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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-QSB



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(MARK ONE)

|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended March 31, 2007



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------

For the transition period from  to

Commission File Number 333-118255



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GRAY PEAKS, INC.

(Exact Name of Small Business Issuer as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 38-3692822                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|1320 Tower Road, Schaumburg, IL          |  | 60173     
|(Address of Principal Executive Offices) |  | (Zip Code)

847-598-3750

(Issuers Telephone Number)



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Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ̈NO  x

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    YES  x    NO ̈

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING
FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court.    Yes ̈No ̈

APPLICABLE ONLY TO CORPORATE ISSUERS.

State the number of shares outstanding of each of the issuers classes of common equity, as of
the latest practical date:

Common Stock, $.01 Par Value - shares outstanding 8,942,605 at August 1, 2007

Transitional Small Business Disclosure Format (check one):

YES ̈NO  x



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##### Table of Contents

FORM 10-QSB

GRAY PEAKS, INC.

CONTENT





|                                                                                                                                                                          |  |      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                                                                                          |  | Page 
|PART I. FINANCIAL INFORMATION                                                                                                                                             |  |      
|Item 1. Financial Statements                                                                                                                                              |  |      
|Cautionary Statement Regarding Forward Looking Statements                                                                                                                 |  | 3    
|                                                                                                                                                                          | 
|Unaudited Balance Sheets - as of March 31, 2007 and December 31, 2006                                                                                                     |  | 4    
|                                                                                                                                                                          | 
|Unaudited Statements of Operations - Three months ended March 31, 2007 and March 31, 2006 and for the period from November 25, 2003 (Inception) through March 31, 2007    |  | 5    
|                                                                                                                                                                          | 
|Unaudited Statements of Cash Flows - Three months ended March 31, 2007 and March 31, 2006 and for the period from November 25, 2003 (Inception) through March 31, 2007    |  | 6    
|                                                                                                                                                                          | 
|Unaudited Statements of Changes in Stockholders Deficit  Three months ended March 31, 2007 and for the period from November 25, 2003 (Inception) through March 31, 2007 |  | 7    
|                                                                                                                                                                          | 
|Notes to Unaudited Condensed Consolidated Financial Statements                                                                                                            |  | 8-11 
|                                                                                                                                                                          | 
|Item 2. Managements Discussion and Analysis                                                                                                                              |  | 11-13
|                                                                                                                                                                          | 
|Item 3. Controls and Procedures                                                                                                                                           |  | 13   
|                                                                                                                                                                          | 
|PART II. OTHER INFORMATION                                                                                                                                                |  | 14   
|                                                                                                                                                                          | 
|Item 6. Exhibits                                                                                                                                                          |  | 14   
|                                                                                                                                                                          | 
|Signatures                                                                                                                                                                |  | 15   



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CAUTIONARY STATEMENT REGARDING

FORWARD LOOKING STATEMENTS

Certain statements included in this quarterly report on Form 10-QSB which are not statements of historical fact are intended to be, and are hereby identified as,
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers that forward-looking statements involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward-looking statements. Such factors include, among others, the
following: the Companys inability to secure adequate capital to fund operating losses, working capital requirements, advertising and promotional expenditures and principal and interest payments on debt obligations; factors related to increased
competition from existing and new competitors including new product introduction, price reduction and increased spending on marketing; limitations on the Companys opportunities to enter into and/or renew agreements with international partners,
the failure of the Company or its partners to successfully market, sell and deliver its product in international markets, and risks inherent in doing business on an international level, such as unexpected changes in the regulatory requirements,
political risks, export restrictions, tariffs and other trade barriers and fluctuations in currency exchange rates; the Companys inability to manage its growth and to adapt its administrative, operational and financial control systems to the
needs of the expanded entity and the failure of management to anticipate, respond to and manage changing business conditions; the loss of the services of executive officers and other key employees and the Companys continued ability to attract
and retain highly-skilled and qualified personnel; the costs and other effects of litigation, governmental investigations, legal and administrative cases and proceedings, settlements and investigations; and developments or assertions by or against
the Company relating to intellectual property rights.



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##### Table of Contents

PART 1 FINANCIAL INFORMATION

Item 1. Financial Statements

Gray Peaks, Inc.

(A Development Stage Enterprise)

(unaudited)

Balance Sheets

March 31, 2007 and December 31, 2006



|                                                                                                  |  |               |            |   |                  |   |            |  
|------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                                  |  | March 31,2007 |            |   | December 31,2006 |  
|Assets                                                                                            |  |               |            |   |                  |   |            |  
|Current Assets                                                                                    |  |               |            |   |                  |   |            |  
|Cash                                                                                              |  | $             | 1          |   |                  | $ | 1,530      |  
|                                                                                                  |  |               |            |   |                  |   |            |  
|Total current assets                                                                              |  |               | 1          |   |                  |   | 1,530      |  
|                                                                                                  |  |              
|Equipment, net                                                                                    |  |               | 1,645      |   |                  |   | 2,069      |  
|                                                                                                  |  |               |            |   |                  |   |            |  
|Total assets                                                                                      |  | $             | 1,646      |   |                  | $ | 3,599      |  
|                                                                                                  |  |               |            |   |                  |   |            |  
|Liabilities and Stockholders Deficit                                                             |  |               |            |   |                  |   |            |  
|Current Liabilities                                                                               |  |               |            |   |                  |   |            |  
|Accounts payable                                                                                  |  | $             | 404,563    |   |                  | $ | 365,548    |  
|Notes payable                                                                                     |  |               | 13,387     |   |                  |   | 4,879      |  
|Accrued expenses                                                                                  |  |               | 829,002    |   |                  |   | 751,982    |  
|                                                                                                  |  |               |            |   |                  |   |            |  
|Total current liabilities                                                                         |  |               | 1,246,952  |   |                  |   | 1,122,409  |  
|                                                                                                  |  |               |            |   |                  |   |            |  
|Stockholders Deficit                                                                             |  |               |            |   |                  |   |            |  
|Common stock, no par value, 20,000,000 shares authorized; 8,905,105 shares issued and outstanding |  |               | 89,426     |   |                  |   | 89,426     |  
|Less note receivable and accrued interest arising from the sale of common stock                   |  |               | (11,064    | ) |                  |   | (10,954    | )
|Additional paid-in capital                                                                        |  |               | 5,008,611  |   |                  |   | 4,775,831  |  
|Deficit accumulated during the development stage                                                  |  |               | (6,332,279 | ) |                  |   | (5,973,113 | )
|                                                                                                  |  |               |            |   |                  |   |            |  
|Total stockholders deficit                                                                       |  |               | (1,245,306 | ) |                  |   | (1,118,810 | )
|                                                                                                  |  |               |            |   |                  |   |            |  
|Total liabilities and stockholders deficit                                                       |  | $             | 1,646      |   |                  | $ | 3,599      |  
|                                                                                                  |  |               |            |   |                  |   |            |  

See notes to unaudited condensed financial statements.



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Gray Peaks, Inc.

(A Development Stage Enterprise)

(unaudited)

Statements of Operations During the Development Stage

Three months ended March 31, 2007 and March 31, 2006 and for the

period from November 25, 2003 (Inception) through March 31, 2007



|                                                       |  |                    |           |   |                                                             |   |           |   |  |   |            |  
|------------------------------------------------------ |  | ------------------ | --------- | - | ----------------------------------------------------------- | - | --------- | - |  | - | ---------- | -
|                                                       |  | Three months ended |           |   | Period from November 25, 2003 (Inception) to March 31, 2007 |  
|                                                       |  | March 31, 2007     |           |   | March 31, 2006                                              |   |          
|Revenues                                               |  | $                  |          |   |                                                             | $ |          |   |  | $ | 3,300      |  
|                                                       |  |                    |          
|Development stage, operating expenses:                 |  |                    |           |   |                                                             |   |           |   |  |   |            |  
|Selling, general and administrative:                   |  |                    |           |   |                                                             |   |           |   |  |   |            |  
|Stock-based compensation expense                       |  |                    | 250,089   |   |                                                             |   | 222,411   |   |  |   | 3,925,687  |  
|Professional Services                                  |  |                    | 9,436     |   |                                                             |   | 32,661    |   |  |   | 990,798    |  
|Payroll and payroll related expenses                   |  |                    | 94,883    |   |                                                             |   | 110,791   |   |  |   | 1,133,572  |  
|Travel and entertainment expenses                      |  |                    | 14,564    |   |                                                             |   | 11,995    |   |  |   | 184,611    |  
|Office expenses                                        |  |                    | 6,924     |   |                                                             |   | 8,983     |   |  |   | 107,894    |  
|Other                                                  |  |                    | 629       |   |                                                             |   | 11,265    |   |  |   | 30,012     |  
|                                                       |  |                    |           |   |                                                             |   |           |   |  |   |            |  
|                                                       |  |                    | 376,525   |   |                                                             |   | 398,106   |   |  |   | 6,372,574  |  
|                                                       |  |                    |           |   |                                                             |   |           |   |  |   |            |  
|Operating loss                                         |  |                    | (376,525  | ) |                                                             |   | (398,106  | ) |  |   | (6,369,274 | )
|                                                       |  |                    |          
|Nonoperating income:                                   |  |                    |           |   |                                                             |   |           |   |  |   |            |  
|Gain on sale of short-term investments                 |  |                    |          |   |                                                             |   | 6,044     |   |  |   | 24,742     |  
|Interest Income                                        |  |                    |          |   |                                                             |   |          |   |  |   | 960        |  
|Interest Expense                                       |  |                    | (60       | ) |                                                             |   | (696      | ) |  |   | (6,126     | )
|                                                       |  |                    |           |   |                                                             |   |           |   |  |   |            |  
|                                                       |  |                    | (60       | ) |                                                             |   | 5,348     |   |  |   | 19,576     |  
|Net loss accumulated during the development stage      |  | $                  | (376,585  | ) |                                                             | $ | (392,758  | ) |  | $ | (6,349,698 | )
|                                                       |  |                    |           |   |                                                             |   |           |   |  |   |            |  
|Net loss per share, basic and diluted                  |  | $                  | (0.04     | ) |                                                             | $ | (0.04     | ) |  | $ | (0.74      | )
|                                                       |  |                    |           |   |                                                             |   |           |   |  |   |            |  
|Weighted average shares outstanding, basic and diluted |  |                    | 8,942,605 |   |                                                             |   | 8,905,105 |   |  |   | 8,636,890  |  
|                                                       |  |                    |           |   |                                                             |   |           |   |  |   |            |  

See notes to unaudited condensed financial statements.



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Gray Peaks, Inc.

(A Development Stage Enterprise)

(unaudited)

Statements of Cash Flows

Three months ended March 31, 2007 and March 31, 2006 and for the

Period from November 25, 2003
(Inception) through March 31, 2007



|                                                                            |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|--------------------------------------------------------------------------- |  | ------------------ | -------- | - | ----------------------------------------------------------- | - | -------- | - |  | - | ---------- | -
|                                                                            |  | Three months ended |          |   | Period from November 25, 2003 (Inception) to March 31, 2007 |  
|                                                                            |  | March 31, 2007     |          |   | March 31, 2006                                              |   |         
|Cash Flows From Operating Activities                                        |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Net loss accumulated during the development stage                           |  | $                  | (376,585 | ) |                                                             | $ | (392,758 | ) |  | $ | (6,349,698 | )
|                                                                            |  |                    |         
|Adjustments to reconcile net loss to net cash used in operating activities, |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Gain on sale of equity securities                                           |  |                    |         |   |                                                             |   | (6,044   | ) |  |   |           |  
|Depreciation expense                                                        |  |                    | 424      |   |                                                             |   | 360      |   |  |   | 3,441      |  
|Share-based compensation expense                                            |  |                    | 250,089  |   |                                                             |   | 222,411  |   |  |   | 3,925,688  |  
|Interest added to notes payable                                             |  |                    | 60       |   |                                                             |   |         |   |  |   | 1,653      |  
|Note payable incurred for payment of corporate expenses                     |  |                    | 6,448    |   |                                                             |   |         |   |  |   | 6,448      |  
|                                                                            |  |                    |         
|Changes in assets and liabilities:                                          |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Increase in accounts payable                                                |  |                    | 39,015   |   |                                                             |   | 6,741    |   |  |   | 404,563    |  
|Increase in accrued expenses                                                |  |                    | 77,020   |   |                                                             |   | 8,054    |   |  |   | 763,003    |  
|                                                                            |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Net cash used in operating activities                                       |  |                    | (3,529   | ) |                                                             |   | (161,236 | ) |  |   | (1,244,902 | )
|                                                                            |  |                    |         
|Cash Flows From Investing Activities                                        |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Principal payments on notes receivable                                      |  |                    |         |   |                                                             |   |         |   |  |   | 17,984     |  
|Purchase of equipment                                                       |  |                    |         |   |                                                             |   | (2,314   | ) |  |   | (5,087     | )
|Purchase of equity securities                                               |  |                    |         |   |                                                             |   | (315,118 | ) |  |   |           |  
|Proceeds from sale of equity securities                                     |  |                    |         |   |                                                             |   | 430,992  |   |  |   |           |  
|                                                                            |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Net cash provided by investing activities                                   |  |                    |         |   |                                                             |   | 113,560  |   |  |   | 12,897     |  
|                                                                            |  |                    |         
|Cash Flows From Financing Activities                                        |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Proceeds from sale of common stock,                                         |  |                    |         |   |                                                             |   |         |   |  |   | 1,160,720  |  
|Proceeds from the issuance of notes payable                                 |  |                    | 2,000    |   |                                                             |   | 194      |   |  |   | 232,157    |  
|Payments on notes payable                                                   |  |                    |         |   |                                                             |   | (10,000  | ) |  |   | (160,871   | )
|                                                                            |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Net cash provided (used) by financing activities                            |  |                    | 2,000    |   |                                                             |   | (9,806   | ) |  |   | 1,232,006  |  
|                                                                            |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Net (decrease) increase in cash and cash equivalents                        |  |                    | (1,529   | ) |                                                             |   | (57,482  | ) |  |   | 1          |  
|                                                                            |  |                    |         
|Cash and cash equivalents at beginning of period                            |  |                    | 1,530    |   |                                                             |   | 161,605  |   |  |   |           |  
|                                                                            |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Cash and cash equivalents at end of period                                  |  | $                  | 1        |   |                                                             | $ | 104,123  |   |  | $ | 1          |  
|                                                                            |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Supplemental Disclosure of Noncash Financing Activities                     |  |                    |          |   |                                                             |   |          |   |  |   |            |  
|Reclassification of borrowings to accrued expenses                          |  | $                  |         |   |                                                             | $ |         |   |  | $ | 66,000     |  
|Issuance of common stock for note receivable                                |  |                    |         |   |                                                             |   |         |   |  |   | 26,820     |  
|Interest added to note receivable                                           |  |                    | 110      |   |                                                             |   | 127      |   |  |   | 2,229      |  

See notes to unaudited condensed financial statements.



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Gray Peaks, Inc.

(A Development Stage Enterprise)

Statements of Changes in Stockholders Equity (Deficit)

Three months ended March 31, 2007 and

Period from November 25, 2003 (Inception) through March 31, 2007



|                                                                     |  |              |  |                  |        |  |                            |         |   |                                   |   |           |                                                    |  |   |                                      |   |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------- |  | ------------ |  | ---------------- | ------ |  | -------------------------- | ------- | - | --------------------------------- | - | --------- | -------------------------------------------------- |  | - | ------------------------------------ | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                     |  | Common Stock |  | Notes Receivable |        |  | Additional Paid-In Capital |         |   | Deferred Stock-Based Compensation |   |           | (Deficit) Accumulated During the
Development Stage |  |   | Total Stockholders Equity (Deficit) |  
|                                                                     |  | Shares       |  | Amount           |        |  |                            |         |  
|Balance, November 25, 2003                                           |  |             |  | $                |       |  | $                          |        |   |                                   | $ |          |                                                    |  | $ |                                     |   |  | $ |           |   |  | $ |           |  
|Issuance of common stock on November 25, 2003, for cash              |  | 5,702,164    |  |                  | 57,022 |  |                            |        |   |                                   |   | 1,978     |                                                    |  |   |                                     |   |  |   |           |   |  |   | 59,000     |  
|Issuance of common stock on November 25, 2003, for a note receivable |  | 1,425,541    |  |                  | 14,255 |  |                            | (14,750 | ) |                                   |   | 495       |                                                    |  |   |                                     |   |  |   |           |   |  |   |           |  
|Interest on notes receivable                                         |  |             |  |                  |       |  |                            | (75     | ) |                                   |   | 75        |                                                    |  |   |                                     |   |  |   |           |   |  |   |           |  
|Net loss                                                             |  |             |  |                  |       |  |                            |        |   |                                   |   |          |                                                    |  |   |                                     |   |  |   | (12,883    | ) |  |   | (12,883    | )
|                                                                     |  |              |  |                  |        |  |                            |         |   |                                   |   |           |                                                    |  |   |                                      |   |  |   |            |   |  |   |            |  
|Balance, December 31, 2003                                           |  | 7,127,705    |  | $                | 71,277 |  | $                          | (14,825 | ) |                                   | $ | 2,548     |                                                    |  | $ |                                     |   |  | $ | (12,883    | ) |  | $ | 46,117     |  
|                                                                     |  |              |  |                  |        |  |                           
|Issuance of common stock on February 4, 2004, for notes receivable   |  | 1,207,000    |  |                  | 12,070 |  |                            | (12,070 | ) |                                   |   | 2,160,530 |                                                    |  |   |                                     |   |  |   |           |   |  |   | 2,160,530  |  
|Issuance of common stock on April 28, 2004, for cash                 |  | 236,400      |  |                  | 2,364  |  |                            |         |   |                                   |   | 423,156   |                                                    |  |   |                                     |   |  |   |           |   |  |   | 425,520    |  
|Interest on notes receivable                                         |  |             |  |                  |       |  |                            | (1,039  | ) |                                   |   | 1,039     |                                                    |  |   |                                     |   |  |   |           |   |  |   |           |  
|Payments on notes receivable                                         |  |             |  |                  |       |  |                            | 15,484  |   |                                   |   |          |                                                    |  |   |                                     |   |  |   |           |   |  |   | 15,484     |  
|Deferred stock-based compensation                                    |  |             |  |                  |       |  |                            |        |   |                                   |   | 1,211,380 |                                                    |  |   | (1,211,380                           | ) |  |   |           |   |  |   |           |  
|Stock-based compensation                                             |  |             |  |                  |       |  |                            |        |   |                                   |   |          |                                                    |  |   | 277,578                              |   |  |   |           |   |  |   | 277,578    |  
|Net loss                                                             |  |             |  |                  |       |  |                            |        |   |                                   |   |          |                                                    |  |   |                                      |   |  |   | (3,084,805 | ) |  |   | (3,084,805 | )
|                                                                     |  |              |  |                  |        |  |                            |         |   |                                   |   |           |                                                    |  |   |                                      |   |  |   |            |   |  |   |            |  
|Balance, December 31, 2004                                           |  | 8,571,105    |  | $                | 85,711 |  | $                          | (12,450 | ) |                                   | $ | 3,798,653 |                                                    |  | $ | (933,802                             | ) |  | $ | (3,097,688 | ) |  | $ | (159,576   | )
|                                                                     |  |              |  |                  |        |  |                           
|Issuance of common stock on September 1, 2005, for cash              |  | 334,000      |  |                  | 3,340  |  |                            |        |   |                                   |   | 597,860   |                                                    |  |   |                                     |   |  |   |           |   |  |   | 601,200    |  
|Interest on notes receivable                                         |  |             |  |                  |       |  |                            | (538    | ) |                                   |   | 538       |                                                    |  |   |                                     |   |  |   |           |   |  |   |           |  
|Payments on notes receivable                                         |  |             |  |                  |       |  |                            | 2,500   |   |                                   |   |          |                                                    |  |   |                                     |   |  |   |           |   |  |   | 2,500      |  
|Deferred stock-based compensation                                    |  |             |  |                  |       |  |                            |        |   |                                   |   | 98,061    |                                                    |  |   | (98,061                              | ) |  |   |           |   |  |   |           |  
|Stock-based compensation                                             |  |             |  |                  |       |  |                            |        |   |                                   |   |          |                                                    |  |   | 327,329                              |   |  |   |           |   |  |   | 327,329    |  
|Net loss                                                             |  |             |  |                  |       |  |                            |        |   |                                   |   |          |                                                    |  |   |                                      |   |  |   | (893,526   | ) |  |   | (893,526   | )
|                                                                     |  |              |  |                  |        |  |                            |         |   |                                   |   |           |                                                    |  |   |                                      |   |  |   |            |   |  |   |            |  
|Balance, December 31, 2005                                           |  | 8,905,105    |  | $                | 89,051 |  | $                          | (10,488 | ) |                                   | $ | 4,495,112 |                                                    |  | $ | (704,534                             | ) |  | $ | (3,991,214 | ) |  | $ | (122,073   | )
|                                                                     |  |              |  |                  |        |  |                            |         |   |                                   |   |           |                                                    |  |   |                                      |   |  |   |            |   |  |   |            |  
|Issuance of common stock on June 30, 2006, for cash                  |  | 37,500       |  |                  | 375    |  |                            |        |   |                                   |   | 74,625    |                                                    |  |   |                                     |   |  |   |           |   |  |   | 75,000     |  
|Effect of adoption of SFAS 123(R)                                    |  |             |  |                  |       |  |                            |        |   |                                   |   | (704,534  | )                                                  |  |   | 704,534                              |   |  |   |           |   |  |   |           |  
|Interest on notes receivable                                         |  |             |  |                  |       |  |                            | (466    | ) |                                   |   | 466       |                                                    |  |   |                                     |   |  |   |           |   |  |   |           |  
|Stock-based compensation                                             |  |             |  |                  |       |  |                            |        |   |                                   |   | 910,162   |                                                    |  |   |                                     |   |  |   |           |   |  |   | 910,162    |  
|Net loss                                                             |  |             |  |                  |       |  |                            |        |   |                                   |   |          |                                                    |  |   |                                      |   |  |   | (1,981,899 | ) |  |   | (1,981,899 | )
|                                                                     |  |              |  |                  |        |  |                            |         |   |                                   |   |           |                                                    |  |   |                                      |   |  |   |            |   |  |   |            |  
|Balance, December 31, 2006                                           |  | 8,942,605    |  | $                | 89,426 |  | $                          | (10,954 | ) |                                   | $ | 4,775,831 |                                                    |  | $ |                                     |   |  | $ | (5,973,113 | ) |  | $ | (1,118,810 | )
|                                                                     |  |              |  |                  |        |  |                            |         |   |                                   |   |           |                                                    |  |   |                                      |   |  |   |            |   |  |   |            |  
|Interest on notes receivable                                         |  |             |  |                  |       |  |                            | (110    | ) |                                   |   | 110       |                                                    |  |   |                                     |   |  |   |           |   |  |   |           |  
|Stock-based compensation                                             |  |             |  |                  |       |  |                            |        |   |                                   |   | 250,089   |                                                    |  |   |                                     |   |  |   |           |   |  |   | 250,089    |  
|Net loss                                                             |  |             |  |                  |       |  |                            |        |   |                                   |   |          |                                                    |  |   |                                      |   |  |   | (376,585   | ) |  |   | (376,585   | )
|                                                                     |  |              |  |                  |        |  |                            |         |   |                                   |   |           |                                                    |  |   |                                      |   |  |   |            |   |  |   |            |  
|Balance, March 31, 2007                                              |  | 8,942,605    |  | $                | 89,426 |  | $                          | (11,064 | ) |                                   | $ | 5,026,030 |                                                    |  | $ |                                     |   |  | $ | (6,349,698 | ) |  | $ | (1,245,306 | )
|                                                                     |  |              |  |                  |        |  |                            |         |   |                                   |   |           |                                                    |  |   |                                      |   |  |   |            |   |  |   |            |  

See notes to unaudited condensed financial statements.



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GRAY PEAKS, INC., INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies

Nature of business: Gray Peaks, Inc. was formed on November 25, 2003 (inception), under the laws of the State of Delaware. The business of the Company is developing wireless fleet intelligence and asset tracking
solution products. These solutions would allow fleets to track and monitor their assets and also provide vehicle and driver communications that would allow for real-time tracking of driver performance. The Company is currently in the development
stage and expects to commence active operations during 2007.

Basis of presentation: The accompanying March 31, 2007 financial statements are
unaudited but in the opinion of management contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flow for the periods
presented in conformity with generally accepted accounting principles for interim financial information.

Operating results for the three months ended
March 31, 2007, are not necessarily indicative of the results that may be expected in future years. These Condensed Financial Statements should be read in conjunction with the audited financial statements for the fiscal year ended
December 31, 2006 as presented in our Annual Report on Form 10-KSB.

The accompanying consolidated financial statements have been presented assuming
that Gray Peaks, Inc. will continue as a going concern. These conditions raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or the amounts of classification of liabilities that may result from the outcome of this uncertainty.

Significant accounting policies are as follows:

Earnings per share (EPS): Basic earnings (loss) per share is
computed by dividing net earnings (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed using the weighted-average number of common shares outstanding plus the number of additional
common shares that would have been outstanding if dilutive common shares had been issued. For the three months ending March 31, 2007, for the three months ending March 31, 2006 and for the period from Inception to March 31, 2007, the
Companys basic and fully diluted earnings per share are the same since the conversion of the Companys stock options would be antidilutive. The Companys potential dilutive shares were 873,788, 670,139 and 873,788 for the three
months ended March 31, 2007 and 2006, and for the period from Inception to March 31, 2007, respectively.

Note 2. Operations and
Managements Plans

Substantially all of operations from November 25, 2003 (inception) through March 30, 2007, were involved with
organizing the Company.

At March 31, 2007, the Company had unrestricted cash balances of $1.

The Company incurred losses of $376,585, $392,758, and $6,349,698 in the three months ending March 31, 2007 and 2006, and in the period from Inception to
March 31, 2007, respectively. As of March 31, 2007, the Company had an accumulated deficit of $6,349,698, working capital deficit of $1,246,951 and a deficit of stockholders equity of $1,245,306.

During 2004, the Company raised $425,520 through additional funding sources as it began to package its suite of services and marketing collateral materials.



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##### Table of Contents

On July 27, 2005, the Companys SB-2 filing became effective with the Security and Exchange Commission
(SEC).

In September 2005, the Company raised an additional $601,200 from the sale of 334,000 shares of its common stock to an investor.

On June 30, 2006, the Company raised an additional $75,000 from the sale of 37,500 shares of its common stock to an investor.

The Company believes that it will be able to obtain additional capital resources to fund the operations of the Company in 2007. The Company may obtain short-term
financing from another company owned by the majority stockholder of the Company, as it has in the past, or find other sources if they are available. The Company will also begin to invest in sales and product support for the services it will deliver.

There can be no assurance, assuming the Company successfully raises additional funds or enters into business agreements with third parties, that the
Company will achieve profitability or positive cash flow. If the Company is unable to obtain adequate financing, Management will be required to sharply curtail the Companys operations or, ultimately, cease operations.

Note 3. Share-Based Compensation

The Company has a stock option plan
that authorizes the granting of options to officers, key employees and directors to purchase the Companys common stock at prices equal to or above the market value of the stock at the date of grant. Under this plan the Company has 297,372
shares available for future grants as of March 31, 2007. The exercise price of all employee and director options granted in 2006 were at or above fair market value.

The Company recognizes share-based compensation expense in general and administrative expenses in the statement of operations. For the three months ended March 31, 2007 and 2006, respectively, the Company issued
0 and 707,628 options, respectively. These grants were priced at $1.80 and $1.98 during the three months ended March 31, 2006. There were no options exercised or forfeited during the three months ended March 31, 2007 and 2006,
respectively.

Information related to the Companys share-based compensation plan for the three months ended March 31, 2007 and 2006, is as
follows:



|                                                                        |  |      |           |      |   |          
|----------------------------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                                        |  | 2007 |           | 2006
|Total share-based compensation expense                                  |  | $    | 232,670   |      | $ | 222,411  
|Weighted average grant date fair value                                  |  | $    |          |      | $ | 1.63     
|Unrecognized compensation cost                                          |  | $    | 1,974,979 |      | $ | 2,731,259
|Remaining weighted average period cost will be recognized over in years |  |      | 7.8       |      |   | 8.8      

Restricted Stock:

On December 28, 2006, the Company adopted the 2006 Restricted Stock Incentive Plan to provide incentives to key employees responsible for the success and growth of the Company. The Board has reserved 2,000,000 shares of common stock
for the plan. Generally, restricted shares will vest over a period of 3 years. At the election of the Board of Directors, grants may contain performance criteria or other vesting terms.

On January 2, 2007, the Company issued 60,000 restricted shares of stock to one of the members of the Companys Board of Directors. These shares all vest on July 31, 2009, provided that he has served as
a Director during that entire period.



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On January 2, 2007, the Company issued 30,000 restricted shares of stock to one of the members of the Companys
Advisory Board. These shares all vest on July 31, 2009, provided that he has served as a member of the Advisory Board during that entire period.

The
following table summarizes the Companys restricted stock activity during the period ending March 31, 2007:



|                                                 |  |       
|------------------------------------------------ |  | ------
|                                                 |  | Shares
|Unvested Shares Outstanding at December 31, 2006 |  |      
|                                                 | 
|Granted                                          |  | 90,000
|Vested                                           |  |      
|Cancelled                                        |  |      
|Forfeited                                        |  |      
|                                                 |  |       
|Unvested Shares Outstanding at March 31, 2007    |  | 90,000
|                                                 |  |       
|Vested at March 31, 2007                         |  |      

During the three months ended March 31, 2007, the Company recognized $17,419 in expense associated with these
restricted stock grants.

Note 4. Related Party Transactions

On January 6, 2004, the Company entered into a consulting agreement with the 20 percent stockholder to provide transfer agent and other consulting services for a period of three years. The Company is to pay $5,000 each year due in
quarterly installments beginning on March 31, 2004. Total expense under this consulting arrangement was $1,250 for the three months ended March 31, 2007 and 2006, and $16,250 for the period from Inception to March 31, 2007.

During the three months ended March 31, 2007, the Company received funds, in the form of a note payable, from a company owned by the majority
shareholder in order to fund its ongoing operations totaling $8,448. During the year ended December 31, 2006 and 2005 the Company received an additional $69,899 and $135,311, respectively, from the company owned by the majority shareholder in
order to fund its ongoing operations. As of March 31, 2007, the Company had repaid all but $13,387 of these funds. The note payable is unsecured and has a stated interest rate of 5%. The note payable is due on demand. During 2006, the Company
reclassified $66,000 of the amount due on demand as accrued compensation to the majority stockholder net of loan repayments.

Interest expense to the
company owned by the majority stockholder totaled $60 and $696 for the three months ended March 31, 2007 and 2006, respectively, and $6,126 for the period from Inception to December 31, 2007.

Note 5. Commitments

The Company has entered into Employment
Agreements with certain key employees. With respect to the Companys Employment Agreements with the Co-Chief Executive Officers, the Company will be required to make a lump sum payment totaling $5,000,000 to the Co-Chief Executive Officers in
the event of termination of their respective Employment Agreements by the Company without cause (or constructive termination by the Company without cause), or due to the death or disability of either of them. With respect to the Companys
Employment Agreement with the Companys President, the Company will be required to make a lump sum payment totaling $1,000,000 in the event of termination of such Employment Agreement by the Company without cause (or constructive termination by
the Company without cause) or due to the death or disability of the President. Currently, the Company does not have the ability to satisfy these commitments if they were to occur.



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Note 6. New Accounting Pronouncements:

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value at specified election dates. Under SFAS No. 159, a business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings
(or another performance indicator if the business entity does not report earnings) at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for fiscal years beginning after November 15, 2007. The Company does not believe that adoption of SFAS No. 159 will have
a material effect on its financial statements.

In September 2006, FASB issued Statement of Financial Accounting Standard No. 157, Fair Value
Measurements (SFAS No. 157) which establishes a framework for reporting fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years. The Company does not believe the adoption of SFAS No. 157 will have a material effect on its financial statements.

Note 7. Taxes

In June 2006, FASB issued FASB Interpretation
No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 clarifies the accounting for income taxes by prescribing the
minimum recognition threshold a tax position is required to met before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The interpretation applies to all tax positions related to income taxes subject to FASB Statement No. 109.

FIN 48 is
effective for fiscal years beginning after December 15, 2006. Differences between amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption should be accounted for as
cumulative-effect adjustments recorded to the beginning balance of retained earnings. The adoption of FIN 48 did not have a material impact on our loss from continuing operations, net loss, or earnings per share.

The Company currently has not developed a policy on classification of interest and penalties. The Company has no unrecognized tax benefits, accrued interest or penalties
as of the date of adoption. The Company has no tax positions at the date of adoption in which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase within one year of the adoption of FIN 48. Tax
years 2004 through 2006 remain subject to examination by major tax jurisdictions upon the adoption of FIN 48.

Item 2. Managements Discussion and Analysis

Plan of operation:

Our plans are to move from development stage to full operations during the fourth quarter of 2007, assuming completion of our proposed acquisitions. However, completion
of certain of the proposed acquisitions requires us to obtain financing in the amount of approximately $5 million. Over the last several months, we have had discussions with a variety of investment capital sources both in the United States and
abroad. There can be no assurance as to when, if at all, the needed funds can be raised or whether acceptable terms for any such financing can be negotiated.

Our initial go-to-market strategy is to use networking, speaking engagements, public relations, direct mail and our website to identify and communicate with potential customers. Our costs associated with these promotional activities are
covered in sales and marketing expenses. We expect sales and marketing expenses to increase in absolute dollars as we expand our direct sales force and promotional efforts and as we began to build our sales and marketing organization to support
growth.



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RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2006

Revenues

The Company did not report any revenues during the three
months ended March 31, 2007 or March 31, 2006.

Selling, general and administrative expenses

Selling, general and administrative expenses consist mainly of stock based compensation expense, payroll and payroll related expenses and professional fees. For the three
months ended March 31, 2007 the selling, general and administrative expenses totaled $376,525, a decrease of $21,581 versus the three months ended March 31, 2006. This decrease was mainly the result of lower professional fees, as a result
of, less activity during the period.

Operating loss

The operating loss for the three months ended March 31, 2007 was $376,525, compared to an operating loss of $398,106 for the three months ended March 31, 2006. The decrease in the operating loss was as a direct result of the
decrease in selling, general and administrative expenses, which was mainly the result of lower professional fees as previously mentioned since the Company did not have any revenues in the periods reported.

Gain on short-term investments

During the three months ending
March 31, 2007, the Company did not report any gain on short-term investments, this compares to a gain of $6,044 reported during the three months ended March 31, 2006.

Interest expense

For the three months ending March 31, 2007 the Company had interest expense of $60, compared
to $696 for the three months ended March 31, 2006. This expense relates to a loan from one of the Companys founders.

Liquidity and Capital
Resources

Historically, since its inception, the Company has incurred cash operating losses relating to expenses to start and organize the Company. The
Company has funded these operating losses, in large part, through the sale of common stock or the issuance of notes payable.

Net cash used by operations
was $3,529 for the three months ended March 31, 2007 compared to $161,236 used by operations for the three months ended March 31, 2006.

The
Company did not have any Accounts Receivable as of March 31, 2007 or March 31, 2006.

There were capital expenditures of $0 during the three
months ended March 31, 2007 compared to $2,314 during the three months ended March 31, 2006.

If the Company is unable to raise adequate
financing, the Company may be required to modify its current strategic growth plans.

The Companys capital resources are currently inadequate to
complete any of its proposed acquisitions or to otherwise begin its proposed new business. It also lacks the ability at this time to pay its employees or officers or its suppliers. Its current stockholders, including the principal stockholder, have
told management that they are unwilling to make any significant additional investments in the Company. Thus, if the Company is to continue to develop it must obtain financing from new sources.



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##### Table of Contents

There can be no assurance, assuming the Company successfully raises additional funds or enters into business agreements
with third parties, the the Company will achieve profitability or positive cash flow. If the Company is unable to obtain adequate financing, Management will be required to sharply curtail the Companys operations, or ultimately, cease
operations.

Inflation

Although the Company cannot
accurately determine the precise effect of inflation, the Company has experienced increased costs of product, supplies, salaries and benefits, and increased selling, general and administrative expenses. Historically, the Company has absorbed
increased costs and expenses without increasing selling prices.

OffBalance Sheet Arrangements

We have not created, and are not party to, any specialpurpose or offbalance sheet entities for the purposes of raising capital, incurring debt or operating
our business. We do not have any offbalance sheet arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital
resources.

Item 3. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and the Companys Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities and Exchange Act of 1934, as amended).

Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective, except as discussed in the next paragraph below, in timely alerting them to material information relating to the Company required to be included in our periodic filings
with the Securities and Exchange Commission. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company has designed its
disclosure controls and procedures to reach a level of reasonable assurance of achieving desired control objectives and, based on the evaluation described above, the Companys Chief Executive Officer and Chief Financial Officer concluded that
the Companys disclosure controls and procedures were effective at reaching that level of reasonable assurance, except as discussed in the next paragraph below.

The Company has identified a material weakness within its internal control framework relating to the Companys financial reporting process. The Company attributes this material weakness to limited personnel
resources. Though the Company has implemented alternative levels of supervisory reviews and employs a temporary workforce from time to time, there can be no assurance that these measures can definitively prevent transactional errors from occurring
or provide the necessary accounting and financial reporting support to the Companys accounting and finance department.

Changes in Internal Control
over Financial Reporting

There were no changes in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities and Exchange Act of 1934, as amended) during the three months ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.



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##### Table of Contents

PART IIOTHER INFORMATION

Item 6. Exhibits



|     |  |                                                                               
|---- |  | ------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation of Shiwana, Inc., as amended**                   
|     | 
|3.2  |  | Bylaws*                                                                       
|     | 
|10.1 |  | Material Contracts  2004 Stock Option Plan No. 1*                            
|     | 
|10.2 |  | Material Contracts  Option Agreements*                                       
|     | 
|10.3 |  | Material Contracts  Consulting Agreements*                                   
|     | 
|10.4 |  | Material Contracts  Employment Agreements*                                   
|     | 
|31.1 |  | Certificate of Tim R. Sensenig, Co-Chief Executive Officer                    
|     | 
|31.2 |  | Certificate of Bary Bertiger, Co-Chief Executive Officer                      
|     | 
|31.3 |  | Certificate of Bernard Asher, President, Chief Financial Officer and Treasurer
|     | 
|32.1 |  | Certificate of Tim R. Sensenig, Co-Chief Executive Officer                    
|     | 
|32.2 |  | Certificate of Bary Bertiger, Co-Chief Executive Officer                      
|     | 
|32.3 |  | Certificate of Bernard Asher, President, Chief Financial Officer and Treasurer

---

|* | Incorporated by reference from registrants registration statement Form SB-2, Registration Statement No. 333-118255.
|- | --------------------------------------------------------------------------------------------------------------------

|** | Incorporated by reference from registrants registration statement Form SB-2, Registration Statement No. 333-118255 and Exhibit 3.11 of registrants report on Form
10-QSB for the quarter ended September 30, 2005.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.



|                      |  |                                                 
|--------------------- |  | ------------------------------------------------
|                      |  | Gray Peaks, Inc.                                
|Date: August 20, 2007 |  | /s/ Tim Sensenig                                
|                      |  | Tim R. Sensenig                                 
|                      |  | Co-Chief Executive Officer                      
|Date: August 20, 2007 |  | /s/ Bary Bertiger                               
|                      |  | Bary Bertiger                                   
|                      |  | Co-Chief Executive Officer                      
|Date: August 20, 2007 |  | /s/ Bernard Asher                               
|                      |  | Bernard Asher                                   
|                      |  | President, Chief Financial Officer and Treasurer



15