##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
 Form 10-KSB
  (Mark One)o

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

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
    October 1, 2007 to December 31, 2007   Commission File Number 0-52731
    NovaRay Medical, Inc.
 (Exact name of registrant as
    specified in its charter)
    Delaware

16-1778998(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)1850 Embarcadero Road,
    Palo Alto, California(Address of principal
    executive offices)

94303(zip code)   Registrants telephone number, including area code:
 (650) 331-7337
  Vision Acquisition I, Inc.,
    c/o Vision
    Capital Advisors, LLC, 20 West 55th Street, 5th Floor, New
    York,
 NY 10019
 (Former name or former address,
    if changed since last report)
    Securities registered under Section 12(b) of the
    Exchange Act:
 None.
 Securities registered under Section 12(g) of the
    Exchange Act:
 Common Stock, $0.0001 par value per share
    (Title of Class)
    o
  þ o
  Regulation S-B Form 10-KSB Form 10-KSB. o
  Rule 12b-2 o þ
        o þ
  DOCUMENTS INCORPORATED BY REFERENCE:
  None




---





TABLE OF CONTENTS  FORWARD-LOOKING STATEMENTSItem 1. Description of Business.Item 2. Description of Property.Item 3. Legal Proceedings.Item 4. Submission of Matters to a Vote of Security Holders.PART IIItem 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.INDEX TO CONSOLIDATED FINANCIAL STATEMENTSINDEPENDENT AUDITORS REPORTCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSSTATEMENT OF CONSOLIDATED STOCKHOLDERS DEFICITCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSItem 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Item 8A. Controls and Procedures.Item 8B. Other Information.PART IIIItem 9. Directors and Executive Officers of the Company.Item 12. Certain Relationships and Related Transactions and Director Independence.Item 13. Exhibits.SIGNATURESPOWER OF ATTORNEYEXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2    Table of Contents  
  FORWARD-LOOKING
    STATEMENTS
  Risk
    Factors Managements Discussion and
    Analysis or Plan of Operation
 
  Item 1.
    Description
    of Business.  Business
    of NovaRay Medical,
    Inc.
   1




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##### Table of Contents



Business
    of NovaRay
  Certain
    Relationships and Related Transactions, and Director
    Independence.
      Product
  The
    NovaRay Cardiac Catheterization Imaging System
    Continuous high-quality diagnostic imaging at low radiation
    exposure.
  High image quality in large patients or when viewing at steep
    angles.
  Real-time multi-slice tomography.
  Overlying anatomy removed from images.
 2




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##### Table of Contents



Catheter-tracking and navigation. 3-D
  Dramatically reduce radiation.
  Open patient access.
  Simple, accurate quantification of
    dimensions.
    Other
    applications beyond cardiac catheterization
  Certain Relationships and
    Related Transactions, and Director Independence  NRCT
    LLC
   3




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##### Table of Contents



Sales
    and Marketing Strategy
    Use reference sites to generate sales. on-site
  Penetrate the U.S. cardiac catheterization lab market
    using a dedicated industry-experienced sales
    force.
  Work with key opinion leaders.
  Clinical Applications Specialists.
  Service and support. on-site
  Competition
        Intellectual
    Property
    
    Target/coolant/collimator apparatus;
    X-ray source construction; 4




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##### Table of Contents




    Detector apparatus;
    Electron-beam scanning apparatus and method;
    Image-reconstruction apparatus and methods; and
    Locating catheter apparatus.    Governmental
    Approvals
    510(k) Premarket Notification. ...for use in generating real-time
    fluoroscopic images in patients where medically indicated.
  Quality System Regulation.
  International Regulation.
      Reimbursement.
  Research
    and Development
    Employees
   5




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##### Table of Contents



Risk
    Factors
      We
    have limited operating experience and a history of net losses
    and may never achieve or maintain profitability.
    
    our ability to control costs associated with the
    commercialization of our system;
    the market acceptance of our system;
    our ability to compete with larger and more established
    competitors;
    the development of new technologies to perform intravascular
    procedures;
    the predicted length of our sales cycle;
    the rate and size of expenditures associated with the
    implementation of our marketing strategy for our system in the
    United States;
    our ability to enter into agreements for the manufacture of our
    system on acceptable terms;
    developments with respect to regulatory matters;
    our ability to attract key personnel to assist in the sales and
    marketing of our system;
    on-going adverse economic conditions as well as economic
    uncertainties, recent and possible future terrorist activities
    and other geopolitical instability, all of which have increased
    the likelihood that hospitals may contract their spending,
    resulting in a contraction of the market for cardiovascular
    catheterization imaging systems; and
    our ability to develop strategic distribution relationships in
    Europe and Asia.  Our
    limited operating history makes evaluation of our business
    difficult.
   6




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##### Table of Contents



We
    have not developed commercially marketable products to
    date.
    Market
    acceptance of our system is uncertain.
    Our
    competitors have greater resources, which may increase the
    difficulty for us to achieve significant market
    penetration.
    
    significantly greater name recognition;
    established relationships with health care professionals and
    customers;
    additional lines of products, and the ability to offer rebates
    or bundle products to offer higher discounts or incentives to
    gain a competitive advantage;
    established distribution networks and relationships with
    customers; and
    greater resources for product development, sales and marketing,
    and patent litigation.   7




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##### Table of Contents



Failure
    to successfully develop, manufacture, market, and sell our
    system will have a material adverse effect on our business,
    financial condition, and results of operations.
    The
    cardiac catheterization market is highly competitive and subject
    to rapid technological change.
      We
    have no sales and marketing experience or current staff and any
    failure to expand sales of our system will negatively impact
    future sales.
   8




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##### Table of Contents



Because
    we have no manufacturing experience for commercial-scale
    quantities of our system and we rely on third party suppliers
    for many of our components, we may be unable to control the
    availability of our system.
  and/or
  We
    will need to retain our key personnel and attract and retain
    many new employees.
      We are
    dependent on certain related parties for contract development
    services and commercialization of our technologies outside our
    anticipated primary markets.
     9




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##### Table of Contents



New
    regulations, including those contained in and issued under the
    Sarbanes-Oxley Act of 2002, may cause us difficulty in retaining
    or attracting qualified officers and directors, which could
    adversely affect the management of our business and our ability
    to obtain or retain listing of our common stock.
      We
    currently depend on third party suppliers and manufacturers for
    components of our system, and the loss of any of these suppliers
    or manufacturers could materially harm our
    business.
    Our
    failure to obtain or maintain necessary regulatory clearances or
    approvals could hurt our ability to distribute and market our
    system.
       10




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##### Table of Contents



If we
    are unable to protect our proprietary technology, or are blocked
    by a competitors patent, we may not be able to compete
    effectively.
      
    defending a lawsuit, which is very expensive and time consuming;
    paying a large sum for damages, if we are found to be infringing;
    being prohibited from selling or licensing our system until we
    obtain a license from the patent holder, who may refuse to grant
    us a license or will only agree to do so on unfavorable terms,
    including the payment of substantial royalties or the grant of
    cross-licenses to our patents; and
    redesigning our system so it does not infringe on the patent
    holders technology if we are unable to obtain a license,
    which, if even possible, may require additional capital and
    would delay commercialization.     11




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##### Table of Contents



There
    is no assurance that our system will be reimbursed under
    existing reimbursement codes and any changes in reimbursement
    procedures by domestic and international payors may adversely
    impact our ability to market and sell our system.
      If we
    become subject to product-liability claims, the damages may
    exceed our insurance coverage.
    If we
    do not provide quality customer service, we would lose customers
    and our operating results would suffer.
    Our
    principal stockholders and management own a significant
    percentage of our stock and can exercise significant
    influence.
  Security Ownership of Certain
    Beneficial Owners and Management and Related Stockholder
    Matters Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters
 12




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##### Table of Contents



We
    have not paid out cash dividends in the past and may not do so
    in the future.
    If we
    require future capital, we may not be able to secure additional
    funding in order to expand our operations and develop new
    products.
    
    revenues generated by sales of our system and our future
    products, if any;
    expenses we incur in developing and selling our system;
    the commercial success of our research and development
    efforts; and
    the emergence of competing technological developments.    There
    is not now, and there may not ever be, an active market for our
    common stock.
    We are
    subject to the reporting requirements of federal securities
    laws, which can be expensive.
    Our
    compliance with the Sarbanes-Oxley Act and SEC rules concerning
    internal controls may be time consuming, difficult, and
    costly.
   13




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##### Table of Contents



When
    the registration statement becomes effective, there will be a
    significant number of shares of our common stock eligible for
    sale, which could depress the market price of such
    stock.
  Form S-1
  We
    cannot assure you that our common stock will become liquid or
    that it will be listed on a securities exchange.
   
  Item 2.
    Description
    of Property.    39655-39677
 
  Item 3.
    Legal
    Proceedings.   
  Item 4.
    Submission
    of Matters to a Vote of Security Holders.   
  PART II
 
  Item 5.
    Market
    for Common Equity, Related Stockholder Matters and Small
    Business Issuer Purchases of Equity Securities.  Market
    Information
   14




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##### Table of Contents



Holders
    of Common Stock
    Dividends
    Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    Recent
    Sales of Unregistered Securities
              Certain Relationships and Related Transactions and
    Director Independence.
     15




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##### Table of Contents



Side-by-Side Series J-A 1 3 Series J-A
    Item 6.
    Managements
    Discussion and Analysis or Plan of Operation.  Risk
    Factors. Forward-Looking
    Statements.
  Overview
    Certain Relationships and Related
    Transactions and Director Independence  NexRay
    Transaction. start-up
 16




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##### Table of Contents



Risk Factors.
  Critical
    Accounting Policies and Estimates
    Prepaid
    expenses
    Accrued
    Liabilities
    Fair
    Values of Financial Instruments
    Property
    and equipment
      Stock-based
    compensation
  Share-Based Payment
 17




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##### Table of Contents



Results
    of Operations
  Year
    Ended December 31, 2007
        Year
    Ended December 31, 2006
        From
    Date of Inception June 7, 2005 to December 31,
    2005
        Liquidity
    and Capital Resources
     18




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##### Table of Contents



19




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A development stage company)
 
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageIndependent Auditors Report


22Consolidated Balance Sheets


23Consolidated Statements of Operations


24Consolidated Statements of Stockholders Deficit


25Consolidated Statements of Cash Flows


26Notes to Consolidated Financial Statements


27  20




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##### Table of Contents



Paritz &
    Company, P.A.
   NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
     CONSOLIDATED
    FINANCIAL STATEMENTS
    WITH
    INDEPENDENT AUDITORS REPORT
     YEARS
    ENDED DECEMBER 31, 2007 AND 2006, AND
    THE PERIOD FROM INCEPTION (JUNE 7, 2005) TO DECEMBER 31,
    2006
  21




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##### Table of Contents



INDEPENDENT
    AUDITORS REPORT
            
      22




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
 
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2007


2006ASSETSCurrent assets:Cash and cash equivalents

$
9,233,926


$
141,325Miscellaneous receivable


13,872



10,772Prepaid expenses


16,947



146,753Total current assets


9,264,745



298,850Property and equipment, net


42,454



47,986Other assets:Deferred interest


1,584,336



Deferred consulting


1,926,531



Total other assets


3,510,867



Total assets

$
12,818,066


$
346,836LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable

$
566,146


$
78,233Accrued liabilities


205,503



378,595Notes payable


125,312



728,921Total current liabilities


896,961



1,185,749Long term debt






1,364,914Total liabilities


896,961



2,550,663Stockholders equity (deficit):Series A convertible preferred stock, NovaRay Medical,
    Inc., $0.0001 par value Authorized shares 10,000,000 and
    -0-; Issued 4,946,888 and -0- at December 31, 2007 and
    2006, respectively (Liquidation preference  $0 at
    December 31, 2006)


495



Series A convertible preferred stock, NovaRay, Inc.,
    $0.0001 par value Authorized shares -0- and 1,000,000;
    Issued -0- and 855,527 at December 31, 2007 and 2006,
    respectively (Liquidation preference  $1,539,948 at
    December 31, 2006)






86Common stock, NovaRay Medical, Inc., $0.0001 par value
    Authorized shares  110,000,000 and 0; Issued and
    outstanding shares  9,767,853 and -0- at
    December 31, 2007 and 2006, respectively


977



Common stock, NovaRay, Inc., $0.0001 par value Authorized
    shares  10,000,000; Issued and outstanding
    shares  0- and 2,310,571 at December 31, 2007
    and 2006, respectively






231Additional paid-in capital


17,103,957



1,655,013Accumulated deficit


(5,180,194
)


(3,754,555
)Less: treasury stock, at cost, 413,000 and -0- shares
    outstanding at December 31, 2006 and 2005, respectively


(4,130
)


(4,130
)(100,472
)Total stockholders deficit


(11,921,105
)


(2,203,827
)Total liabilities and stockholders deficit

$
12,818,066


$
346,836    23




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
 
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Twelve Months


Twelve Months


From InceptionEnded


Ended


(June 7, 2005) toDecember 31,


December 31,


December 31,2007


2006


2007Operating expenses:Research and development

$
313,896


$
19,987


$
347,693General and administrative


1,275,458



966,148



4,723,839Total operating expenses


1,589,354



986,135



5,071,532Operating loss


(1,589,354
)


(986,135
)


(5,071,532
)Miscellaneous income


452,091



80,000



532,091Interest income


4,875



1,168



6,112Interest expense


(293,253
)


(245,568
)


(646,865
)Net loss

$
(1,425,641
)

$
(1,150,535
)

$
(5,180,194
)Basic and diluted loss per share of common stock


(0.21
)


(0.21
)


(0.90
)Weighted average number of common shares outstanding used in
    basic and diluted loss per share


6,689,392



5,462,988



5,734,364    24




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
 
  STATEMENT
    OF CONSOLIDATED STOCKHOLDERS DEFICIT
  AdditionalCommon Stock


Preferred Stock


Treasury Stock


Paid-In


Subscription


AccumulatedShares


Amount


Shares


Amount


Shares


Amount


Capital


Receivable


Deficit


TotalBALANCE  JUNE 7, 2005 (INCEPTION)





$







$







$



$



$



$



$
Issuance of common stock for cash in June 2005


1,683,571



168



















39,652











39,820Net loss


































(2,604,020
)


(2,604,020
)BALANCE  DECEMBER 31, 2005


1,683,571



168



















39,652







(2,604,020
)


(2,564,200
)Subscription for the purchase of common stock in October 2006


627,000



63



















100,409



(100,472
)






Purchase of treasury stock in October 2006


















(413,000
)


(4,130
)














(4,130
)Issuance of Series A convertible preferred stock for cash
    at $1.80 per share, net of issuance costs of $24,910 in October
    2006










216,667



22











365,068











365,068Issuance of Series A convertible preferred stock in
    exchange for cancellation of debt at $1.80 per share in October
    2006










638,860



64











1,149,884











1,149,884Net loss


































(1,150,535
)


(1,150,535
)BALANCE  DECEMBER 31, 2006


2,310,571


$
231



855,527


$
86



(413,000
)

$
(4,130
)

$
1,655,013


$
(100,472
)

$
(3,754,555
)

$
(2,203,27
)Payment of subscription receivable in November 2007






























100,472







100,472Common stock issued in exchange for services in December 2007


438,692



199



















3,513,793











3,513,793Issuance of Series A convertible preferred shares in
    exchange for cash in December 2007, net of issuance costs of
    $98,000










3,745,319



374











9,901,876











9,902,250Conversion of Preferred shares to common


855,527



85



(855,527
)


(85
)






















Issuance of warrants to purchase common stock in December 2007


























1,955,795











1,955,795Issuance of common stock for cash at $8.01 per share in December
    2007


1,734























13,889











13,889Reclassification of treasury stock


(413,000
)


































Issuance of Series A convertible preferred in exchange for
    debt










1,201,569



120











63,592











63,712Exchange of Novaray Inc shares for Novaray Medical at
    3 shares to 1


6,387,046



462































Net loss


































(1,425,641
)


(1,425,641
)BALANCE DECEMBER 31, 2007


9,580,570



977



4,946,888



495



(413,000
)


(4,130
)


17,103,958







(5,180,196
)


11,920,642    25




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
 
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Twelve Months


Twelve Months


From InceptionEnded


Ended


(June 7, 2005) toDecember 31,


December 31,


December 31,2007


2006


2007Operating activities:Net loss

$
(1,425,641
)

$
(1,150,535
)

$
(5,180,194
)Adjustments to reconcile net loss to net cash used in
    operating activities:Depreciation


15,748



14,044



37,985Interest expense capitalized as long term debt






104,605



156,641Interest expense converted to preferred stock






60,864



60,864Changes in operating assets and liabilitiesMiscellaneous receivables


(6,175
)


(10,772
)


(16,947
)Prepaid expenses


132,881



(146,753
)


(13,872
)Deferred assets


(3,510,867
)






(3,510,867
)Accounts payable


487,913



78,233



566,146Accrued liabilities


(173,090
)


164,852



205,503Net cash used in operating activities


(4,479,231
)


(885,462
)


(7,694,741
)Investing activities:Property and equipment assigned by shareholders


(10,216
)






(80,439
)Net cash used in investing activities


(10,216
)






(80,439
)Financing activities:Repayment of long-term debt


(1,364,914
)






(1,364,914
)Proceeds from subscriptions receivable


100,472







100,472Proceeds from issuance of short term debt






625,000



1,742,805Long-term debt assumed at inception in connection with the
    acquisition of intellectual property










1,283,473Proceeds from sale of Series A convertible preferred stock






390,000



390,000Repayment of notes payable


(603,609
)






(603,609
)Issuance costs incurred in sale of Series A convertible
    preferred stock






(24,910
)


(24,910
)Proceeds from sale of common stock


15,450,099







15,489,919Purchase of treasury stock






(4,130
)


(4,130
)Net cash provided by financing activities


13,582,048



985,960



17,009,106Net increase in cash and cash equivalents


9,092,601



100,498



9,233,926Cash and cash equivalents  beginning of period


141,325



40,827



Cash and cash equivalents  end of period

$
9,233,926


$
141,325


$
9,233,926Supplemental Disclosures of Cash Flow Information:Cash paid for interest

$
26,696


$



$
Cash paid for taxes

$
2,827


$



$
Supplemental Disclosure of Non-Cash Financing ActivitiesProceeds from sale of common stock, net of subscriptions
    receivable of $101,472

$
15,348,627


$



$
Convertible preferred stock issued in exchange for cancellation
    of debt

$
2,761,855


$
1,149,948


$
1,149,948Convertible preferred stock issued in exchange for cancellation
    of accrued interest on debt

$
172,318


$
60,864


$
60,864Interest expense capitalized as long term debt

$



$
104,605


$
156,641    26




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
 
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  DECEMBER
    31, 2007 AND 2006
  1  Summary
    of Significant Accounting Policies
  Business
    description
    Uses
    of estimates in the preparation of financial
    statements
    Research
    and development
    Cash
    and cash equivalents
    Prepaid
    expenses
    Accrued
    liabilities
    Fair
    values of financial instruments
   27




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Property
    and equipment
    December 31,2007


2006Computer hardware, software, and equipment

$
80,439


$
70,223Less: accumulated depreciation


(37,985
)


(22,327
)Property and equipment, net

$
42,454


$
47,986       Recent
    accounting pronouncements
  Stock-based
    compensation
  Share-Based Payment
       28




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2  Notes
    payable
      3  Long-term
    debt
        4  Income
    taxes
   29




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2025

$
2,400,0002026

$
600,0002027

$
1,500,000     5  Stockholders
    equity (deficit)
  Series J-Warrant). Series A-Warrant Series A-Warrant Series A-Warrant Series A-Warrant. Series A-Warrant, Series A-Warrant Series A-Warrant. Series J-Warrant Series J-A Series J-A Series J-A Series J-A Series J-A Series J-A Series J-A
 30




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Series J-A Series J-A Series J-A Series J-A J-A
    Preferred
    stock
    2007

2006Liquidation





LiquidationAuthorized

Issued

Preference

Authorized

Issued

PreferenceSeries A (NovaRay Medical, Inc.)


10,000,000



4,946,888


$











$
Series A (NovaRay, Inc.)














1,000,000



855,527


$
1,539,948   Series A
    Convertible Preferred Stock NovaRay Medical Inc.
    Voluntary Conversion.
     31




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Voting.
    Dividends.
  Liquidation.
 32




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Series A
    Convertible Preferred Stock NovaRay Inc.
    Dividends
    Liquidation
    preferences
   33




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Redemption
    Conversion
    rights
          Voting
    rights
    Protective
    provisions
    Common
    stock
    Treasury
    stock
    6  Related
    party transactions
  NexRay
    Transaction
   34




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Triple
    Ring Technologies, Inc.
    Exercise Price perDate of Acceptance of the Deliverables

ShareOn or prior to March 30, 2009

$
0.06On or after March 31, 2009 but on or prior to July 30,
    2009

$
0.15On or after July 30, 2009 but on or prior to
    December 30, 2009

$
1.33On or after December 30, 2009 but on or prior to
    February 28, 2010

$
2.67       Triple Ring OwnershipName

NovaRay Medical Affiliation

InterestMarc Whyte

CFO, COO, Director, Stockholder


21.15
%Edward Solomon

CTO, Director


21.15
%Joseph Heanue

Stockholder


21.15
%Augustus Lowell

Stockholder


21.15
%Brian Wilfey

Stockholder


15.40
%  35




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  NRCT
    LLC
    NRCTName

NovaRay Medical Affiliation

Ownership InterestLynda Wijcik  (BioBridge LLC)

Chairman of the Board, Stockholder


34.07
%Wheatley MedTech Partners LP

Director, Stockholder


21.28
%Lloyd Investments, L.P.

Stockholder


4.00
%Marc Whyte

CFO, COO, Director, Stockholder


9.43
%Edward Solomon

CTO, Director


9.43
%Joseph Heanue

Stockholder


7.07
%Augustus Lowell

Stockholder


1.89
%Brian Wilfey

Stockholder


1.89
%Eugene B. Floyd

Stockholder


0.47
%Gerald Pretti

Stockholder


0.47
%   The
    AIG Parties
    Loans
    to Stockholders
   36




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Promissory
    Note issued to Chairman and Director Lynda Wijcik
    Payments
    to Jack Price & Associates
    Restricted
    Stock Purchase Agreement
    Office
    Lease
        7  Commitments
    and contingencies
      8  Subsequent
    Events
     37




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Regulation S-B
      Form 8-K 8-K). 8-K 8-K.
    Form 10-KSB
  39655-39677
 38




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##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Monthly Rate


MonthlyMonths of Term

per Square Foot


Base RentMonth 1   Month 18

$
0.85


$
34,950.30Month 19  Month 30

$
0.88


$
36,183.84Month 31  Month 42

$
0.90


$
37,006.20Month 43  Month 54

$
0.93


$
38,239.74Month 55  Month 64

$
0.96


$
39,473.28  39




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##### Table of Contents



Item 8.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.   
  Item 8A.
    Controls
    and Procedures.  Evaluation
    of Disclosure Controls and
    Procedures.
      Managements
    Report on Internal Control over Financial
    Reporting.
          Changes
    in Internal
    Controls.
   40




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##### Table of Contents



Item 8B.
    Other
    Information.   
  PART III
 
  Item 9.
    Directors
    and Executive Officers of the Company.    Name

Age

PositionJack E. Price


63


Director, President & Chief Executive OfficerMarc C. Whyte


55


Director, Chief Financial Officer & Chief Operating OfficerEdward G. Solomon


53


Director, Chief Technical OfficerLynda L. Wijcik


54


ChairmanDavid Dantzker, M.D.


65


DirectorGeorge J.M. Hersbach


55


Director     Jack E. Price, Director, President and Chief Executive
    Officer,
  Marc C. Whyte, Director, Chief Financial Officer and Chief
    Operating Officer,
  Edward G. Solomon, Director, Chief Technical Officer,
  Lynda L. Wijcik, Chairman,
 41




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##### Table of Contents



David Dantzker, MD, Director
  George J.M. Hersbach, Director
                Compliance
    with Section 16(a) of the Exchange Act
     42




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##### Table of Contents



Code of
    Ethics
    Nominating
    Committee
    Audit
    Committee
    Item 10.
    Executive
    Compensation.    Nonequity

NonqualifiedStock

Incentive Plan

Deferred

Option

All OtherSalary

Bonus

Awards

Compensation

Compensation

Awards

Compensation

TotalName and Principal Position

Year

($)

($)

($)

($)

Earnings

($)

($)(1)

($)Jack E. Price


2007


























$
87,000


$
87,000President and Chief


2006


























$
24,000


$
24,000Executive Officer     (1)
    
    NovaRay paid $87,000 and 24,000 in consulting fees to Jack
    Price & Associates in each of 2007 and 2006,
    respectively. Jack E. Price is a beneficial owner of Jack
    Price & Associates.  Employment
    Agreements
         43




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##### Table of Contents



Item 11.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    
    each beneficial owner of 5% or more of the currently outstanding
    shares of our common stock;
    each of our directors;
    each of our executive officers; and
    all of our directors and executive officers as a group.  c/o NovaRay
    44




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##### Table of Contents



Amount and Nature of BeneficialOwnershipNotes Convertibleand Options andWarrantsExercisable WithinName of Beneficial Owner

Shares


60 Days


Percent of ClassHolders of More than 5%Wheatley MedTech Partners, L.P.(1)


1,918,845







19.64
%80 Cuttermill Road, Suite 302
    Great Neck, New York 11021Entities affiliated with AIG


1,101,000







11.27
%Global Investment Corp.(2)
    559 Lexington Avenue 
    New York, New York 10022BioBridge LLC(3)


945,489







9.68
%15941 Overlook Drive
    Los Gatos, CA 95070Fountainhead Capital Partners Limited(4)


1,203,732



600,000



17.40
%Portman House, Hue Street 
    St. Helier, Jersey, Channel 
    Islands JE4 5RPDirectors and Executive OfficersDavid Dantzker(5)


1,918,845







19.64
%Jack Price(6)


642,000







6.57
%Edward Solomon(7)


381,231







3.90
%Marc Whyte(8)


381,231







3.90
%Lynda Wijcik(9)


2,535,489







25.96
%George J. M. Hersbach(10)


458,670







4.70
%All executive officers and directors as a group (6 persons)


6,317,466







64.68
%     (1)
    
    Holdings consist of: (i) 1,918,845 shares of our
    common stock, (ii) a Series A Warrant to purchase
    47,544 shares of our common stock at an exercise price of
    $4.25 per share, and (iii) 142,632 shares of our
    Series A Convertible Preferred Stock. David Dantzker, a
    voting member of Wheatley MedTech Partners LLC (the general
    partner of Wheatley MedTech Partners, L.P.) and a director of
    the Company, has shared investment control and shared voting
    control over all of these securities. The Series A Warrant
    and Series A Convertible Preferred Stock referenced in this
    paragraph are subject to the Series A Warrant Exercise
    Restriction and the Conversion Restriction.(2)
    
    Holdings consist of: (i)(a) 70,464 shares of our common
    stock held by AIG Horizon Partners Fund, L.P.,
    (b) 157,443 shares of our common stock held by AIG
    Horizon
    Side-By-Side
    Fund, L.P., (c) 123,312 shares of our common stock
    held by AIG Private Equity Portfolio, L.P.,
    (d) 371,037 shares of our common stock held by AIU
    Insurance Company, and (e) 378,744 shares of our
    common stock held by Commerce and Industry Insurance Company;
    (ii)(a) a Series A Warrant to purchase 7,308 shares of
    our common stock at an exercise price of $4.25 per share held by
    AIG Horizon Partners Fund, L.P., (b) a Series A
    Warrant to purchase 16,328 shares of our common stock at an
    exercise price of $4.25 per share held by AIG Horizon
    Side-By-Side
    Fund, L.P., (c) a Series A Warrant to purchase
    12,789 shares of our common stock at an exercise price of
    $4.25 per share held by AIG Private Equity Portfolio, L.P.,
    (d) a Series A Warrant to purchase 38,481 shares
    of our common stock at an exercise price of $4.25 per share held
    by AIU Insurance Company, and (e) a Series A Warrant
    to purchase 72,741 shares of our common stock at an
    exercise price of $4.25 per share held by Commerce and Industry
    Insurance Company; and (iii)(a) 21,924 shares of our
    Series A Convertible Preferred Stock held by AIG Horizon
    Partners Fund, L.P., (b) 48,986 shares of our
    Series A Convertible Preferred Stock held by AIG Horizon
    Side-By-Side
    Fund, L.P., (c) 38,367 shares of our Series A
    Convertible Preferred Stock held by AIG Private Equity
    Portfolio, L.P., (d) 115,443 shares of our
    Series A Convertible Preferred Stock held 45




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##### Table of Contents



by AIU Insurance Company, and (e) 218,224 shares of
    our Series A Convertible Preferred Stock held by Commerce
    and Industry Insurance Company. AIG Global Investment Corp. acts
    as (iv)(a) the manager of AIG Horizon Partners Fund, L.P.,
    (b) the managing member of AIG Horizon
    Side-By-Side
    Fund, L.P., (c) the manager of AIG Private Equity
    Portfolio, L.P., (d) the investment advisor to AIU
    Insurance Company, and (e) the investment advisor to
    Commerce and Industry Insurance Company. F.T. Chong, as a
    Managing Director of AIG Global Investment Corp., has investment
    and voting control over all of these securities. The
    Series A Warrant and Series A Convertible Preferred
    Stock referenced in this paragraph are subject to the
    Series A Warrant Exercise Restriction and the Conversion
    Restriction.(3)
    
    Holdings consist of: (i) 945,489 shares of our common
    stock, (ii) a Series A Warrant to purchase
    33,044 shares of our common stock at an exercise price of
    $4.25 per share, and (iii) 99,132 shares of our
    Series A Convertible Preferred Stock. Lynda Wijcik, a
    controlling member of BioBridge LLC, exercises investment and
    voting control over all of these securities. The Series A
    Warrant and Series A Convertible Preferred Stock referenced
    in this paragraph are subject to the Series A Warrant
    Exercise Restriction and the Conversion Restriction.(4)
    
    Holdings consist of: (i) 1,203,732 shares of our
    common stock and (ii) a warrant to purchase
    600,000 shares of our common stock at an exercise price of
    $4.25 per share. Carole Dodge and Giselle Le Mar, directors of
    Fountainhead Capital Partners Limited, exercise investment and
    voting control over all of these securities.(5)
    
    Holdings consist of: (i) 1,918,845 shares of our
    common stock, (ii) a Series A Warrant to purchase
    47,544 shares of our common stock at an exercise price of
    $4.25 per share, and (iii) 142,632 shares of our
    Series A Convertible Preferred Stock. David Dantzker, a
    voting member of Wheatley MedTech Partners LLC (the general
    partner of Wheatley MedTech Partners, L.P.) and a director of
    the Company, exercises investment and voting control over all of
    these securities. The Series A Warrant and Series A
    Convertible Preferred Stock referenced in this paragraph are
    subject to the Series A Warrant Exercise Restriction and
    the Conversion Restriction.(6)
    
    Jack Price is a director, President and Chief Executive Officer
    of the Company. In accordance with the terms of a Restricted
    Stock Purchase Agreement dated October 23, 2006, these
    shares are subject to vesting, with 25% of such shares vesting
    on October 31, 2007, and the remaining shares vesting in
    equal monthly installments over three years so long as
    Mr. Price continues to provide services to NovaRay. Upon an
    event constituting a change of control, all of these shares will
    become fully vested.(7)
    
    Edward Solomon is a director, Chief Technical Officer and the
    Corporate Secretary of the Company.(8)
    
    Marc Whyte is a director, Chief Financial Officer and Chief
    Operating Officer of the Company.(9)
    
    Holdings consist of: (i) 945,489 shares of our common
    stock held by BioBridge LLC, (ii) 1,590,000 shares of
    our common stock held by Lynda Wijcik, (iii) a
    Series A Warrant to purchase 33,044 shares of our
    common stock held by BioBridge LLC at an exercise price of $4.25
    per share, (iv) a Series A Warrant to purchase
    40,646 shares of our common stock held by Lynda Wijcik at
    an exercise price of $4.25 per share,
    (v) 99,132 shares of our Series A Convertible
    Preferred Stock held by BioBridge LLC, and
    (vi) 121,939 shares of our Series A Convertible
    Preferred Stock held by Lynda Wijcik. Lynda Wijcik, a
    controlling member of BioBridge LLC, exercises investment and
    voting control over all of these securities. The Series A
    Warrants and Series A Convertible Preferred Stock
    referenced in this paragraph are subject to the Series A
    Warrant Exercise Restriction and the Conversion Restriction.(10)
    
    Holdings consist of: (i) 458,670 shares of our common
    stock, (ii) Warrants to purchase 90,632 shares of our
    common stock at an exercise price of $4.25 per share, and
    (iii) 271,896 shares of our Series A Convertible
    Preferred Stock. George J.M. Hersbach, the President and Chief
    Executive Officer of Heartstream Capital B.V., exercises
    investment and voting control over all of these securities. The
    Series A Warrant and Series A Convertible Preferred
    Stock referenced in this paragraph are subject to the
    Series A Warrant Exercise Restriction and the Conversion
    Restriction.   46




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##### Table of Contents



Series J-A
 
  Item 12.
    Certain
    Relationships and Related Transactions and Director
    Independence.  NexRay
    Transaction
    Triple
    Ring Technologies, Inc.
    Exercise Price perDate of Acceptance of the Deliverables

ShareOn or prior to March 30, 2009

$
0.06On or after March 31, 2009 but on or prior to July 30,
    2009

$
0.15On or after July 30, 2009 but on or prior to
    December 30, 2009

$
1.33On or after December 30, 2009 but on or prior to
    February 28, 2010

$
2.67    47




---



##### Table of Contents



Name

NovaRay Medical Affiliation

Triple Ring Ownership InterestMarc Whyte

CFO, COO, Director, Stockholder


21.15
%Edward Solomon

CTO, Director


21.15
%Joseph Heanue

Stockholder


21.15
%Augustus Lowell

Stockholder


21.15
%Brian Wilfey

Stockholder


15.40
%   NRCT
    LLC
    NovaRay MedicalName

Affiliation

NRCT Ownership InterestLynda Wijcik  (BioBridge LLC)

Chairman of the


34.07
%Board, StockholderWheatley MedTech Partners LP

Director, Stockholder


21.28
%Lloyd Investments, L.P.

Stockholder


4.00
%Marc Whyte

CFO, COO, Director,


9.43
%StockholderEdward Solomon

CTO, Director


9.43
%Joseph Heanue

Stockholder


7.07
%Augustus Lowell

Stockholder


1.89
%Brian Wilfey

Stockholder


1.89
%Eugene B. Floyd

Stockholder


0.47
%Gerald Pretti

Stockholder


0.47
%   The
    AIG Parties
     48




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##### Table of Contents



Loans
    to Stockholders
    Newark
    Office Lease
  39655-39677
  Promissory
    Note issued to Chairman and Director Lynda Wijcik
    Payments
    to Jack Price & Associates
    Palo
    Alto Office Lease
    Restricted
    Stock Purchase Agreement
   
  Item 13.
    Exhibits.    2
.1

Agreement and Plan of Merger, dated December 26, 2007, by
    and among Vision Acquisition I, Inc., NovaRay, Inc. and
    Vision Acquisition Subsidiary, Inc.(1)3
.1

Certificate of Incorporation.(1)3
.2

Certificate of Amendment to the Certificate of Incorporation.(1)3
.3

Bylaws.(2)3
.4

Certificate of Designation of the Relative Rights and
    Preferences of the Series A Convertible Preferred Stock of
    the NovaRay Medical, Inc.(1)10
.1

Employment Agreement by and between NovaRay, Inc. and Jack Price
    dated December 19, 2007.(1) 49




---



##### Table of Contents



10
.2

Employment Agreement by and between NovaRay, Inc. and Marc Whyte
    dated December 19, 2007.(1)10
.3

Employment Agreement by and between NovaRay, Inc. and Edward
    Solomon dated December 19, 2007.(1)10
.4

Consulting Agreement by and between NovaRay, Inc. and
    Fountainhead Capital Partners Limited, dated October 2,
    2007, as amended by Amendment No. 1 to Consulting
    Agreement.(1)10
.5*

Professional Services Agreement by and between NovaRay, Inc. and
    Triple Ring Technologies, Inc., dated December 19, 2007.(1)10
.6

Agreement by and between NovaRay, Inc. and Rodman &
    Renshaw LLP, dated November 21, 2007.(1)10
.7

Consulting Agreement by and between NovaRay, Inc. and
    Heartstream Corporate Finance B.V., dated December 19,
    2007.(1)10
.8

Series A Convertible Preferred Stock and Warrant Purchase
    Agreement, dated December 27, 2007, by and among NovaRay
    Medical, Inc. and the purchasers identified therein.(1)10
.9

Series J Warrant to Purchase Shares of Series A
    Convertible Preferred Stock of NovaRay Medical, Inc.(1)10
.10

Series J-A
    Warrant to Purchase Shares of Common Stock of NovaRay Medical,
    Inc.(1)10
.11

Form of Series A Warrant to Purchase Shares of Common Stock
    of NovaRay Medical, Inc.(1)10
.12

Registration Rights Agreement dated December 27, 2007, by
    and among NovaRay Medical, Inc. and the purchasers identified
    therein(1).10
.13

Lock-Up
    Agreement dated December 27, 2007, by and among NovaRay
    Medical, Inc. and the
    Lock-Up
    Stockholders (as defined therein)(1).10
.14

AIG Lock-Up
    Agreement dated December 27, 2007, by and among NovaRay
    Medical, Inc. and the AIG Stockholders (as defined therein).(1)10
.15*

Agreement by and between NovaRay, Inc. and NRCT LLC dated
    October 23, 2006.(1)10
.16

Amendment No. 2 to Agreement by and among NovaRay, Inc. and
    the AIG Parties (as defined therein) dated December 20,
    2007.(1)10
.17

Conversion Agreement by and between NovaRay, Inc. and Lynda
    Wijcik dated December 20, 007.(1)10
.18

Conversion Agreement by and between NovaRay, Inc. and Wheatley
    MedTech Partners, L.P. dated December 20, 2007.(1)10
.19

Conversion Agreement by and between NovaRay, Inc. and Lloyd
    Investments, L.P. dated December 20, 2007.(1)10
.20

Conversion Agreement by and between NovaRay, Inc. and
    Heartstream Capital B.V. dated December 20, 2007.(1)10
.21

Conversion Agreement by and between NovaRay, Inc. and BioBridge
    LLC dated December 20, 2007.(1)10
.22

Conversion Agreement by and between NovaRay, Inc. and Arie Jacob
    Manintveld dated December 20, 2007.(1)10
.23

Lease Agreement by and between NovaRay, Inc. and Harbor
    Investment Partners dated July 1, 2005, as amended by First
    Amendment to Lease dated January 11, 2007.(1)10
.24

Lease Agreement by and between NovaRay, Inc. and BRCP Stevenson
    Point, LLC dated March 13, 2008.(4)16
.1

Letter dated February 13, 2008, from Gruber &
    Company, LLC.(3)16
.2

Letter dated February 13, 2008, from Paritz &
    Company, P.A.(3)21
.1

Subsidiaries of the Company.(1)23
.1

Letter from Paritz & Company, P.A.24
.1

Power of Attorney (included on page 52)31
.1

Certification of Jack E. Price, Chief Executive Officer,
    pursuant to
    Rules 13a-14(a)
    and 15d-14(a) of the Securities Exchange Act of 1934, as amended.31
.2

Certification of Marc C. Whyte, Chief Financial Officer,
    pursuant to
    Rules 13a-14(a)
    and 15d-14(a) of the Securities Exchange Act of 1934, as amended.32
.1

Certification of Jack E. Price, Chief Executive Officer,
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Marc C. Whyte, Chief Financial Officer,
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     (1)
    
    Incorporated by reference to the same-numbered exhibit to the
    Registrants Current Report on
    Form 8-K
    filed with the SEC on December 28, 2007. 50




---



##### Table of Contents



(2)
    
    Incorporated by reference to Exhibit 3.2 to the
    Registrants Registration Statement on
    Form 10-SB
    (No. 000-52731)
    filed with the SEC on July 20, 2007.(3)
    
    Incorporated by reference to the identically numbered exhibit to
    the Registrants Current Report on
    Form 8-K
    filed with the SEC on February 13, 2008.(4)
    
    Incorporated by reference to Exhibit 10.1 to the
    Registrants Current Report on Form
    8-K filed
    with the SEC on March 19, 2008.*
    
    Confidential treatment has been requested for portions of this
    agreement. These portions have been omitted from the exhibit and
    submitted separately to the SEC.  Item 14.
    Principal
    Accountant Fees and Services    Audit
    Fees
  Form 10-QSB
  Form 10-QSB
  Audit-Related
    Fees
    Tax
    Fees
    All Other
    Fees
    Audit
    Committees Pre-Approval Process
   51




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##### Table of Contents



SIGNATURES
      By:
    /s/  Jack
    E. Price    
  POWER OF
    ATTORNEY
      Signature

Title

Date/s/  Jack
    E.
    PriceJack
    E. Price

President, Chief Executive Officer and Director (Principal
    Executive Officer)

March 31, 2008/s/  Marc
    C.
    WhyteMarc
    C. Whyte

Chief Operating Officer, Chief Financial Officer and Director
    (Principal Financial and Accounting Officer)

March 31, 2008/s/  Lynda
    L.
    WijcikLynda
    L. Wijcik

Chairman of the Board of Directors

March 31, 2008/s/  Edward
    G.
    SolomonEdward
    G. Solomon

Director

March 31, 2008/s/  David
    DantzkerDavid
    Dantzker

Director

March 31, 2008/s/  George
    J.M.
    HersbachGeorge
    J.M. Hersbach

Director

March 31, 2008  52