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 JULY 31, 2008.
 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. Employerincorporation 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)
 
 þ o
   Large accelerated filer
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    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company
þ(Do not check if a smaller reporting company)
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TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements
    
    
    1Consolidated Balance Sheets as of July 31, 2008 (unaudited), and April 30, 2008
    
    
    F-1Consolidated Statements of Operations (unaudited) for the three months ended July
31, 2008 and for the period from September 19, 2007 (inception of PureCanada)
through July 31, 2008
    
    
    F-2Consolidated Statements of Cash Flows (unaudited) for the three months ended July
31, 2008 and for the period from September 19, 2007 (inception of PureCanada)
through July 31, 2008
    
    
    F-3Notes to Consolidated Financial Statements (unaudited)
    
    
    F-4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    1Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    9Item 4T. Controls and Procedures
    
    
    9PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    10Item 1A. Risk Factors
    
    
    10Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    10Item 3. Defaults upon Senior Securities
    
    
    10Item 4. Submission of Matters to a Vote of Security Holders
    
    
    10Item 5. Other Information
    
    
    10Item 6. Exhibits
    
    
    10SIGNATURES
    
    
    12
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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 FORWARD-LOOKING STATEMENTS
    MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
    1




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2




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Business Operations
      Results of Operations
  From Inception of PureCanada on September 19, 2007 to July 31, 2008
    3




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Liquidity and Capital Resources
 From Inception of PureCanada on September 19, 2007 to July 31, 2008
     4




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Entry Into Share Purchase Agreement
       5




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6




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
    
    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.
   7




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
    
    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.
    8




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Critical Accounting Policies
   Related Party Transactions
     
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4T. Controls and Procedures.
  9




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Recent Sales of Unregistered Securities
   
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
       
 Item 6. Exhibits.
 Number
    
    Description3.1
    
    Articles of Incorporation (incorporated by reference to Exhibit 3.1 to PureRay Corporations
Registration Statement No. 333-38534 filed on June 2, 2000).
 10




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Number
    
    Description3.2
    
    Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
PureRay Corporation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
PureRay Corporations Current Report on Form 8-K/A filed on July 31, 2008).3.4
    
    Bylaws (incorporated by reference to Exhibit 3.3 to PureRay Corporation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
PureRay Corporations Current Report on Form 8-K/A filed on July 31, 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 , Ramlia Padiachy, Patrick Pierre and Matthew Sicoli
(incorporated by reference to Exhibit 10.1 to PureRay Corporations Current Report on Form 8-K/A
filed on July 31, 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 PureRay
Corporations Current Report on Form 8-K/A filed on July 31, 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 PureRay Corporations Current
Report on Form 8-K/A filed on July 31, 2008).10.4
    
    Capital Contribution Agreement dated July 24, 2008 between the Company and Jim Glavas
(incorporated by reference to Exhibit 10.4 to PureRay Corporations Current Report on Form 8-K/A
filed on July 31, 2008).10.5
    
    Escrow and Share Purchase Agreement dated July 31, 2008 among Kairos Partners, LLC, PureRay
Acquisition Inc. and Wildeboer Dellelce LLP (incorporated by reference to Exhibit 10.5 to PureRay
Corporations Current Report on Form 8-K/A filed on July 31, 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 July 31, 2008).10.7
    
    Assignment of Application dated July 2, 2008 between Mickael Joasil and PureRay Corporation
(incorporated by reference to Exhibit 10.7 to PureRay Corporations Current Report on Form 8-K/A
filed on July 31, 2008).10.8
    
    Trademark Assignment dated July 16, 2008 (incorporated by reference to Exhibit 10.8 to PureRay
Corporations Current Report on Form 8-K/A filed on July 31, 2008).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 2002.99.1
    
    Press Release of PureRay Corporation dated September 18, 2008.
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SIGNATURES
  PURERAY CORPORATION
             (Registrant)Date: September 18, 2008
    By:
    /s/ Jefrey M. WallaceJefrey M. Wallace, Chief Executive Officer(on behalf of Registrant and as Principal
Executive Officer)Date: September 18, 2008
    By:
    /s/ Derek BlackburnDerek Blackburn, Chief Financial Officer(Principal Financial and Accounting Officer) 12




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EXHIBIT INDEX
 Number
    
    Description31.1
    
    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 2002.99.1
    
    Press Release of PureRay Corporation dated September 18, 2008.
 13




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PURERAY CORPORATION
(a development stage company)
 
 CONSOLIDATED BALANCE SHEETS
 (Expressed in U.S. dollars)
 July 31, 2008
    
    April 30, 2008$
    
    $UnauditedASSETSCurrent AssetsCash
    
    
    1,533,566
    
    
    
    Prepaid expenses
    
    
    
    
    
    
    11,240Due from related parties
    
    
    
    
    
    
    100,150Total Current Assets
    
    
    1,533,566
    
    
    
    111,390Patents
    
    
    19,200
    
    
    
    Total Assets
    
    
    1,552,766
    
    
    
    111,390LIABILITIES AND STOCKHOLDERS EQUITY(DEFICIT)Current LiabilitiesAccounts payable
    
    
    429,844
    
    
    
    59,751Accrued liabilities
    
    
    2,287
    
    
    
    70,092Due to a related party
    
    
    49,500
    
    
    
    11,240Note payable
    
    
    
    
    
    
    100,000Total Current Liabilities
    
    
    481,631
    
    
    
    241,083Stockholders Equity (Deficit)Preferred Stock; Par value $0.0001 per share; 20,000,000 shares authorized; 8,963,750 shares issued and outstanding at July 31, 2008 (none at April 30, 2008)
    
    
    896
    
    
    
    Common Stock, Par value $0.0001 per share; 100,000,000 shares authorized; 15,500,000 shares issued and outstanding at July 31, 2008; 15,185,000 subscribed at April 30, 2008
    
    
    1,550
    
    
    
    1,519Additional Paid-in Capital
    
    
    1,836,513
    
    
    
    Stock Subscription Receivable
    
    
    
    
    
    
    (1,369
    )Deficit Accumulated During the Development
Stage
    
    
    (767,824
    )
    
    
    (129,843
    )Total Stockholders Equity (Deficit)
    
    
    1,071,135
    
    
    
    (129,693
    )Total Liabilities and Stockholders Equity (Deficit)
    
    
    1,552,766
    
    
    
    111,390
  F-1




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PURERAY CORPORATION
(a development stage company)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Expressed in U.S. dollars)
 (unaudited)
 AccumulatedFromSeptember 19,2007(Date ofThree Months
    
    Inception ofEnded
    
    PureCanada)July 31, 2008
    
    To July 31, 2008$
    
    $Revenue
    
    
    
    
    
    
    ExpensesProfessional fees
    
    
    430,495
    
    
    
    430,495Management and consulting fees
    
    
    172,116
    
    
    
    222,116Product development expenses
    
    
    5,500
    
    
    
    75,592Travel and other expenses
    
    
    29,870
    
    
    
    39,621Total Expenses
    
    
    637,981
    
    
    
    767,824Net Loss for the Period
    
    
    (637,981
    )
    
    
    (767,824
    )Loss Per Share, basic and diluted
    
    
    (0.03
    )
    
    
    (0.09
    )Weighted average common shares outstandingBasic
    
    
    20,491,833
    
    
    
    8,386,835Diluted
    
    
    23,280,556
    
    
    
    9,528,195
  F-2




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PURERAY CORPORATION
(a development stage company)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Expressed in U.S. dollars)
 (unaudited)
 Accumulated FromSeptember 19, 2007Three Months
    
    (Date of InceptionEnded
    
    of PureCanada)July 31, 2008
    
    to July 31, 2008$
    
    $Operating ActivitiesNet loss
    
    
    (637,981
    )
    
    
    (767,824
    )Adjustments to reconcile net loss to cash used in
operating activitiesChange in operating assets and liabilitiesPrepaid expenses and other assets
    
    
    11,240
    
    
    
    Accounts payable and accrued liabilities
    
    
    340,548
    
    
    
    470,391Net Cash Used In Operating Activities
    
    
    (286,193
    )
    
    
    (297,433
    )Financing ActivitiesProceeds (repayments) of note payable
    
    
    (100,000
    )
    
    
    Due to (from) related parties
    
    
    100,150
    
    
    
    11,240Proceeds from issuance of equity stock, net
    
    
    1,838,809
    
    
    
    1,838,959Net Cash Provided By Financing Activities
    
    
    1,838,959
    
    
    
    1,850,199Investing ActivitiesPatent costs
    
    
    (19,200
    )
    
    
    (19,200
    )Net Cash Used In Investing Activities
    
    
    (19,200
    )
    
    
    (19,200
    )Increase In Cash
    
    
    1,533,566
    
    
    
    1,533,566Cash  Beginning of Period
    
    
    
    
    
    
    Cash  End of Period
    
    
    1,533,566
    
    
    
    1,533,566Non-cash Investing and Financing Activities
    
    
    
    
    
    
    Acquisition of net assets of NAGA with the issuance of stock, net of
issuance costs
    
    
    1,838,759
    
    
    
    1,838,759Supplemental DisclosuresInterest paid
    
    
    
    
    
    
    Income taxes paid
    
    
    
    
    
    
    
  F-3




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PURERAY CORPORATION
(a development stage company)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 July 31, 2008
 (unaudited)
 1.
    
    BackgroundPureRay 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:
 1.
    
    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.2.
    
    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.3.
    
    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.4.
    
    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.5.
    
    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.6.
    
    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.7.
    
    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.
 2.
    
    Basis of AccountingAs 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.
 F-4




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F-5




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3.
    
    Summary of Significant Accounting Policies
 a.
    
    Basis of AccountingThese financial statements are prepared in conformity with accounting principles
generally accepted in the United States and are presented in United States dollars.b.
    
    Year endThe 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.c.
    
    Comparative Financial StatementsComparative statements are not presented for the three months ended July 31, 2007
because under the accounting treatment described in Note 1, PureCanada is treated as the
acquiring entity in the Acquisition. PureCanada was incorporated in September 2007.
Because PureCanada and the Company have the same fiscal year end, transitional financial
statements are not presented.
 4.
    
    Shareholders EquityThe issued and outstanding shares of the Company are as follows (see Notes 1 and 2):
 April 30, 2008

    July 31, 2008Preferred Shares
    
    
    8,963,750
    

    
    Common shares
    
    
    15,500,000
    

    
    15,185,000
   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.
    5.
    
    Related Party TransactionsAs of July 31, 2008, $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.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.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. Under the Blackburn Arrangement, $12,500 of Mr. Blackburns
compensation was paid directly by PureCanada using funds advanced by the Company to PureCanada
prior to the Acquisition.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. Under the Joasil Arrangement, $12,500 of Mr. Joasils
compensation was paid directly by PureCanada using funds advanced by the Company to
PureCanada prior to the Acquisition.On September 15, 2008, the Companys Board of Directors ratified and confirmed each
of the Kairos Pre-Acquisition Arrangement, the Administrative Services Arrangement, the Blackburn Arrangement
and the Joasil Arrangement.   As the above arrangements do not represent written agreements, each
of the foregoing arrangements are terminable by either party without notice.  The Company
expects to negotiate and enter into final written agreements memorializing the foregoing
arrangements during the current fiscal year.
 F-6