##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q/A
 Amendment
No. 2
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
 For the quarterly period endedMarch 31, 2008.
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
 For the transition period fromto.
 Commission File Number 0-52731
 
 NovaRay Medical, Inc.
  
 Delaware
    
    16-1778998(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)39655 Eureka Drive, Suite A,Newark, California
    
    94560(Address of principal executive offices)
    
    (zip code)
 
 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
 þ o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
 o þ .




---



##### 



NOVARAY MEDICAL, INC.
  
 Table of Contents
 PART I  FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1CONDENSED CONSOLIDATED BALANCE SHEETS
    
    
    1CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
    
    
    2CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    3NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4T. Controls and Procedures
    
    
    21PART II  Other Information
    
    
    21Item 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22SIGNATURES
    
    
    23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




---



##### Table of Contents



EXPLANATORY NOTE
  Part I  Financial Information  Item 1  Financial Statements
 
    
    Condensed Consolidated Balance Sheets: This Amendment No. 2 amends and restates our
Condensed Consolidated Balance Sheets at and as of March 31, 2008 and December 31, 2007.
Such amendments and restatements had no effect on total assets (and total liabilities and
stockholders deficit) in our Condensed Consolidated Balance Sheets at and as of March 31,
2008 and December 31, 2007, as reported in Amendment No. 1 to our Quarterly Report for the
quarter ended March 31, 2008.
    
    Condensed Consolidated Statements of Operations: This Amendment No. 2 amends and
restates our Condensed Consolidated Statement of Operations for the period from our
inception (June 7, 2005) to March 31, 2008 and for the three-month period ended March 31,
2008. The cumulative effects of such amendments and restatements consist of net loss for
the period from our inception (June 7, 2005) to March 31, 2008 being increased by $510,324,
from $7,210,575 (as reported in Amendment No. 1 to our Form 10-Q for the quarter ended
March 31, 2008) to $7,720,899. Such amendments and restatements had no effect on net loss
for the three-month period ended March 31, 2008.
    
    Condensed Consolidated Statements of Cash Flows: This Amendment No. 2 amends certain
items in our Condensed Consolidated Statements of Cash Flows for the period from our
inception (June 7, 2005) to March 31, 2008 and for the three-month period ended March 31,
2008. Such amendments and restatements had no effect on cash and cash equivalents as of
March 31, 2008.
    
    Notes to the Consolidated Financial Statements: The Notes to the Consolidated Financial
Statements have been amended to reflect the aforementioned changes and to conform to
disclosures included in our registration statement on Form S-1 (File No. 333-149917).
 Part I  Item 4T  Controls and Procedures
 
    
    This Amendment No. 2 amends our conclusion regarding our disclosure controls and
procedures as of March 31, 2008.




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 NOVARAY MEDICAL, INC.
(A Development Stage Company)
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 March 31,
    
    
    December 31,2008
    
    
    2007(Restated)
    
    
    (Restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    6,873,835
    
    
    $
    9,233,926Miscellaneous receivable
    
    
    22,992
    
    
    
    13,872Prepaid expenses
    
    
    227,372
    
    
    
    16,947Total current assets
    
    
    7,124,199
    
    
    
    9,264,745Property and equipment, net
    
    
    38,433
    
    
    
    42,455Other assets:Deposits and restricted assets
    
    
    635,000
    
    
    
    Total other assets
    
    
    635,000
    
    
    
    Total assets
    
    $
    7,797,632
    
    
    $
    9,307,200Liabilities and Stockholders DeficitCurrent liabilities:Accounts payable
    
    $
    772,709
    
    
    $
    566,146Accrued liabilities
    
    
    330,019
    
    
    
    205,505Notes payable
    
    
    95,312
    
    
    
    125,312Total current liabilities
    
    
    1,198,040
    
    
    
    896,963Total liabilities
    
    
    1,198,040
    
    
    
    896,963Stockholders equity (deficit):Series A convertible preferred stock, NovaRay
Medical, Inc., $0.0001 par value Authorized
shares 10,000,000; Issued 4,946,888 at March
31, 2008 and December 31, 2007 (Liquidation
preference -$0- at March 31, 2007)
    

    $
    495
    
    

    $
    495Common stock, NovaRay Medical, Inc., $0.0001
par value Authorized shares - 110,000,000;
Issued and outstanding shares - 9,767,853 at
March 31, 2008 and December 31, 2007
    
    
    1,269
    
    
    
    1,269Additional paid-in capital
    
    
    14,322,848
    
    
    
    14,100,931Deficit accumulated during the development stage
    
    
    (7,720,899
    )
    
    
    (5,688,327
    )Less: treasury stock, at cost, 1,239,999 shares
outstanding at March 31, 2008 and December 31,
2007,
    
    
    (4,130
    )
    
    
    (4,130
    )Total stockholders equity (deficit)
    
    
    6,599,592
    
    
    
    8,410,238Total liabilities and stockholders equity (deficit)
    
    $
    7,797,632
    
    
    $
    9,307,200
  1




---



##### Table of Contents



NOVARAY MEDICAL, INC.
(A Development Stage Company)
 
 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 (Unaudited)
 FromInceptionThree Months Ended March 31,
    
    
    (June 7, 2005)March 31,
    
    
    March 31,
    
    
    to March 31,2008
    
    
    2007
    
    
    2008(Restated)
    
    
    
    
    
    (Restated)Operating expenses:Research and development
    
    $
    1,275,593
    
    
    $
    48,975
    
    
    $
    1,623,286General and administrative
    
    
    773,183
    
    
    
    267,686
    
    
    
    5,497,022Total operating expenses
    
    
    2,048,776
    
    
    
    316,661
    
    
    
    7,120,308Operating loss
    
    
    (2,048,776
    )
    
    
    (316,661
    )
    
    
    7,120,308Miscellaneous income
    
    
    
    
    
    
    
    
    
    
    80,000Interest income
    
    
    19,209
    
    
    
    1,245
    
    
    
    25,311Gain on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    91,719Interest expense
    
    
    (2,995
    )
    
    
    (53,633
    )
    
    
    797,621Net loss
    
    $
    (2,032,562
    )
    
    $
    (369,049
    )
    
    $
    7,720,899Basic and diluted loss per share of common stock
    
    
    $(0.21
    )
    
    
    $(0.05
    )
    
    $
    (0.93
    )Weighted average number of common shares
outstanding used in basic and diluted loss per
share
    
    
    9,767,853
    
    
    
    6,931,713
    
    
    
    8,298,752
 2




---



##### Table of Contents



NOVARAY MEDICAL, INC.
(A Development Stage Company)
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months Ended March 31,Ended
    
    
    
    
    
    From InceptionMarch 31,
    
    Ended
    
    (June 7, 2005) to2008
    
    March 31, 2007
    
    March 31, 2008(Restated)
    
    
    
    
    
    (Restated)Operating activities:Net loss
    
    $
    (2,032,562
    )
    
    $
    (1,150,535
    )
    
    $
    (6,942,132
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation
    
    
    4,022
    
    
    
    14,044
    
    
    
    84,688Loss on
conversion of preferred debt
    
    
    
    
    

    
    
    
    
    
    252,328Beneficial
conversion of convertible debt
    
    
    
    
    

    
    
    
    
    
    263,528Amortization of warrants in research and development
    
    
    221,917
    
    
    
    
    
    
    
    221,917Amortization
of warrants included in interest expense
    
    
    
    
    

    
    
    
    
    
    19,000Interest 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
    
    
    (11,320
    )
    
    
    (10,772
    )
    
    
    (25,191
    )Prepaid expenses
    
    
    (208,225
    )
    
    
    (146,753
    )
    
    
    (225,172
    )Accounts payable
    
    
    208,561
    
    
    
    78,233
    
    
    
    774,707Accrued liabilities
    
    
    122,516
    
    
    
    164,852
    
    
    
    335,203Net cash used in operating activities
    
    
    (1,695,091
    )
    
    
    (885,462
    )
    
    
    5,828,830Investing activities:Property and equipment assigned by shareholders
    
    
    
    
    
    
    
    
    
    
    (75,754
    )Restricted cash for lease deposit
    
    
    (135,000
    )
    
    
    
    
    
    
    (135,000
    )Security deposit with related party
    
    
    (500,000
    )
    
    
    
    
    
    
    (500,000
    )Net cash used in investing activities
    
    
    (635,000
    )
    
    
    
    
    
    
    (710,754
    )Financing activities:Repayment of long-term debt
    
    
    
    
    
    
    
    
    
    
    Proceeds from subscriptions receivable
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    10,429,820Repayment of notes payable
    
    
    (30,000
    )
    
    
    
    
    
    
    (30,000
    )Issuance costs incurred in sale of Series A convertible
preferred stock
    
    
    
    
    
    
    (24,910
    )
    
    
    (122,910
    )Proceeds from sale of common stock
    
    
    
    
    
    
    
    
    
    
    13,889Purchase of treasury stock
    
    
    
    
    
    
    (4,130
    )
    
    
    (4,130
    )Net cash
provided (used) by financing activities
    
    
    (30,000
    )
    
    
    985,960
    
    
    
    13,413,419Net increase (decrease) in cash and cash equivalents
    
    
    (2,360,091
    )
    
    
    100,498
    
    
    
    6,873,835Cash and cash equivalentsbeginning of period
    
    
    9,233,926
    
    
    
    40,827
    
    
    
    Cash and cash equivalentsend of period
    
    $
    6,873,835
    
    
    $
    141,325
    
    
    $
    6,873,835Supplemental Disclosures of Cash Flow Information:Cash paid for interest
    
    $
    
    
    
    $
    
    
    
    $
    26,696Cash paid for taxes
    
    $
    
    
    
    $
    
    
    
    $
    2,827Supplemental Disclosure of Non-Cash Financing ActivitiesConvertible preferred stock issued in exchange for
cancellation of debt
    
    $
    
    
    
    $
    
    
    
    $
    3,921,903Convertible preferred stock issued in exchange for
cancellation of accrued interest on debt
    
    $
    
    
    
    $
    60,864
    
    
    $
    233,182Interest expense capitalized as long term debt
    
    $
    
    
    
    $
    104,605
    
    
    $
    156,641
  3




---



##### Table of Contents



NOVARAY MEDICAL, INC.
(A Development Stage Company)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2008 and 2007

(Unaudited)
 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
  4




---



##### Table of Contents



Accrued liabilities
  Fair values of financial instruments
  Property and equipment
  March 31,
    
    
    December 31,2008
    
    
    2007Computer hardware, software, and equipment
    
    $
    80,439
    
    
    $
    80,439Less: accumulated depreciation
    
    
    (42,006
    )
    
    
    (37,985
    )Property and equipment, net
    
    $
    38,433
    
    
    $
    42,454
  Warrants
 Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services.
  Loss per share
   Period
ended March 31,2008
    
    
    2007Basic and
Diluted:Net loss
available to common shareholders
    
    $
    (2,032,562
    )
    
    $
    (369,049
    )Net loss per
share available to common shareholders
    
    $
    (0.21
    )
    
    $
    (0.05
    )Weighted
average common shares outstanding
    
    
    9,767,853
    
    
    
    6,931,713
  5




---



##### Table of Contents



Recent accounting pronouncements
 Share-Based Payment
   
 
  6




---



##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2.  Restatement
      RECONCILIATION
    OF BALANCE SHEET AS OF MARCH 31, 2008
  As Reported (A)


Adjustments


RestatedCurrent AssetsCash and cash equivalents

$
6,873,835


$



$
6,873,835Miscellaneous receivables


22,992







22,992Prepaid expenses


225,172



(2,200
)(1)


227,372Total Current Assets


7,121,999



(2,200
)


7,124,199Property, plant, and equipment, net


38,433







38,433Other assetsDeferred interest


1,469,955



1,469,955
(2)


Deferred consulting


1,704,614



1,704,614
(3)


Deposits and restricted assets


635,000







635,000Total other assets


3,809,569



3,174,569



635,000Total Assets

$
10,970,001


$
3,172,369


$
7,797,632LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable

$
772,707


$
(2
)(1)

$
772,709Accrued liabilities


330,019







330,019Notes payable


95,312







95,312Total current liabilities


1,198,038



(2
)


1,198,040Stockholders equity (deficit):Series A convertible preferred NovaRay Medical Inc


495







495Common stock, NovaRay Medical Inc.


1,269







1,269Additional paid in capital


17,103,665



2,780,817
(2),(3)


14,322,848Deficit accumulated during the development stage


(7,327,137
)


393,762
(4)


(7,720,899
)Less treasury stock


(4,130
)






(4,130
)Total stockholders equity (deficit)

$
9,774,162


$
3,174,570


$
6,599,592Total Liabilities and stockholders equity (deficit)

$
10,972,200


$
3,174,568


$
7,797,632     (A)
    
    Balance as reported May 14, 2008, the filing date of the Companys 10-Q
for the quarter ended March 31, 2008.(1)
    
    Correction of prepaids, payables and a rounding error(2)
    
    To reclassify warrants granted to Vision and investment advisors
    initially recorded as deferred interest at December 31,
    2007 to closing costs and reverse impact of amortization(3)
    
    To correct treatment of Triple Ring Warrant which was initially
    recorded at December 31, 2007 as a deferred asset and
    additional paid in capital for the full amount of the warrant.(4)
    
    Impact of adjustments above on deficit accumulated during the
    development period 7




---



##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   RECONCILIATION
    OF BALANCE SHEET DECEMBER 31, 2007
  As Reported (A)


Adjustments


RestatedASSETS:Current assets:Cash and cash equivalents

$
9,233,926






$
9,233,926Miscellaneous receivables


13,872







13,872Prepaid expenses


16,947







16,947Total current assets


9,264,745







9,264,745Property and equipment, net


42,454



1
(1)


42,455Other assets






Deferred interest


1,584,336



(1,584,336
)(2)


Deferred consulting


1,926,531



(1,926,531
)(3)


Total other assets


3,510,867



(3,003,026
)Total Assets

$
12,818,066


$
(3,510,866
)

$
9,307,200LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
566,146







566,146Accrued liabilities


205,503



1
(1)


205,504Notes payable


125,312







125,312Total current liabilities


896,961



1



896,963Stockholders equity (deficit):Series A convertible preferred NovaRay Medical Inc.


495







495Series A convertible preferred NovaRay Inc.


Common stock, Novaray Medical Inc.


977



292
(1)


1,269Common stock, Novaray Inc.


Additional paid in capital


17,103,957



$(3,003,026
)(1),(2)


14,100,391Accumulated deficit


(5,180,194
)


(508,133
) (4)


(5,688,327
)Less treasury stock


(4,130
)






(4,130
)Total stockholders equity (deficit)

$
11,921,105


$
(3,510,867
)

$
8,410,238Total Liabilities and stockholders equity (deficit)

$
12,818,066


$
(3,510,866
)

$
9,307,200     (A)
    
    Balances as reported March 31, 2008, the filing date of the
Companys Form 10 KSB for the reporting year ending December 31,
2007.(1)
    
    Correction of rounding error(2)
    
    To reclassify warrants granted to Vision and investment advisors
    from deferred interest to closing costs and reverse impact of
    amortization(3)
    
    To correct treatment of Triple Ring Warrant which was initially
    recorded as a deferred asset and additional paid in capital for
    the full amount of the warrant and beneficial conversion option
for debt conversion.(4)
    
    See explanations detailed in Statement of Operations on next
    page. 8




---



##### Table of Contents



NOVARAY
    MEDICAL, INC.
    (A Development Stage Company)
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     RECONCILIATION
    OF STATEMENT OF OPERATIONS AS OF MARCH 31, 2008
  As
Reported(A)


Adjustments


RestatedOperating expensesResearch and development

$
1,275,593






$
1,275,593General and administrative


773,183







773,183Total operating expenses

$
2,048,776


$



$
2,048,776Operating lossMiscellaneous income










Interest income


19,209







19,209Interest expense


(117,376
)


(114,381
)(1)


(2,995
)Net loss

$
1,950,609


$
(114,381
)

$
2,032,562Basic and diluted loss per share of common

$
(0.20
)

$
(0.01
)

$
(0.21
)Weighted average number of shares used in basic and diluted loss
    per share


9,767,853



9,767,853



9,767,853     (A)
    
    Balance as reported May 14, 2008, the filing
date of the Companys 10Q for the quarter ended
March 31, 2007.(1)
    
    To adjust interest expense for warrant costs to properly record
    them as closing costs  RECONCILIATION
    OF STATEMENT OF OPERATIONS FOR THE YEAR ENDED
    DECEMBER 31, 2007
  As Reported(B)


Adjustments


RestatedOperating expenses:Research and development

$
313,896


$



$
313,896General and administrative


1,275,458







1,275,458Total operating expenses


1,589,354







1,589,354Operating loss


(1,589,354
)






(1,589,354
)Miscellaneous income


452,091



(452,091
)(1)


Interest income


4,875







4,875Interest expense


(293,253
)


(255,805
)(2)


(549,058
)Gain on extinguishment of debt






199,763
(1),(3)


199,763Net loss

$
(1,425,641
)

$
(508,133
)

$
(1,933,774
)Basic and diluted loss per share of common

$
(0.21
)

$
(0.08
)

$
(0.29
)Weighted average number of common shares used in basic and
    diluted loss per share


6,689,392



6,689,392



6,689,392     (B)
    
    Balance as reported March 31, 2008, the filing
date of the Companys form 10KSB for the reporting year ending
December 31, 2007.(1)
    
    To reclassify debt extinguishment costs from other income to a
    separate line item for extinguishment of debt(2)
    
    To adjust interest expense for warrants costs to properly record
    them as closing costs and recorded the $263,000 beneficial
conversion option of shares as interest expense under EITF 00-27.(3)
    
    To reflect a $452.091 gain on extinguishment of debt reclassified
from miscellaneous income and to properly record debt conversion loss
of $252,000 under FAS 84. 9




---



##### Table of Contents



3. Other Assets
 Deposits and restricted assets
  March 31,
    
    
    December 31,2008
    
    
    2007Deposits to a related party
    
    $
    500,000
    
    
    $
    Restricted cash for a lease
    
    
    135,000
    
    
    
    Total deferred assets
    
    $
    635,000
    
    
    $
    
 10




---



##### Table of Contents



4. Accounts payable and accrued liabilities
  March 31,
    
    December 31,2008
    
    2007Accounts Payable
    
    $
    772,707
    
    
    $
    566,146Accrued Liabilities
    
    $
    330,019
    
    
    $
    205,503
   5. Notes payable
   Application of Issue 98-5 to Certain Convertible Instrument,
  11




---



##### Table of Contents



6. Income taxes
   7. Stockholders equity
  12




---



##### Table of Contents



Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.
   Induced  Conversions of Convertible
Debt
  Exercise Price
    
    
    Calculated Fair ValueDate of Acceptance of the Deliverables
    
    per Share
    
    

of warrants*On or prior to March 30, 2009
    
    $
    0.06
    
    
    $
    3,476,000On or after March 31, 2009 but on or prior to July 30, 2009
    
    $
    0.15
    
    
    $
    3,365,000On or after July 30, 2009 but on or prior to December 30, 2009
    
    $
    1.33
    
    
    $
    1,956,000On or after December 30, 2009 but on or prior to February 28, 2010
    
    $
    2.67
    
    
    $
    907,000
 
     Warrant
    
    Number of
    
    Exercise
    
    Expected
    
    Risk Free
    
    ValuationGroup
    
    Warrants
    
    Price
    
    Term in Years
    
    Rate
    
    ComputationSeries A
    
    
    1,648,960
    
    
    $
    4.25
    
    
    
    5
    
    
    
    3.63
    %
    
    $
    1,038,754Series J-A
    
    
    769,822
    
    
    $
    6.91
    
    
    
    1
    
    
    
    4.25
    %
    
    $
    3,249Series J
    
    
    2,309,468
    
    
    $
    4.33
    
    
    
    1
    
    
    
    4.25
    %
    
    $
    170,926Consultants
    
    
    600,000
    
    
    $
    4.25
    
    
    
    5
    
    
    
    3.63
    %
    
    $
    377,967Triple Ring
    
    
    1,320,000
    
    
    $
    1.33
    
    
    
    2
    
    
    
    3.98
    %
    
    $
    1,956,000
 Series A Convertible Preferred Stock NovaRay Medical Inc.
  March 31, 2008
    
    December 31 ,2007Liquidation
    
    
    
    
    
    
    
    
    
    LiquidationAuthorized
    
    Issued
    
    Preference
    
    Authorized
    
    Issued
    
    PreferenceSeries A (NovaRay
Medical, Inc.)
    
    
    10,000,000
    
    
    
    4,946,888
    
    
    $
    
    
    
    
    10,000,000
    
    
    
    4,946,888
    
    
    $
    
 13




---



##### Table of Contents



Common stock
  March 31, 2008
    
    December 31 ,2007Authorized
    
    Issued
    
    Authorized
    
    IssuedCommon Stock
(NovaRay Medical,
Inc.)
    
    
    110,000,000
    
    
    
    9,767,853
    
    
    
    110,000,000
    
    
    
    9,767,853
  Treasury stock
  8. Related party transactions
 Triple Ring Technologies, Inc.
  Date ofAcceptance ofthe
    
    Exercise PriceDeliverables
    
    per 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
  14




---



##### Table of Contents



NovaRayMedical
    
    Triple RingName
    
    Affiliation
    
    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
    %
  Number ofSeries AName
    
    WarrantsBioBridge LLC
    
    
    33,044Lynda Wijcik
    
    
    40,646Wheatley MedTech Partners, LP
    
    
    47,544W Capital Partners II, L.P.
    
    
    147,647Heartstream Capital B.V
    
    
    90,632359,513
 Restricted Stock Purchase Agreement
  9. Commitments and contingencies
    15




---



##### Table of Contents



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
 10. Subsequent Events
  16




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
   17




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Fair Values of Financial Instruments
  18




---



##### Table of Contents



Property and equipment
  Research and Development
  Stock-based compensation
 Share-Based Payment
 Warrants
 Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services.
 
 Results of Operations
 Research and Development
  General and Administrative
  19




---



##### Table of Contents



Interest Expense
  Liquidity and Capital Resources
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  20




---



##### Table of Contents



Item 4T. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures.
     
    
    In July 2007, we engaged a third party consultant to assist in day to day accounting matters .
    
    In July and August 2007, we upgraded our knowledge of accounting pronouncements related to debt
extinguishment and conversion through training and study on the relevant pronouncements
related to debt extinguishment, debt conversion and the related accounting for warrants issued
during a debt conversion and warrants issued in exchange for services.
  Changes in Internal Controls
  
 PART II  Other Information
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  21




---



##### Table of Contents



Item 5. Other Information.
  
 Item 6. 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
    
    Complete Copy of the Certificate of Incorporation, as amended.(5)3.2
    
    Bylaws.(2)3.3
    
    Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible
Preferred Stock of the NovaRay Medical, Inc.(3)10.1
    
    Lease Agreement by and between NovaRay, Inc. and BRCP Stevenson Point, LLC dated March 13,
2008.(4)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 Exhibit 2.1 to the Registrants Current Report on
Form 8-K filed with the SEC on December 28, 2007.(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 Exhibit 3.4 to the Registrants Current Report on
Form 8-K filed with the SEC on December 28, 2007.(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.(5)
    
    Incorporated by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q filed with the SEC on May 14, 2008. 22




---



##### Table of Contents



SIGNATURES
  NOVARAY MEDICAL, INC.By:
    /s/ Jack E. PriceJack E. PricePresident and Chief Executive OfficerBy:
    /s/ Marc C. WhyteMarc C. WhyteChief Financial Officer and Chief
Operating Officer 23