Expense)		(547,333	)					(1,904,240	)			—		(2,034,083	)

Other Income (Expense)

Interest income		590				—		4,001				—		4,001


Net Loss for the Period		(546,743	)			—		(1,900,239	)			—		(2,030,082	)


Net Loss Per Share — Basic and Diluted	$	(0.04	)	$		—	$	(0.11	)	$		—	$	(0.21	)


Weighted Average Number of Shares Outstanding														—
Basic and Diluted		15,500,000				—		17,163,944				—		9,459,614

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

F-2

PURERAY CORPORATION
(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. dollars)

(unaudited)


						Accumulated From
	Nine Months			Nine Months		September 19, 2007
	Ended			Ended		(Date of Inception)
	January 31, 2009			January 31, 2008		To January 31, 2009
	$			$		$
Operating Activities

Net loss		(1,900,239	)		—		(2,030,082	)

Adjustments to reconcile net loss to cash used in operating activities

Share-based consulting fees		26,250			—		26,250
Change in operating assets and liabilities
Prepaid expenses		(229,009	)		—		(240,250	)
Accounts payable and accrued liabilities		269,804			—		399,648


Net Cash Used in Operating Activities		(1,833,194	)		—		(1,844,434	)


Financing Activities

Due to (from) related parties		(11,240	)		—		—



Net Cash Used in Financing Activities		(11,240	)		—		—


Investing Activities

Patent costs		(19,200	)		—		(19,200	)
Net cash from recapitalization		1,972,930			—		1,972,930



Net Cash Provided By Investing Activities		1,953,730			—		1,953,730


Increase in Cash		109,296			—		109,296

Cash — Beginning of Period		—			—		—


Cash — End of Period		109,296			—		109,296


Non-cash Investing and Financing Activities
Acquistion of net assets of NAGA with issuance of stock		1,838,759			—		1,838,759



Supplemental Disclosures

Interest paid		—			—		—
Income taxes paid		—			—		—

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

F-3

PURERAY CORPORATION
(a development stage company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Expressed in U.S. dollars)

(unaudited)


																	Deficit
																	Accumulated
	Common Shares						Preferred Shares				Additional						During the
				Par					Par		Paid -In			Shareholder			Development
	Number			Value			Number		Value		Capital			Subscription			Stage			Total
	#			$			#		$		$			$			$			$
Balance — September 19, 2007		—			—			—		—		—			—			—			—
(Date of Inception)		—			—			—		—		—			—			—			—
Common shares subscribed		15,185,000			—			—		—		150			—			—			150
Net loss for the period		—			—			—		—		—			—			(129,843	)		(129,843	)


Balance — April 30, 2008		15,185,000			—			—		—		150			—			(129,843	)		(129,693	)


Shares issued for intangible assets		20,670,000			2,067			—		—		—			(2,067	)		—			—
Adjustment for change in Par Value		—			1,519			—		—		—			(1,519	)		—			—
Recapitalization transactions																					—

Shares effectively issued to former NAGA shareholders as part of the recapitalization		34,870,000			3,487			—		—		(3,487	)		—			—			—
Cancellation of founders stock		(21,370,000	)		(2,137	)		—		—		2,137			—			—			—

Shares of Pure Canada acquired by legal acquiror		(35,855,000	)		(3,586	)		—		—		(150	)		3,586			—			(150	)
Net liabilities assumed in recapitalization		—			—			—		—		(160,996	)		—			—			(160,996	)
Unit Private Placement		2,000,000			200			—		—		1,999,755			—			—			1,999,955
Issuance of Preferred Shares		—			—			8,963,750		896		(896	)		—			—			—
Share-based consulting fees		—			—			—		—		26,250			—			—			26,250
Net loss for the period		—			—			—		—		—			—			(1,900,239	)		(1,900,239	)


Balance — January 31, 2009		15,500,000			1,550			8,963,750		896		1,862,763			—			(2,030,082	)		(164,873	)

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements

F-4

PURERAY CORPORATION
(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

(unaudited)

Background

PureRay Corporation (“PureCanada”) was incorporated in Canada in September 2007. On July 24, 2008, PureCanada and North American Natural Gas, Inc. (“NAGA”), a publicly held “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, the “Securities Exchange Act”) consummated a series of transactions (the “Acquisition”) through which NAGA acquired an indirect 100% interest in PureCanada. NAGA, formerly known as FAR Group, Inc., was incorporated in the State of Washington in March 2000. After the Acquisition, NAGA changed its name to PureRay Corporation (the merged company hereinafter, “the Company”) and ceased to be a shell company under the Securities Exchange Act.

In connection with the Acquisition, the following transactions were completed:

	a.		PureCanada issued 35,855,000 shares to founders and investors, of which 15,185,000 shares (subscribed as of April 30, 2008) were issued for $0.00001 per share in cash, and 20,670,000 shares were issued as consideration for the transfer to PureCanada of certain intangible assets by the founders of PureCanada.

	b.		NAGA declared a 1.76 forward split of its common stock on May 23, 2008, after which there were 34,870,000 shares of its common stock outstanding.

	c.		Jim Glavas, the former President and a former director of NAGA, contributed 21,370,000 post-split restricted shares of NAGA’s Common Stock to NAGA as a capital contribution for no consideration, after which there were 13,500,000 shares of NAGA’s common stock outstanding.

	d.		Pursuant to a Share Purchase Agreement, NAGA acquired, through an indirect wholly-owned subsidiary (“Acquisition Sub”), all of the outstanding shares of PureCanada by issuing one (1) exchangeable share (the “Exchangeable Shares”) of Acquisition Sub for each share of PureCanada (total Exchangeable Shares issued, 35,855,000). The Exchangeable Shares are non-voting but have other rights and privileges on a basis pari passu with the common stock of the Company.

	e.		Under a Voting and Exchange Trust Agreement (the “Exchange Agreement”), the Company issued shares of preferred stock of the Company, par value $0.0001 per share (the “Special Voting Stock”), in a ratio of a quarter (1/4) share of Special Voting Stock for each Exchangeable Share issued in connection with the Acquisition (for a total of 8,963,750 shares of Special Voting Stock) to a trustee to be held for and on behalf of the registered holders of the Exchangeable Shares.

	f.		NAGA completed a private placement (the “Offering”) of 2,000,000 units at a price of $1.00 per unit, whereby each unit is comprised of one common share and one share purchase warrant (the “Warrants”) at an exercise price of $1.00 per share for a period of six months. As of January 24, 2009, the Warrants have expired.

	g.		The former sole director of NAGA appointed three holders of Exchangeable Shares to the Company’s Board of Directors and subsequently resigned from the Board of Directors.

Basis of Presentation and Continuance of Business

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company does not have sufficient cash nor does it have an established source of revenue to cover its ongoing costs of operations. As of January 31, 2009, the Company has never generated any revenues and has accumulated losses of $2,030,082 since its inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-5

Management anticipates expenditures in excess of $1 million over the next twelve months. Management is currently seeking additional financing through the sale of equity or from borrowings from private lenders to cover its operating expenses.

As a result of the Acquisition, the former shareholders of PureCanada held a controlling interest in the merged entity and PureCanada became NAGA’s sole operating business. Because the Company’s acquisition of PureCanada resulted in the PureCanada shareholders having an effective ownership interest in the Company greater than 50%, the transaction is a public shell merger that is treated for accounting purposes as a recapitalization, whereby PureCanada is deemed the accounting acquirer. The Acquisition is treated as an acquisition by PureCanada of the tangible net assets of NAGA, excluding goodwill and any other intangible assets.

As of the date of the Acquisition, both NAGA and PureCanada were Development Stage Companies as defined by Statement of Financial Accounting Standard (“SFAS”) No. 7 “Accounting and Reporting for Enterprises in the Development Stage”. From the dates of inception of NAGA and PureCanada through the date of the Acquisition, their only activities had been organizational, directed at acquiring principal business assets, raising initial capital and developing business plans. NAGA and PureCanada had not commenced commercial operations, had no full time employees and owned no real estate. After the Acquisition, the Company remains a Development Stage Company. The Company has developed a proprietary technology for multiplexing light bulbs and light bulb charging stations designed to meet the demand for “off-grid” lighting in the developing world. It is currently engaged in activities to patent the technology and to manufacture product prototypes.

The interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended April 30, 2008, included in the Company’s Annual Report on Form 10-K filed on July 24, 2008 with the SEC.

The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position as at January 31, 2009, and the results of its operations and cash flows for the three and nine month periods ended January 31, 2009 and for the period from inception of PureCanada (September 19, 2007) to January 31, 2009. The results of operations for the three months ended January 31, 2009 are not necessarily indicative of the results to be expected for future quarters or the full year.

Summary of Significant Accounting Policies

Basis of Accounting

These financial statements are prepared in conformity with accounting principles generally accepted in the United States and are presented in United States dollars.

Year end

The Company’s fiscal year end is April 30. Prior to the Acquisition, the fiscal year end of both the Company and PureCanada was April 30.

F-6

Comparative Financial Statements

Comparative statements for the three and nine month periods ended January 31, 2008 reflect no activity as PureCanada, as the accounting acquirer (see Note 2), had no operating activity during those periods.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted 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 periods. The Company regularly evaluates estimates and assumptions related to long-lived assets, stock-based compensation, and deferred income tax asset valuation allowances. 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 will be affected.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

Research and Development Costs

Research and development costs are charged to operations as incurred.

Foreign Currency Translation

The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated to United States dollars in accordance with SFAS No. 52, “Foreign Currency Translation” using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.

Long-lived Assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

Financial Instruments

The fair values of cash, accounts payable, accrued liabilities, due to related parties and notes payable were estimated to approximate their carrying values due to the immediate or short-term maturity of these financial instruments. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

F-7

Income Taxes

The Company accounts for income taxes using the asset and liability method in accordance with SFAS No. 109, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

Comprehensive Income

SFAS No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at January 31, 2009 and 2008, the Company’s did not have any components of comprehensive income (loss).

Basic and Diluted Net Loss per Share

The Company computes net loss per share in accordance with SFAS No. 128, “Earnings Per Share,” which requires presentation of basic earnings per share and diluted earnings per share (“Diluted EPS”). The computation of basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of outstanding common shares during the period. Diluted earnings per share give effect to all potentially dilutive common shares outstanding during the period. The computation of diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. As of January 31, 2009 the Company had 36,605,000 of anti-dilutive securities, including the Exchangeable Shares and warrants.

Stock-based Compensation

The Company records stock-based compensation in accordance with SFAS No. 123R, “Share Based Payments”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

Recent Accounting Pronouncements

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — An interpretation of FASB Statement No. 60”. SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk- management activities. SFAS No. 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

F-8

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment to FASB Statement No. 133”. SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

On June 2007, the FASB reached a final consensus on Emerging Issues Task Force Issue 07-3, “Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities” (“EITF 07-03”). The consensus reached by the FASB requires companies involved in research and development activities to capitalize such non-refundable advance payments for goods and services pursuant to an executory contractual arrangement because the right to receive those services in the future represents a probable future economic benefit. Those advance payments will be capitalized until the goods have been delivered or the related services have been performed. The consensus on EITF 07-03 is effective prospectively for financial statements issued for fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Earlier application is not permitted. The adoption of this statement did not have a material effect on the Company’s financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations”. This statement replaces SFAS No.141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS No. 141 (revised 2007) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS No. 141 (revised 2007) also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements Liabilities —an Amendment of ARB No. 51”. This statement amends ARB 51 to establish accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “Fair Value Measurements”. The adoption of this statement did not have a material effect on the Company’s financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement did not have a material effect on Company’s financial statements.

F-9

Reclassifications

Certain reclassifications have been made to the prior period’s consolidated financial statements to conform to the current period’s presentation.

Shareholders’ Equity

The issued and outstanding shares of the Company are as follows (see Notes 1 and 2):


	January 31,		April 30,
	2009		2008
Preferred Shares		8,963,750		—
Common Shares		15,500,000		15,185,000

In addition to the issued and outstanding shares above, the Company has potentially dilutive securities as follows:

	a.		The Exchangeable Shares (Note 1)

	b.		Warrants issued for services—In October 2008, the Company granted warrants to a non-employee for the purchase of 750,000 common shares at an exercise price of $0.50 per share, based upon the average trading price of the Company’s common stock for the immediately succeeding five days following the date of grant. The warrants vest in four quarterly installments beginning November 1, 2009. At each vesting date, the fair value of the vesting warrants will be charged to consulting expense. During the three months ended January 31. 2009, 187,500 warrants vested, with a fair value of $26,250, determined using the Black-Scholes Pricing Model with the following assumptions: risk-free interest rate of 2.6%; expected life of 5.3 years; expected volatility of 75%; and an expected dividend yield of 0.0%.

	c.		2008 Stock Option and Incentive Plan (the “2008 Option Plan”)—The Company adopted the 2008 Option Plan in October 2008. The 2008 Option Plan authorizes up to 5,500,000 common shares for the grant of options or restricted stock to qualified recipients, including employees and non-employees. The exercise price of options and the value established for restricted shares will be the then current fair value per common share. Vesting schedules and other terms will be determined by the Board of Directors upon each grant under the plan. No options or restricted shares had been granted as of January 31, 2009.

Earnings (Loss) per Share.

Basic loss per share is equal to net loss divided by the weighted average number of shares of common stock outstanding for the period. For the three and nine month periods ended January 31, 2009 and the period from inception to January 31, 2009, common stock equivalents were not dilutive and, accordingly, basic and diluted net loss per share are the same.

The Exchangeable Shares include 4,355,000 shares (the “Escrowed Shares”) issued to a related party, Kairos Partners, LLC (“Kairos”, see Note 5) pursuant to an Escrow and Share Purchase Agreement (the “Escrow Agreement”), under which the Escrowed Shares will be held in escrow and incrementally released upon the occurrence of certain performance-based milestone events.

F-10

The Escrowed Shares will be released to Kairos as follows:

	•		545,000 Escrowed Shares, within 120 days after the end of the financial year in which the sales are at least US$8,000,000;

	•		545,000 Escrowed Shares, within 120 days after the end of the financial year in which EBITDA for such financial year is at least US$1,000,000;

	•		545,000 Escrowed Shares, within 120 days after the end of the financial year in which EBITDA is at least US$2,500,000;

	•		545,000 Escrowed Shares, within 120 days after the end of the financial year in which EBITDA is at least US$5,000,000; and

	•		2,175,000 Escrowed Shares, within five days after the day on which the shares of common stock of the Company are listed and posted for trading on the Nasdaq Stock Market.

In accordance with SFAS No. 123R and EITF 95-8, the Escrowed Shares are treated as share based compensation. The fair value of the Escrowed Shares at the date of grant ($400,000) will be recognized as compensation expense upon the achievement of specified performance objectives.

In the consolidated balance sheets as of April 30, 2008, common stock and dollar amounts for PureCanada have been converted to shares of the Company based on the applicable Acquisition ratios.

The Special Voting Stock is reflected in Preferred Stock as of January 31, 2009. The Special Voting Stock was issued for no consideration solely to grant voting rights to holders of Exchangeable Shares. The Special Voting Stock will be cancelled upon the exchange of corresponding Exchangeable Shares.

Related Party Transactions

As of January 31, 2009, $49,500 was due to a shareholder and former president of the Company for cash advanced to the Company. The advance is non-interest bearing, unsecured and due on demand.

At April 30, 2008, the Company had $100,000 outstanding under a non-interest bearing demand loan from an unrelated third party. The Company advanced the funds to PureCanada to pay certain costs and expenses in contemplation of the Acquisition. The Company subsequently borrowed an additional $150,000 under the loan agreement and advanced those funds to PureCanada. In connection with the Acquisition, the Company repaid in full the $250,000 outstanding balance of the loan.

F-11

6. Subsequent Event - Proposed Divestiture

The board of directors of the Company has determined to unwind the Acquisition, divest its holdings in PureRay Holdings and PureCanada and place the Company in, as nearly as practical, the same position it was in prior to the entering into the Share Purchase Agreement and related agreements. On March 17, 2009, the Company entered into a Divestiture Agreement to effect the unwind and divestiture. Under the terms of the Divestiture Agreement, a series of transactions will occur the result of which will be to transfer ownership of PureRay Holdings and PureCanada to the holders of the Exchangeable Shares. The Exchangeable Shares issued by PureCanada and the Special Voting Stock and all warrants and options previously issued by the Company will be cancelled. Any amounts previously advanced to PureCanada will be treated as a capital contribution to PureCanada. Any assets and liabilities related to the operation of PureCanada since the date of the Acquisition will be retained by PureCanada. As of January 31, 2009, all assets and liabilities reflected in the consolidated balance sheet, with the exception of the $49,500 note payable to a shareholder (Note 5), are related to the operations of PureCanada and will be retained by PureCanada after the divestiture. The closing of the Divestiture Agreement is subject to several conditions with respect to the Company, PureRay Holdings, PureCanada and the Principals as set forth in the Divestiture Agreement, including the condition that the Divestiture Agreement be approved by two-thirds of the outstanding voting power of the Company pursuant to Section 12.020(5) of the Washington Business Corporation Act. Further, existing shareholders have the right to dissent pursuant to Section 13.020(1)(c) of the Washington Business Corporation Act.

In connection with the Divestiture Agreement, on March 17, 2009, the Company entered into a subscription agreement with David Alley pursuant to which Mr. Alley purchased 20,000,000 restricted shares of the Company’s common stock in consideration of $20,000.

F-12

PureRay CORP 10-Q