UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




AMENDMENT
NO. 2 ON FORM 10-K/A





(Mark
One)





x
            Annual report under Section 13
      or 15(d) of the
      Securities Exchange Act of 1934. For the fiscal year ended December
      31, 2007.





OR





£
            Transition report under Section
      13 or 15(d) of the
      Securities Exchange Act of 1934 for the transition period from
      __________ to __________.





Commission
File Number: 333-132621




NEWCARDIO,
      INC.(Exact
      name of registrant as specified in its
charter)







Delaware
            
            20-0197939(State
      or other jurisdiction of
            
            (I.R.S.
      EmployerIncorporation
      or organization)
            
            Identification
      No.)







2350
      Mission College Blvd., Suite 1175, Santa Clara CA 95054(Address
      of principal executive offices)





Registrant’s
telephone number, including area code: (408) 516-5000





Securities
Registered Pursuant to Section 12(b) of the Act: None





Securities
Registered Pursuant to Section 12(g) of the Act: Common Stock, $0.001 par
value








Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. £Yes x No




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.    Yes x    
No £




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.    ⁭Yes   
x No














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





Large accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer o
            Smaller
      reporting company x





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




At
December 31, 2007, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the
registrant:  N/A




The
number of shares of the registrant’s common stock outstanding as of August 6,
2008 was 20,655,914.







EXPLANATORY
NOTE




This Amendment No. 2 on Form 10-K/A
("Amendment No. 2") to our Annual Report on Form 10-K/A for the year
ended  December 31, 2007, initially filed with the Securities and
Exchange Commission (the “SEC”) on March 31, 2008and amended on April 4,
2008 (the "Original Filing"), reflects a restatement of the Consolidated
Financial Statements of NewCardio, Inc. as discussed in Note 13 to the
Consolidated Financial Statements to correct errors relating to the treatment of
our redeemable Series A Convertible Preferred Stock (the “Preferred Stock”) and
related warrants issued in our December 27, 2007 private placement and fees and
warrants issued in connection with the private placement.





This
Amendment No. 2 only amends and restates Item 1A of Part I, Items 7 and 9A
of Part II and Item 10 of Part III of the Original Filing and we have
revised language in these Items from the Original Filing to reflect the
restatement of our Consolidated Financial Statements and to correct certain
other errors.  No other information in the Original Filing is amended
hereby.  The foregoing items have not been updated to reflect other
events occurring after the initial Original Filing or to modify or update those
disclosures affected by subsequent events.  In addition, the exhibit
list in Item 15 of Part IV has not been updated except to reflect
currently dated certifications from our Chief Executive Officer and Chief
Financial Officer, as required by Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002, are filed with this Amendment No. 2 as Exhibits 23,
31.1, 31.2, 32.1 and 32.2.





While the
remainder of the Original Filing is unchanged, this Amendment No. 2 is an
amendment and restatement of the Original Filing in its entirety in order
to provide a complete presentation.




Except as
stated herein, this Amendment No. 2 does not reflect events occurring after the
date of the filing of the Original Filing.


2




TABLE OF
CONTENTS





PART
      IItem
      1.
            Business
            4Item
      1A.
            Risk
      Factors
            15Item
      1B.
            Unresolved
      Staff Comments
            21Item
      2.
            Properties
            22Item
      3.
            Legal  Proceedings
            22Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            22PART
      IIItem
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            22Item
      6.
            Selected
      Financial Data
            22Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            23Item
      7A.
            Quantitative
      and Qualitative Disclosures about Market Risk
            28Item
      8.
            Financial
      Statements and Supplementary Data
            28Item
      9.
            Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
            28Item
      9A.
            Controls
      and Procedures
            29Item
      9B.
            Other
      Information
            29PART
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            30Item
      11.
            Executive
      Compensation
            32Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            34Item
      13.
            Certain
      Relationships and Related Transactions and Director
      Independence
            35PART
      IVItem
      14.
            Principal
      Accountant Fees and Services
            36Item
      15.
            Exhibits,
      Financial Statement Schedules
            36SIGNATURES
            38EX-31.1EX-31.2EX-32.1EX-32.2


3


PART
I





Item
1.  Business.





Business
Development





NewCardio,
Inc., a Delaware corporation (“NewCardio”), through its wholly-owned subsidiary,
NewCardio Technologies, Inc., a Delaware corporation (“NewCardio Technologies”),
is a development-stage cardiac diagnostic company focused on the research,
development and commercialization of software and hardware products and services
for the non-invasive diagnosis of and monitoring of cardiovascular disease
(“CVD”), as well as the cardiac safety assessment of new drugs under
development.  We are developing products that we believe will improve
diagnostic screening for cardiac disease and changes in cardiac status. We are
currently focused on the development of a proprietary platform technology for
our products, which we believe will improve the diagnostic accuracy and value of
the standard 12-lead electrocardiogram (“ECG").  Our 3-D ECG platform
is designed to reduce the time and expense involved in assessing cardiac status,
while increasing the ability to diagnose clinically significant conditions which
were previously difficult or impossible to detect, using currently available
electrocardiographic techniques.  We expect a key application of our
technology to be the assessment of cardiac safety for new drugs under
development.




NewCardio
was incorporated in the State of Delaware on September 2, 2003, under the name
EP Floors, Inc. (“EP Floors”).  NewCardio Technologies was
incorporated in the State of Delaware on September 7, 2004 under the name
NewCardio, Inc.  On November 16, 2006, in connection with the sale of
substantially all of the shares of common stock, EP Floors ceased operations and
became a shell corporation.  On November 20, 2006, EP Floor’s
corporate name was changed to Marine Park Holdings, Inc. (“Marine
Park”).  From November 16, 2006 through December 27, 2007, Marine Park
was a shell company.  On December 27, 2007, Marine Park consummated a
reverse merger by entering into a share exchange agreement with the stockholders
of NewCardio Technologies (the “Share Exchange”), pursuant to which the
stockholders of NewCardio Technologies exchanged all of the issued and
outstanding capital stock of NewCardio Technologies for 18,682,537 shares of
common stock of Marine Park, representing 92% of Marine Park’s outstanding
capital stock, after the return to treasury and retirement of 9,445,015 shares
of common stock of Marine Park held by certain stockholders of Marine Park made
concurrently with the share exchange.  As of December 27, 2007, Marine
Park’s officers and directors resigned their positions and Marine Park changed
its business to NewCardio Technologies’ business.  As a result, the
historical discussion and financial statements included in this Annual Report on
Form 10-K are those of NewCardio Technologies.  On January 17, 2008,
Marine Park’s corporate name was changed to NewCardio, Inc. and NewCardio’s
corporate name was changed to NewCardio Technologies, resulting in the current
corporate structure in which NewCardio, Inc., is the parent corporation, and
NewCardio Technologies, Inc., is its wholly-owned subsidiary.





General





In the
United States in 2005, costs for CVD diagnostic tests approached $5 billion,
according to the American Heart Association Statistics Committee, Heart Disease
and Stroke - 2007 Update. We believe this market will continue to increase,
drive market growth for novel and improved CVD diagnostic tools. Such market
growth may occur because of one or more of the following trends:




●
            the
      US population is aging and the incidence of CVD rises with
      age;




●
            health
      care providers continue to search for more effective, efficient, and less
      expensive diagnostic and therapeutic
solutions;




●
            the
      prevalence of obesity and Type II diabetes continue to increase worldwide,
      and this will significantly increase the incidence of CVD and adverse
      cardiovascular events in the future;
and




●
            under-diagnosis
      of CVD in women is increasingly appreciated as a significant public health
      problem, and there is a particularly acute need for improved diagnostic
      tools to address this issue.




NewCardio
intends to compete in two large segments of the CVD diagnostic market:
(1) cardiac safety services for drug development, and (2) CVD
diagnostics.


4





Cardiac
Safety Market for Drug Development





Unexpected
cardiac toxicity is a common cause of delays in drug development, abandonment of
otherwise-promising drug candidates, and withdrawal of previously approved drugs
from the market.  One of the most important consequences of such
toxicity is life-threatening arrhythmia, which usually results from drug-induced
alterations in cardiac electrical activity and in some instances were implicated
as causes of sudden cardiac death. Some drugs have recently been associated with
a different kind of cardiac toxicity, that is, increased risk of myocardial
infarction (“MI”), heart failure, and/or stroke.




Such
increased risk could go undetected during drug development. Clinical
trials generally involve at most 10,000 patients, but drug-induced arrhythmia is
usually a rare event, typically 1 in 100,000 patients or less. Similarly,
drug-induced increases in MI and stroke are subtle and usually not appreciated
from clinical trial data. Thus, cardiac toxicities of drugs in many
cases becomes apparent only after a drug is marketed to millions of
users.




Because
of the difficulty in detecting cardiac toxicity, surrogate diagnostic markers
are used during drug development to detect increased cardiac risk. The most
important such surrogate marker is the drug-induced changes in the QT
interval on the ECG. "QT" is the time interval that is measured on the ECG
signal from a part of the signal labeled "Q", start of depolarization, through
"T," end of repolarization. The United States Food and Drug Administration
(the “FDA”) and other drug regulatory bodies now require extensive ECG data on
all drugs in clinical development, with a particular focus on drug-induced QT
interval changes. Many of the new standards are set forth in the E14 Guidance
for Industry published jointly by the FDA and the International Committee on
Harmonisation in October 2005 (the E14 Guidance) at www.fda.gov/cder/guidance/6922fnl.htm.
The primary focus of the E14 Guidance is a detailed assessment of a drug's
effects on ECG parameters, particularly the QT interval.




One of
the most striking new standards in the E14 Guidance is the requirement for a
single trial, called a “Thorough QT Study” (TQTS), whose purpose is to define
the drug’s effect on the QT interval. The TQTS must assure regulators that the
drug does not prolong QT interval more than a minimal amount. A drug that
“fails” this test may still be developed, but later phase trials now must
include substantially more detailed cardiac safety data. This may result in
additional development costs and may add at least 1-2 years to the development
process. In practice, a failed TQTS will often lead drug sponsors to abandon an
otherwise-promising drug.




Meeting
the standards of the E14 Guidance is made even more challenging by the
difficulty of measuring drug-induced QT prolongation on ECG. At present, QT
intervals are assessed by cardiac safety core labs in a manner that is
labor-intensive, expensive and often of uneven quality. Computerized algorithms
have not been able to effectively solve this problem. Among other factors, such
algorithms are limited by the same difficulties that human readers face,
particularly precisely defining a low-amplitude event surrounded, and sometimes
buried within, electrical noise. At present, most expert observers regard them
as unreliable for cardiac safety assessment in drug development, and the E14
Guidance unequivocally recommends manual assessment.




As a
consequence of these developments, drug sponsors are devoting an increasing
amount of time and resources to cardiac safety issues. Currently, about 2000 new
drugs (referred to herein as “New Chemical Entities,” or “NCE”) are being
studied as discussed forth at http://newmeds.phrma.org/. Each NCE that reaches
market will typically need 10,000 - 50,000 ECG’s, and if the product is intended
for treatment of a cardiovascular disease, possibly as many as 100,000 ECGs or
more for analysis of cardiac safety. Indeed, depending upon the NCE, a single
TQTS may require 30,000 ECGs or more. What is needed is a reliable, accurate,
precise and fully automated method of measuring drug effects on QT intervals and
other ECG indicators of cardiac risk.





CVD
Diagnostics Market





In the
CVD diagnostic market, NewCardio intends to compete in a large segment described
as Cardiac Monitoring and Diagnostic Services comprised of point-of-care
technologies and services, which account for approximately 65% of the total
available market, and ambulatory (outpatient) monitoring for cardiac disease,
which accounts for approximately 35% of the total available market. In the
future, we expect that the ambulatory segment will see faster growth following
the general trend of increased outpatient diagnosis procedures, as well as
technological improvements that make remote digital monitoring more
feasible.




While
advanced CVD diagnostic testing (such as cardiac magnetic resonance imaging and
multidetector computed tomography) have important roles, they are not suited for
initial screening of patients with suspected cardiac disease, and there remains
an unmet need for better CVD diagnostic screening tools. NewCardio intends to
provide such tools, targeted primarily to two subsegments of the CVD diagnostic
market:


5





Stationary
Cardiac Screening and Diagnostics:




●
            patients
      who enter the emergency department or other acute care facilities must be
      quickly and accurately evaluated for potentially life-threatening acute
      cardiac disease;




●
            other
      ambulatory or hospitalized patients with or without a cardiac disease
      diagnosis may need to be screened for their level of risk, the presence of
      disease, or disease progression.





Ambulatory
Cardiac Monitoring:




●
            patients
      with difficult to assess or transient cardiac symptoms require long-term,
      real-time monitoring for diagnosis and
  evaluation;




●
            patients
      with established cardiac disease may need longer-term ambulatory
      monitoring to assess the effectiveness of therapy or establish the need
      for additional diagnostic tests or therapeutic
    interventions.





Principal
Products and Applications





Our novel
core technology platform provides real-time, 3-D analysis of the heart's
electrical activity, as detected at the body surface by standard 12-lead ECG
electrodes. ECG input signals are typically sampled at 500 Hz (500 times per
second). Each signal is then normalized to present equidistant signal source
representation from the body surface electrodes, and then mathematically
processed to generate 3-D visual representations and other useful diagnostic
tools on a high resolution time basis. The ECG signal processing can be fully
performed on a laptop computer so that the 3-D visual output is immediately
available to the physician alongside the 12-lead standard ECG.  We
have exploited our core technology platform to develop three initial products, ,
QTinnoTM, VisualECGTM, AND CardioBipTM, which are in various stages of development,
as follows:





QTinnoTM





QTinnoTM is a
novel fully automated software tool suite that we believe provides fast,
accurate and precise QT interval data from a broad range of
ECGs.  QTinnoTMis
intended for use by ECG core laboratories and Clinical Research Organizations
(“CROs”) as a replacement for manual/human ECG readers.  QTinnoTMwill
measure QT and other relevant intervals from ECG computer files.  It
will annotate ECG images and calculate numerical results.




QTinnoTM can be
installed and used on any computer.  It does not require a dedicated
computer and no special hardware is required to operate the
software.  Laboratories and CROs will continue to use their ECG
hardware to obtain standard ECG recordings.  They will then create
digital files of these ECG recordings in order to use QTinnoTMsoftware.  QTinnoTMwill
receive the ECG input signal via any standard means of transporting a digital
computer file, such as a CD/DVD, USB drive or a network.




The
QTinnoTM
algorithm first processes the input signal into a 3-D representation of cardiac
electrical activity over time. It then generates “virtual” ECG leads based on
3-D information that include balanced and complete information from all parts of
the heart. This improves signal-to-noise ratio and shows difficult-to-detect
events with substantially greater clarity than the standard 12-lead display.
This enables reliable, automated identification of key cardiac events, including
the QT interval.




The
QTinnoTM
software comprises many features that make fully automated QT interval
assessment more reliable and easier to evaluate.




QT
ClientTM, a
standalone Java software tool for viewing and adjudication of QTinnoTM batch
job results, includes convenient visual presentation of waveforms, QTinnoTM
annotations, numerical results, and instant visual and numerical feedback when
manual adjustments are made. It stores complete editing history with full audit
trail capability.


6


VisualECGTM





The
VisualECGTM is a
set of algorithms and tools that provide a comprehensive method to describe
cardiac electrical activity in time and space. VisualECGTM
extracts additional information from standard 12-lead ECG signals and uses it to
generate a 3-D representation of cardiac electrical activity as a function of
time. To further enhance understanding and interpretation, the program
superimposes the diagnostically relevant electrical information on an intuitive,
revolving 3-D anatomic model of the heart. The VisualECGTM also
includes algorithms for real-time vectorial analysis and normalization tools to
ensure accurate representation of all heart regions. We believe that this
enables the VisualECGTM to
detect potentially fatal diseases such as acute coronary syndromes with far
greater sensitivity and specificity than is possible with the standard
ECG.




Importantly,
the VisualECGTM
requires no change in standard ECG practice. The ECG is obtained exactly as it
is now, with the electrodes placed in the same locations and no need for
additional electrodes. Moreover, the VisualECGTM
provides the 12-lead display along with its novel 3-D analytical presentations,
to allow correlations between displays and provide reassurance that no
information has been lost. We believe this will be highly important in promoting
acceptance of the VisualECGTM by the
medical community.





CardioBipTM





The
prototype of CardioBipTM is a
mobile ECG transtelephonic system comprised of a mobile ECG recording and
transmitting device, and a diagnostic center which receives, processes and
analyzes the data. The purpose of CardioBipTM is to
allow a patient to record ECG data with a mobile recorder, by placing it on the
patient’s chest, using three integrated electrodes to make contact. The patient
would touch two points on the recorder with each hand, thereby providing two
additional electrodes.  No wires are required.




The
recorder will wirelessly transmit it to a diagnostic center, where a
standard 12-lead ECG will be reconstructed from a calibrated, patient-specific
transformation matrix.  The data will also be analyzed with the
VisualECGTM array
of 3-D analytical tools. A physician will then evaluate the information,
enabling more accurate and timely diagnoses of acute cardiac events, and
facilitating immediate intervention in life-threatening situations or as part of
a routine remote checkup.




CardioBipTM  is
not currently being developed beyond this prototype stage.  Our
current strategic priority is to first introduce both QTinnoTM and
VisualECGTM and
then later complete the development of CardioBipTM.





Clinical
Studies





QTinnoTM- Completed Internal
Studies





QTinnoTMperformance in drug-induced QT
prolongation. We conducted an internal study of QTinnoTM
performance in ECGs from 26 normal volunteers who had a total of 104 ECGs,
obtained at baseline and at 3 time points after receiving a known QT prolonging
drug. Results obtained with QTinno closely matched that of careful manual reads
by cardiologists, yet did so in a fully automated and highly precise manner. The
study demonstrated that QTinno was accurate, precise and reliable for QT
determination in this population, which is typical of that used in Thorough QT
Studies and other early phase clinical trials.




QTinnoTMperformance in complex ECGs.
We obtained over 5000 ECGs from patients with a broad range of heart diseases,
and ECGs having various artifacts including low-frequency and high-frequency
electrical noise, muscle artifact and other confounding factors. We used this
set to further improve QTinnoTM
performance. This internal study demonstrated that QTinnoTM
delivers highly accurate and reproducible results even in very difficult
ECGs.




QTinnoTM- Completed External
Studies





QTinnoTMperformance in drug-induced QT
prolongation. This was a re-analysis with QTinnoTM of 1963
ECGs from patients treated with a QT prolonging drug. As was the case in our
internal studies, results obtained with QTinnoTM closely
matched that of careful manual reads by cardiologists, yet did so in a fully
automated and highly precise manner.  No material negative results
were found.  It is expected that results from the study will be
suitable for presentation at national cardiology meetings, and for submission to
a peer-reviewed medical journal.


7


QTinno
- Planned External Studies





QTinno performance in Thorough QT
Study ECGs. This will be a re-analysis with QTinnoTM of ECGs
from a recent Thorough QT Study analyzed by a cardiac safety contract research
organization (CRO). We expect the study will begin in Q1 2008, and will involve
about 7000 ECGs. Results from QTinno will be compared to the results from manual
reads previously submitted to the FDA, and to results from an existing automated
algorithm, which was not submitted but which is on file with the CRO. It is
expected that results from the study will be suitable for presentation at
national cardiology meetings, and for submission to a peer-reviewed medical
journal.




Upon
successful completion of the external validation studies described above, we
intend to engage a major CRO potential customer and perform a joint QTinno
validation study.





VisualECGTM- Completed Internal
Study





European pilot trial of
VisualECGTM diagnostic sensitivity for
angioplasty-induced ischemia. The study compared sensitivity of the
VisualECGTM to the standard ECG in detecting ischemia induced by balloon coronary
occlusion. Continuous ECG data was obtained from 51 patients during 117 separate
coronary balloon occlusions of at least 90 seconds. The study revealed that the
standard ECG became diagnostic for ischemia in 67% of the occlusions, whereas
the VisualECGTM was
diagnostic in 90%. The gain in sensitivity was most marked for occlusions in the
circumflex and right coronary artery distributions, the regions in which the
standard ECG has the lowest sensitivity due to sensor distance from the
heart.





VisualECGTM - Completed
External Study





Beth
Israel Deaconess Medical Center (BIDMC) - Harvard University Study of
VisualECGTM  in Acute MI. This study addressed whether the standard ECG
or the VisualECGTM could
more accurately detect early-stage acute MI.  The study included 133
consecutive BIDMC patients with clinically suspected acute MI, who were admitted
to the CCU, and who had coronary intervention within 6 hours of
admission.  The first ECG obtained in the BIDMC emergency department
was retrieved for each patient.  In each instance, this ECG data was
used to generate a VisualECGTM. The
standard ECG and VisualECGTM were
evaluated by independent, blinded observers for indicators of acute MI and
results were compared.




The study
showed that the standard ECG in these patients was diagnostic of acute ischemia
for about 66% of patients, whereas the VisualECGTM was
diagnostic in about 81% of patients.  No material negative results
were found.





VisualECGTM- Planned External
Studies





VisualECGTM Markers of Ischemia in Emergency
Department Patients With Chest Pain. We intend to collaborate with one or
more Emergency Departments (ED) to obtain digital ECGs and corresponding
clinical information from at least 500 patients presenting to the ED with chest
pain from various causes. We intend to use this database to develop a suite of
novel markers capable of identifying acute cardiac syndromes with a high degree
of sensitivity, specificity and diagnostic predictive value.





Marketing
and Sales





QTinnoTM





We intend
to market QTinnoTM as a
fully automated software tool that provides:




●
            diagnostic speed,
      requiring only about several to process a typical Thorough QT study,
      orders of magnitude, substantially faster and less labor-intensive than
      the current gold standard manual
read;




●
            diagnostic accuracy and
      precision in assessing amount of drug induced QT prolongation, with
      results comparable to the current gold standard manual read but with
      substantially less variance; and


●
              cost savingsby substantially
      reducing amount of human labor and time required to conduct Thorough QT
      studies and other drug cardiac safety
studies.


8




We
believe our key target customer segments are the pharmaceutical and
biotechnology industries, contract clinical research organizations, and academic
clinical research organizations.




We intend
to hire an experienced and proven internal sales and marketing organization,
commencing in Q1 2008.  We anticipate it will take nine to twelve
months to put this corporate infrastructure into place, along with support staff
to enable a successful launch of QTinnoTM.




We intend
to use traditional and advanced methods to enter the market, supporting a direct
sales effort with an integrated marketing plan to raise product and service
awareness to assist in generating sales leads. The key components of a branded
marketing plan will likely include, for example:




●
            a
      public and media relations campaign focused on industry trade journals and
      business media outlets; appearances at trade shows to make professional
      presentation and make direct contact with interested
      prospects;




●
            maintaining
      a robust website to reflect the brand and positioning of NewCardio, raise
      awareness and encourage site visitors to make direct inquiries to the
      company;




●
            maximizing
      the number and quality of presentations at high-profile national
      scientific meetings, such as the American Heart Association, the European
      Society of Cardiology, the American College of Cardiology, the Heart
      Rhythm Society and other key professional
  organizations;




●
            ensuring
      high-quality scientific and clinic research and seeking to publish results
      in top-tier, peer-reviewed scientific journals such as the New England
      Journal of Medicine, JAMA, Circulation, Journal of the American College of
      Cardiology, American Journal of Cardiology, American Heart Journal,
      Clinical Cardiology, and the like;




●
            retaining
      respected consultants and medical writers to ensure well written,
      authoritative review articles in widely read educational journals, such as
      Progress in Cardiovascular Disease, Clinical Cardiology, Cardiology Today,
      Drug Information Journal, Good Clinical Practice Journal, and the
      like.




●
            retaining
      independent consultants to develop continuing medical education (CME)
      presentations at high visibility web sites, such as theheart.org,
      medscape, vbwg.org, and dia.org.




●
            internet
      Advertising, Direct Mail and email, and Webinars to inform interested
      parties with a closer look at NewCardio products and services. All of
      these mechanisms will be conducted as part of a branded and integrated
      marketing campaign and will be measured through an internet-based CRM
      system that hosts a central prospect and customer database and measures
      campaign effectiveness.




Research
and Development





We plan
to focus our short and medium term development efforts on QTinnoTM, Visual
ECGTM and CardioBipTM
products. In the longer term we will pursue other key markets by researching
ways to apply our 3-D ECG modeling and interpretation technology to key
cardiovascular conditions and disease.




QTinnoTM is
nearly ready for commercial deployment. Key areas of further development include
input/output user interface to be able to accommodate even larger number of
various digital ECG formats and output formats for seamless integration with
customer’s data handling systems. It is expected that upcoming validation
studies will point out small improvement opportunities for various QTinnoTM
software building blocks.


9


VisualECGTM
product development will focus on tools and methods for substantially increasing
the specificity of VisualECGTM when
compared with the standard 12-lead ECG. The goal of this development is a fully
automated VisualECGTM tool
that will enable emergency room physicians to obtain much increased diagnostic
value when compared with the standard 12-lead ECG. Development areas beyond
increased specificity and sensitivity include more precise localization of the
ischemic area of the heart as well as a better estimate of the size of the heart
attack (infarct).




CardioBipTM
products will undergo an electrical and mechanical redesign which will include a
software update. The purpose is to further increase noise rejection performance
of the device and to deliver a low power system and software design. A key
feature that will be pursued is the openness for an easy integration with
existing hand held PDA/mobile phone platforms.





Competition




We have
many competitors for all three of our main product lines. The largest of these
competitors, GE Healthcare, Phillips Medical Systems, Mortara, and Welch-Allyn,
have significant competitive advantages in ECG diagnostics and currently control
a combined 90+% of the US market. Market advantages of these larger providers
include widespread adaptation by hospitals of complete ECG recording,
transmission, and data storage systems, of which eCG analysis software is an
integral part. This vertical integration makes it difficult for smaller
providers of ECG analysis software to gain market share. However, we believe our
3-D approach and novel analytical algorithms offers substantial competitive
advantages over the analysis programs of larger ECG service providers, including
increases in diagnostic sensitivity, specificity and predictive value for acute
coronary syndromes (heart attacks and related conditions), and increased
accuracy, precision, and full automation in obtaining data on QT interval
effects of drugs, which the FDA requires from all drug developers.




Following
are the companies, and products, that we consider to be our primary
competitors:




GE Healthcare. The
Marquette 12SL ECG Analysis program measures and analyzes recorded cardiac
signals, then provides an interpretation of the ECG waveforms. It provides an
automated analysis of rhythm and cardiac intervals including QT interval. It
also has an algorithm for measuring microvolt T-wave alternants, a specialized
form of T-wave analysis that may be used to identify individuals with diseased
hearts who would benefit from an implantable defibrillator.




Phillips Medical
Systems. The Philips 12-Lead Algorithm analyzes ECG waveforms recorded
over a ten-second period, uses the recorded complexes to generate a
representative "median beat" in each lead, interprets this derivative
information and produces a computer-annotated report. It provides automated
analysis of cardiac intervals including QT interval, and supports reporting,
storage and transmission of data in XML format that is now required by the U.S.
Federal Drug Administration (“FDA”).




Mortara provides the
ELI line of ECG hardware, interpretive software marketed under the VERITAS
trademark, and the E-Scribe ECG data management system. The latter product is
used by the FDA for selective review of ECGs submitted to the FDA ECG warehouse.
In addition, Mortara has a Certified Partners Program which allows the partner
to use E-Scribe to submit ECG data to the warehouse, and if desired, to use
VERITAS and E-scribe to evaluate and annotate the ECGs. The system includes
automated analysis of QT intervals and supports reporting, storage and
transmission of data in XML format. The Certified Partners and E-Scribe give
Mortara a significant competitive advantage in the drug safety market, since
they make it convenient for the customer to submit a complete package of digital
ECG data in an acceptable format to the FDA.




Welch-Allyn markets
ECG hardware (CP-200 systems), interpretive software, and ECG data management
software (CardioPerfect Workstations). It commands a significant portion of the
clinical diagnostic market but is only infrequently used for clinical research
in drug development.




Cardiac Science
markets ECG hardware (Eclipse Premier) and centralized ECG data management
systems through its wholly-owned Quinton subsidiary. It uses the Mortara VERITAS
system as OEM software for ECG analysis (which does not include the E-Scribe
battery of ECG submission tools). These systems are not extensively used in
clinical research for drug development.


10


iCardiac, a recently
formed company, intends to provide a range of cardiac safety CRO services for
Pharma. Its primary ECG interpretive technology is called COMPAS, and is
intended to provide novel biomarkers other than QT interval for drug-induced
cardiac toxicity. These markers have not yet been validated. Pfizer's capital
investment arm recently invested in this company.




OBS Healthcare is a
wholly owned subsidiary of Oxford BioSignals, a newly formed, UK-based company.
Its products include hospital monitoring devices and BioSign integrated software
for providing early warnings of deteriorating patient condition. For cardiac
safety and QT analysis, they provide BioQT software for statistical analysis of
ECG waveforms based on a proprietary approach (hidden Markov model). ). To date,
no validating data is publicly available.




Monebo intends to
provide a comprehensive system for real-time assessment of cardiac health. Its
products include three subsystems, the CardioBelt, a Holter-type device for ECG
acquisition; an ECG analysis algorithm, which detects key events by identifying
local minima, maxima, or changes in voltage direction; and risk stratification
software which seeks to define risk based on results of ECG analysis. To date,
they have not provided validating data for any of their subsystems.





Intellectual
Property





The
medical products industry, including medical software and  hardware
technology products, places considerable importance on obtaining patent and
trade secret protection for new technologies, products and processes. Our
success will depend, in part, on our ability to obtain patent protection for our
products, to preserve our trade secrets and to avoid infringing the proprietary
rights of third parties.




We hold
certain patent rights, have certain patent applications pending and expect to
seek additional patents in the future.  However, we cannot assure the
success or timeliness in obtaining any such patents or the breadth or degree of
protection that any such patents might afford us. The patent position of medical
software and hardware technology products is often highly uncertain and usually
involves complex legal and factual questions. There is a substantial backlog of
patents at the United States Patent and Trademark Office. No consistent policy
has emerged regarding the breadth of claims covered in medical technology
product patents. Accordingly, we cannot assure that patent applications relating
to our products or technology will result in patents being issued, that, if
issued, such patents will afford adequate protection to our products or that our
competitors will not be able to design around such patents. In that regard, a
company's research and development efforts, supplemented by the timing
protection afforded by protective patents, are what leads to a competitive
advantage.




We
believe that we own all our intellectual property and proprietary
technology.  Most of our intellectual property and proprietary
technology was developed by consultants who either developed such intellectual
property and proprietary technology for us or assigned all rights to
intellectual property and proprietary technology they had previously created to
us, in both cases, pursuant to intellectual property invention and assignment
agreements.  We believe these invention and assignment agreements are
all valid and enforceable in accordance with their terms.  However, we
cannot assure that they are valid and enforceable or that they will not be
breached, and that we will have adequate remedies for any breach.




We also
seek to protect our proprietary technology, including technology that may not be
patented or patentable, in part through confidentiality agreements and
inventors' rights agreements with collaborators, advisors, employees and
consultants.  We cannot assure that these agreements will not be
breached, that we will have adequate remedies for any breach or that our trade
secrets will not otherwise be disclosed to, or discovered by,
competitors.




We have
not been required to obtain licenses to patents or other proprietary rights of
third parties to develop our products. We cannot assure that licenses will not
be required in the future for certain patents or proprietary rights or that such
licenses would be made available on terms acceptable to us, if at
all.  If we cannot obtain necessary licenses, we may encounter delays
in product development and market introductions while we attempt to design
around such patents or other rights, or we may be unable to develop, manufacture
or sell such products in certain countries, or at all.


11


The
following table summarizes the status of our patents and patent applications as
of the date hereof:





App
      Number/
              Filing
      Date
            
            Brief
      Summary
              (Products
      Covered)
            
            StatusPCT/
              YU2004/
              00020
              08/20/04
            
            Cordless
      recording and telecommunication of three special ECG leads and their
      processing
              (CardioBipTM)
            
            International
      Application now being examined in the US, China, Japan, Korea and the
      European Union (EU)
              First
      EU Patent Office Action 12/07: All 33 claims allowable
              EU
      Certificate of Patent Grant issued 2/08
              EU
      Patent expires 08/2024PCT/
              US2005/
              001239
              16
      Jan 05
            
            Visual
      3-D  presentation of ECG data
              (VisualECGTM,
      QTinnoTM)
            
            International
      Application now being examined in the China, Japan, Korea and the European
      Union (EU)US
      11/
              036,930
              16
      Jan 04
            
            Visual
      3-D  presentation of ECG data
              (VisualECGTM,
      QTinnoTM)
            
            US
      Patent Application covering same subject matter as PCT/US2005/001239
      International Application
              US
      Patent No. 7,266,488 issued 4 Sept 2007
              US
      Patent Expires 01/2025
              Application
      for grant of additional claims (Divisional US Patent
      Application)  filed 31 August 2007PCT/
              US2007/
              001612
              18
      Jan 06
            
            Device
      and methods for evaluating QT intervalsand
      other cardiac electrical events from ECGs(QTinnoTM)
            
            No
      Patent Office Actions yet receivedUS
      Provisional
              Patent
      Application
            
            Device
      and methods for evaluating cardiac
              electrical
      events(QTinnoTM)
            
            Filed
      8/1/07
              Provisional
      applications not examined but establish an invention priority date,
      provided that a non-provisional, standard US application is filed by
      8/1/08





At
present, our patents and patent applications are supplemented by substantial
intellectual property we are currently protecting as trade secrets and
proprietary know-how. This includes matter related to all three product lines.
We expect to file additional patent applications on a regular basis in the
future.




We
believe that our intellectual property and expertise constitutes an important
competitive resource, and we continue to evaluate the markets and products that
are most appropriate to exploit this expertise. In addition, we maintain an
active program of intellectual property protection, both to assure that the
proprietary technology developed by us is appropriately protected and, where
necessary, to assure that there is no infringement of our proprietary technology
by competitive technologies.




Government
Regulation





Our
products are medical devices and, thus, are subject to regulation by the FDA and
other regulatory agencies. FDA regulations govern, among other things, the
following activities that we perform and will continue to perform in connection
with medical devices:




●
            product
      design and development;




●
            product
      testing;


12





●
            product
      manufacturing;




●
            product
      labeling and packaging;




●
            product
      handling, storage, and
installation;




●
            pre-market
      clearance or approval;




●
            advertising
      and promotion; and




●
            product
      sales, distribution, and servicing.




FDA’s Pre-market Clearance and
Approval Requirements.The FDA classifies all medical devices
into one of three classes. Devices deemed to pose lower risks are placed in
either class I or II, which requires the manufacturer to submit to the FDA a
pre-market notification, known as both a PMN and a 510(k) clearance, requesting
clearance of the device for commercial distribution in the U.S. Some low risk
devices are exempted from this requirement.  Class III devices are
devices which must be approved by the pre-market approval (“PMA”)
process.  These tend to be devices that are permanently implanted into
a human body or that may be necessary to sustain life.  For example,
an artificial heart meets both these criteria.  Our products do not
fall into Class III categorization.




We
believe that QTinnoTM falls into the category of devices that are exempt from
requiring 510(k) pre-market clearance with the FDA.  This is because
QTinnoTM does not directly interact with a patient’s diagnosis and will be for
use in drug safety applications.  VisualECGTM and CardioBipTM fall into
Class II, as they are both electrocardiographs and
vectorcardiographs.  They must, therefore, first receive 510(k)
clearance or pre-market approval from the FDA before we can commercially
distribute them in the U.S.




510(k) Clearance
Process. For eachof VisualECGTM and
CardioBipTM, we must submit a pre-market notification to the FDA demonstrating
that the proposed device is substantially equivalent to a previously cleared
510(k) device, a device that was in commercial distribution before May 28, 1976
for which the FDA has not yet called for the submission of pre-market approval
applications, or is a device that has been reclassified from class III to either
class II or I. If a device being submitted is significantly different than a
previously cleared 510(k) device in terms of design, material, chemical
composition, energy source, manufacturing process, or intended use, the device
nominally must go through PMA.




The FDA’s
510(k) clearance process usually takes at least three months from the date the
application is submitted and filed with the FDA, but it can take significantly
longer. A device that reaches market via the 510(k) process is not considered to
be "approved" by the FDA. They are generally referred to as "cleared" or "510(k)
cleared" devices.  Nevertheless, it can be marketed and sold in the
United States.




After a
device receives 510(k) clearance, any modification that could significantly
affect its safety or effectiveness, or that would constitute a major change in
its intended use, will require a new 510(k) clearance or could require
pre-market approval. The FDA requires each manufacturer to make this
determination initially, but the FDA can review any such decision and can
disagree with a manufacturer’s determination. If the FDA disagrees with a
manufacturer’s determination, the FDA can require the manufacturer to cease
marketing and/or recall the modified device until 510(k) clearance or pre-market
approval is obtained.




Pervasive and continuing FDA
regulation.After a medical device is placed on the market, numerous FDA
regulatory requirements apply, including, but not limited to the
following:




●
            Quality
      System regulation, which requires manufacturers to follow design, testing,
      control, documentation and other quality assurance procedures during the
      manufacturing process;




●
            Establishment
      Registration, which requires establishments involved in the production and
      distribution of medical devices, intended for commercial distribution in
      the U.S. to register with the
FDA;


13





●
            Medical
      Device Listing, which requires manufacturers to list the devices they have
      in commercial distribution with the
FDA;




●
            Labeling
      regulations, which prohibit “misbranded” devices from entering the market,
      as well as prohibit the promotion of products for unapproved or
      “off-label” uses and impose other restrictions on labeling;
      and




●
            Medical
      Device Reporting regulations, which require that manufacturers report to
      the FDA if their device may have caused or contributed to a death or
      serious injury or malfunctioned in a way that would likely cause or
      contribute to a death or serious injury if it were to
    recur.




Failure
to comply with applicable regulatory requirements can result in enforcement
action by the FDA, which may include one or more of the following
sanctions:




●
            fines,
      injunctions, and civil penalties;




●
            mandatory
      recall or seizure of our products;




●
            administrative
      detention or banning of our
products;




●
            operating
      restrictions, partial suspension or total shutdown of
      production;




●
            refusing
      our request for 510(k) clearance or pre-market approval of new product
      versions;




●
            revocation
      of 510(k) clearance or pre-market approvals previously granted;
      and




●
            criminal
      penalties.




Government regulation of
QTinnoTMfor drug safety
applications. The evaluation of ECGs from clinical trials for drug
development are conducted under an Investigational New Drug or New Drug
Application. As such, they are governed by The Food Drug and Cosmetic Act and
regulations promulgated thereunder, primarily those set forth in Chapter 21 of
the Code of Federal Regulations (21 CFR). Although no specific regulations
govern use of electrocardiographic analytical tools in drug trials, QTinno must,
nevertheless, be compliant with substantial portions of 21 CFR, particularly 21
CFR Part 11 regulating collection and submission of electronic data to the FDA.
In addition, key personnel at the FDA must be intimately familiar with QTinno
performance and regard it as reliable before drug sponsors.




NewCardio
intends to pursue an expedited pathway for validation and market acceptance of
QTinno. The Critical Path Initiative is the FDA's program to stimulate a
national effort to modernize the drug development process. Improved cardiac
safety analysis, including improved ECG assessment, is a prominent feature of
this Initiative. To this end, the FDA has recently established the Cardiac
Safety Research Consortium (“CSRC”) and a digital warehouse of over 800,000 ECGs
submitted by Pharma sponsors in support of various New Drug
Applications.




The CSRC
is a committee of cardiac safety experts from industry, academia, the FDA, the
National Institutes of Health, and other public sector organizations. Its
mission is to advance cardiac safety of new and existing drugs, with an initial
focus is on QT prolongation and arrhythmia risk. We believe it will play key
role in evaluating new cardiac safety technologies such as QTinno, and in
assuring that technologies proven to be effective are rapidly disseminated and
adapted.




International Regulation.International sales of medical devices are subject to foreign government
regulations, which vary substantially from country to country. The time required
to obtain approval by a foreign country may be longer or shorter than that
required for FDA approval, and the requirements may differ
significantly.


14


The
European Union has adopted legislation, in the form of directives to be
implemented in each member state, concerning the regulation of medical devices
within the European Union. The directives include, among others, the Medical
Device Directive that establishes standards for regulating the design,
manufacture, clinical trials, labeling, and vigilance reporting for medical
devices. The VisualECG and the CardioBip may be affected by this legislation,
but we believe that it does not affect development or implementation of QTinno
for pharmaceutical development purposes. Under the European Union Medical Device
Directive, medical devices are classified into four classes, I, IIa, IIb, and
III, with class I being the lowest risk and class III being the highest risk.
Under the Medical Device Directive, a competent authority is nominated by the
government of each member state to monitor and ensure compliance with the
Directive. The competent authority of each member state then designates a
notified body to oversee the conformity assessment procedures set forth in the
Directive, whereby manufacturers demonstrate that their devices comply with the
requirements of the Directive and are entitled to bear the CE mark. CE is an
abbreviation for Conformité Européene (or European Conformity) and the CE mark,
when placed on a product, indicates compliance with the requirements of the
applicable directive. Medical devices properly bearing the CE mark may be
commercially distributed throughout the European Union. Failure to obtain the CE
mark will preclude us from selling the VisualECG, CardioBip and related products
in the European Union.





Employees




As of
December 27, 2007 we had two full-time employees and no part-time
employees.  Additionally, we have approximately 12 consultants who
perform various specialized services for us.  We have five consultants
in Belgrade, Serbia, who perform research and development for us.  We
have approximately six consultants who perform clinical and regulatory support
and compliance for us.  We have one consultant who advises us on sales
and marketing and the commercialization of our products.  We also
engage consultants for investor relations, accounting and legal
services.





Available
Information





We file
or furnish annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and any amendments to those reports filed or furnished
pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), with the SEC. These reports will be available as
soon as reasonably practical after such reports are electronically filed with,
or furnished to, the SEC.  All of these documents are available in
print without charge to stockholders upon request. Our SEC filings are available
to the public over the Internet at the SEC’s web site at http://www.sec.gov. You
may also read and copy any document we file at the SEC’s public reference rooms
in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room.





Item
1A.  Risk Factors.





The
following risk factors and other information included in this Annual Report on
Form 10-K should be carefully considered. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not
presently known to us or which we currently deem immaterial also may impair our
business operations. If any of the following risks occur, our business,
financial condition, operating results, and cash flows could be materially
adversely affected.





Risk
Factors Related to Our Business.





We
Are A Development Stage Company And May Never Commercialize Any Of Our Products
Or Earn A Profit.




We are a
development stage company and have incurred losses since we were formed. We have
incurred operating losses of $3,185,141 as of December 31, 2007 and incurred
cumulative losses since our inception on September 7, 2004 through, December 31,
2007 of $4,340,398. We currently have no products ready for commercialization,
have not generated any revenue from operations and expect to incur substantial
net losses for the foreseeable future to further develop and commercialize our
technology. We cannot predict the extent of these future net losses, or when we
may attain profitability, if at all. If we are unable to generate significant
revenue or attain profitability, we will not be able to sustain operations and
will have to curtail significantly or cease operations.


15


The
Commercial Success Of Our Products Will Depend On The Degree Of Market
Acceptance Of These Products Among Physicians, Patients, Health Care Payors And
The Medical Community.





The use
of our heart diagnostic products has never been commercialized. Even if approved
for sale by the appropriate regulatory authorities, physicians may not order
diagnostic tests based on our heart diagnostic technology, in which event we may
be unable to generate significant revenue or become profitable. In addition,
physicians and patients may not utilize the heart diagnostic products unless
third-party payors, such as managed care organizations, Medicare and Medicaid,
pay a substantial portion of the test’s price. There is significant uncertainty
concerning third-party reimbursement of any test incorporating new technology.
Reimbursement by a third-party payor may depend on a number of factors,
including a payor’s determination that tests using our technologies
are:





·
            not
      experimental or investigational,·
            medically
      necessary,·
            appropriate
      for specific patient,·
            cost-effective,
      and·
            supported
      by peer-reviewed publications.





Since
each payor makes its own decision as to whether to establish a policy to
reimburse for a test, seeking these approvals is a time-consuming and costly
process. We cannot be certain that coverage for the nano-biochip gene expression
kit will be provided by any third-party payors, in which event we may be unable
to generate significant revenue or become profitable.





Our
products are highly regulated, and we will not be able to commercialize our
products if we cannot obtain the necessary regulatory approvals.





Our
products are subject to extensive regulation and/or acceptance by numerous
governmental authorities in the United States and other countries, including the
FDA.  Most of our products will require governmental clearance before
they can be commercialized, and may even require governmental approval before
they can be commercialized.  If we are unable to obtain regulatory
clearances or approvals for our products at all or in a timely manner, we will
not be able to grow as quickly as expected, or at all, and the loss of
anticipated revenues will reduce our ability to fully fund our operations and to
otherwise execute our business plan.  Our failure to receive the regulatory
clearances or approvals in the United States would likely cause us to cease
operations and go out of business.




As we
develop additional new products we will be required to determine what regulatory
requirements, if any, we must comply with in order to market and sell our
products in the United States and worldwide.  The process of obtaining
regulatory clearance and approval could take years and be very costly, if
clearance or approval can be obtained at all.  If we fail to comply with
these requirements, we could be subjected to enforcement actions such as an
injunction to stop us from marketing the product at issue or a possible seizure
of our assets.  We intend to work diligently to assure compliance with all
applicable regulations that impact our business.  We can give no assurance,
however, that we will be able to obtain regulatory clearance or approval for our
products.  We also cannot assure that additional regulations will not be
enacted in the future that would be costly or difficult to
satisfy.  Our failure to receive regulatory approvals in the United
States in a timely manner or comply with newly enacted additional regulation
could cause us to cease operations and go out of business.




The
regulatory process, which includes pre-clinical and clinical testing of many of
our products to establish their safety and effectiveness, can take many years
and require the expenditure of substantial financial and other resources. Data
obtained from pre-clinical and clinical activities are susceptible to varying
interpretations that could delay, limit or prevent regulatory
approval.  In addition, delays or rejection may be encountered based
upon changes in, or additions to, regulatory policies for device marketing
authorization during the period of product development and regulatory
review.  Delays in obtaining such clearances or approvals could
adversely affect our marketing of products developed and our ability to generate
commercial product revenues.




In
addition, if we desire to commercial our products worldwide, we will be required
to meet regulatory requirements in countries outside the United States, which
can change rapidly with relatively short notice, resulting in our products being
banned in certain countries and an associated loss of revenues and
income.  Foreign regulatory agencies can also introduce test format
changes which, if we do not quickly address, can result in restrictions on sales
of our products.  Such changes are not uncommon due to advances in
basic research.


16


Our
inability to protect our intellectual property rights could allow competitors to
use our proprietary rights and technologies in competition against our company,
which would reduce our sales.





We rely
on a combination of patent, patent pending, trademark and trade secret laws,
proprietary rights agreements and non-disclosure agreements to protect our
intellectual property.  We cannot give any assurance that these measures
will prove to be effective in protecting our intellectual properties.  We
also cannot give any assurance that our existing patents will not be
invalidated, that any patents that we currently or prospectively apply for will
be granted, or that any of these patents will ultimately provide significant
commercial benefits.  Further, competing companies may circumvent any
patents that we may hold by developing products which closely emulate but do not
infringe our patents.  While we intend to seek patent protection for our
products in selected foreign countries, those patents may not receive the same
degree of protection as they would in the United States.  We can give no
assurance that we will be able to successfully defend our patents and
proprietary rights in any action we may file for patent infringement.
 Similarly, we cannot give any assurance that we will not be required to
defend against litigation involving the patents or proprietary rights of others,
or that we will be able to obtain licenses for these rights.  Legal and
accounting costs relating to prosecuting or defending patent infringement
litigation may be substantial.




We also
rely on proprietary designs, technologies, processes and know-how not eligible
for patent protection.  We cannot give any assurance that our competitors
will not independently develop the same or superior designs, technologies,
processes and know-how.




While we
have and will continue to enter into proprietary rights and invention assignment
agreements with our employees and consultants, we can give no assurance that
courts of competent jurisdiction will enforce those agreements.





If We Are Unable To Develop Products
To Keep Pace With Rapid Medical And Scientific Change, Our Operating Results And
Competitive Position Would Be Harmed.




In recent
years, there have been numerous advances in technologies relating to the
diagnosis and treatment of cardiac problems. These advances require us
continuously to develop new products and enhance existing products to keep pace
with evolving standards of care. Our test could become obsolete unless we
continually innovate and expand our product to demonstrate recurrence and
treatment benefit in patients treated with new therapies. New treatment
therapies typically have only a few years of clinical data associated with them,
which limits our ability to perform clinical studies and correlate sets of genes
to a new treatment’s effectiveness. If we are unable to demonstrate the
applicability of our tests to new treatments, then sales of our tests could
decline, which would reduce our revenues.





We
may need to raise capital to fund our operations, and our failure to obtain
funding when needed may force us to delay, reduce or eliminate our product
development efforts.





If in the
future, we are not capable of generating sufficient revenues from operations and
our capital resources are insufficient to meet future requirements, we may have
to raise funds to continue the development, commercialization, marketing and
sale of our products.




We cannot
be certain that funding will be available on acceptable terms, or at all. To the
extent that we raise additional funds by issuing equity securities, our
stockholders may experience significant dilution. Any debt financing, if
available, may involve restrictive covenants that impact our ability to conduct
our business. If we are unable to raise additional capital if required or on
acceptable terms, we may have to significantly delay, scale back or discontinue
the development and/or commercialization of one or more of our products, obtain
funds by entering into agreements on unattractive terms or restrict or cease our
operations and go out of business.





We
are dependent upon key personneland hiring and
assimilating new key employees. The loss of key employees or the inability to
attract new key employees could limit our ability to execute our growth
strategy, resulting in lost sales and a slower rate of growth.





Our
success is heavily dependent on the continued active participation of our
current executive officers, including Branislav Vajdic. Loss of the services of
Mr. Vajdic could have a material adverse effect upon our business, financial
condition or results of operations. Mr. Vajdic currently does not any plans to
retire or leave us in the near future. We do not maintain any key life insurance
policies for any of our executive officers or other personnel. The loss of any
of our senior management could significantly impact our business until adequate
replacements can be identified and put in place. . In addition, as we grow we
will need to hire additional key personnel. We may not be able to identify and
attract high quality employees or successfully assimilate new employees into our
existing management structure, which could delay the development,
commercialization, marketing or sales of our products.  This delay may
cause a delay in revenues and profitability that may require us to restrict or
cease our operations and go out of business.


17


We
may have difficulties managing growth which could lead to higher
losses.





While we
have not yet achieved any revenues through the sale or licensing of our
products, and depending on market acceptance and the timeliness of necessary
regulatory approvals, we might not be in a position to rapidly commercialize our
products. Rapid growth would strain our human and capital resources, potentially
leading to higher operating losses. Our ability to manage operations and control
growth will be dependent upon our ability to raise and spend capital to
successfully attract, train, motivate, retain and manage new employees and
continue to update and improve our management and operational systems,
infrastructure and other resources, financial and management controls, and
reporting systems and procedures. Should we be unsuccessful in accomplishing any
of these essential aspects of our growth  in an efficient and timely
manner, then management may receive inadequate information necessary to manage
our operations, possibly causing additional expenditures and inefficient use of
existing human and capital resources or we otherwise may be forced to grow at a
slower pace that could slow or eliminate our ability to achieve and sustain
profitability.  Such slower than expected growth may require us to
restrict or cease our operations and go out of business.





Risk
Factors Related to Our Stock.





We
have a history of operating losses and expect to report future losses that may
cause our stock price to decline and a loss of your investment.





For the
operating period since inception (September 7, 2004) through December 31, 2007,
we have incurred a net cumulative loss of $4,340,398. We expect to continue to
incur losses as we spend additional capital to develop and market our
technologies and establish our infrastructure and organization to support
anticipated operations. We cannot be certain whether we will ever earn a
significant amount of revenues or profit, or if we do, that we will be able to
continue earning such revenues or profit. Also, any economic weakness or global
recession may limit our ability to develop and ultimately market our
technologies. Any of these factors could cause our stock price to decline and
result in a loss of a portion or all of your investment.




Our
research and development efforts may not result in commercially viable products
which could result in a decline of our stock price and a loss of your
investment.





Our
technologies are in the development stage. Further research and development
efforts will be required to develop these technologies and incorporate them in
products that can be submitted for and obtain the regulatory approvals required
to be commercially viable products. We may not succeed in developing
commercially viable products from our technologies. If we are not successful in
developing commercially viable products or, if such products become commercially
obsolete, our ability to generate revenues from our technologies will be
severely limited.  This could cause our stock price to decline and
result in the loss of a portion or all of your investment.





We
may need to raise additional capital. If we are unable to raise additional
capital, our business may fail.





Because
we are a development stage company and have no revenues, we need to secure
on-going funding. Our current working capital is not expected to be sufficient
to carry out all of our plans and to fund our operating losses until we are
able to generate enough revenues to sustain our business.  If we are
unable to obtain adequate funding, we may not be able to successfully develop
and market our products and our business will most likely fail.  To
secure additional financing, we may need to borrow money or sell more
securities.  Under these circumstances, we may be unable to secure
additional financing on favorable terms or at all.




Selling
additional stock, either privately or publicly, would dilute the equity
interests of our stockholders. If we borrow money, we will have to pay interest
and may also have to agree to restrictions that limit our operating flexibility.
If we are unable to obtain adequate financing, we may have to curtail business
operations which would have a material negative effect on operating results and
most likely result in a lower stock price.


18


The
price and trading volume of our common stock is subject to certain factors
beyond our control that may result in significant price and volume volatility,
which substantially increases the risk that you may not be able to sell your
shares at or above the price that you pay for the shares.





Factors
beyond our control, that may cause our share price to fluctuate significantly
include, but are not limited to, the following:





●
            the
      development of a future market for our
products;





●
            changes
      in market valuations of similar
companies;




●
            announcement
      by us or our competitors of significant contracts, acquisitions, strategic
      partnerships, joint ventures or capital
  commitments;





●
            additions
      or departures of key personnel; and





●
            fluctuations
      in stock market price and volume.





Additionally,
in recent years the stock market in general, and the Over-the-Counter Bulletin
Board (the "OTCBB") and technology stocks in particular, have experienced
extreme price and volume fluctuations. In some cases these fluctuations are
unrelated or disproportionate to the operating performance of the underlying
company. These market and industry factors may materially and adversely affect
our stock price regardless of our operating performance. The historical trading
of our common stock is not necessarily an indicator of how it will trade in the
future and our trading price as of the date of this prospectus is not
necessarily an indicator of what the trading price of our common stock might be
in the future.




In the
past, class action litigation has often been brought against companies following
periods of volatility in the market price of those companies' common stock. If
we become involved in this type of litigation in the future it could result in
substantial costs and diversion of management attention and resources, which
could have a further negative effect on your investment in our
stock.





Our
issuance of common stock at a price below prevailing trading prices at the time
of issuance may cause our stock price to decline.





As of
December 31, 2007 there was outstanding $8,200,000 of preferred stock that is
convertible into 8,600,000 shares of common stock at $0.95 per share, stock
options to purchase an aggregate of 3,800,000 shares of common stock with a
weighted average exercise price of $0.12 per share and warrants to purchase
17,700,000 shares of common stock, having a weighted average exercise price of
$1.06 per share.  These, as well as those we may issue in the
future, may result in shares of common stock being issued for consideration that
is less than the trading price of our common stock at the time the shares are
issued.  We may also issue shares of common stock in the future at a
discount to the trading price of our common stock.  Any such below
market issuances, or the potential for such issuances, could cause our stock
price to decline.  Moreover, if investors holding a significant number
of these shares decided to sell them in a short period of time, such sales could
contribute significant downward pressure on the trading price of our
stock.





Our
issuance of shares of preferred stock, warrants and stock options may have a
negative effect on the trading price of our common stock.





We
currently have a large number of shares of preferred stock, stock options and
warrants outstanding.  The conversion and exercise of these shares of
preferred stock, stock options and warrants could cause significant dilution to
our stockholders.  Moreover, we intend to continue to minimize our use
of cash for consulting services by granting stock options and warrants to
consultants at or below the current market price, which will cause additional
dilution to our stockholders.  In addition to the potential dilutive
effect of issuing a large number of stock options and warrants, there is the
potential that a large number of the shares may be sold in the public market at
any given time, which could place additional downward pressure on the trading
price of our common stock.


19


There
is no assurance of an established public trading market, which would adversely
affect the ability of investors in our company to sell their securities in the
public markets.





Although
our common stock trades on the OTCBB, a regular trading market for our common
stock may not be sustained in the future. The National Association of Securities
Dealers (the “NASD”) limits quotation on the OTCBB to securities of issuers that
are current in their reports filed with the SEC. If we fail to be current in the
filing of our reports with the SEC, our common stock will not be able to be
traded on the OTCBB.  The OTCBB is an inter-dealer market that
provides significantly less liquidity than a national securities exchange or
automated quotation system. Quotes for stocks included on the OTCBB are not
listed in the financial sections of newspapers as are those for stocks listed on
national securities exchanges or automated quotation systems. Therefore, prices
for securities traded solely on the OTCBB may be difficult to obtain and holders
of common stock may be unable to resell their securities at or near their
original offering price or at any price. Market prices for our common stock may
be influenced by a number of factors, including:





●
            the
      issuance of new equity securities;●
            changes
      in interest rates;●
            competitive
      developments, including announcements by competitors of new products or
      services or significant contracts, acquisitions, strategic partnerships,
      joint ventures or capital commitments;●
            variations
      in quarterly operating results;●
            change
      in financial estimates by securities analysts;●
            the
      depth and liquidity of the market for our common stock;●
            investor
      perceptions of our company and the technologies industries generally;
      and●
            general
      economic and other national
conditions.





Our
limited prior public market and trading market may cause volatility in the
market price of our common stock.





Our
common stock is currently traded on a limited basis on the OTCBB.  The
quotation of our common stock on the OTCBB does not assure that a meaningful,
consistent and liquid trading market currently exists, and in recent years such
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of many smaller companies like us. Our
common stock is thus subject to volatility. In the absence of an active trading
market:





●
            investors
      may have difficulty buying and selling or obtaining market
      quotations;●
            market
      visibility for our common stock may be limited; and●
            lack
      of visibility for our common stock may have a depressive effect on the
      market for our common stock.





Our
common stock is a "Penny Stock."





Our
common stock is a "penny stock" under Section 15(g) of the Exchange Act. Our
common stock: (i) trades at a price less than $5.00 per share; (ii) is not
traded on a "recognized" national exchange; (iii) is not quoted on The NASDAQ
Stock Market; and (iv) is issued by a company with net tangible assets less than
$2,000,000, if in business more than a continuous three years, or with average
revenues of less than $6,000,000 for the past three years. The principal result
or effect of being designated a "penny stock" is that securities broker-dealers
cannot recommend our common stock but can only trade in it on an unsolicited
basis.




Resale
restrictions on transferring “penny stocks” are sometimes imposed by some
states, which may make transactions in our common stock more difficult and may
reduce the value of the investment. Various state securities laws impose
restrictions on transferring “penny stocks” and as a result, investors in our
common stock may have the ability to sell their shares of our common stock
impaired. Certain foreign countries also impose limitations and restrictions on
the ability of their citizens to own stock that is not traded on a recognized
exchange, which, in certain instances, does not include the OTCBB.





Broker-dealer
requirements may affect trading and liquidity.




Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated thereunder by the SEC require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the investor's
account.


20


Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be "penny stock."
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the
account of any investor for transactions in such stocks before selling any penny
stock to that investor. This procedure requires the broker-dealer to (i) obtain
from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for holders of our common stock to resell their shares to third
parties or to otherwise dispose of them in the market or otherwise.





Shares
eligible for future sale may adversely affect the market price of our common
stock, as the future sale of a substantial amount of our restricted stock in the
public marketplace could reduce the price of our common stock.





From time
to time, certain of our stockholders may be eligible to sell their shares of
common stock by means of ordinary brokerage transactions in the open market
pursuant to Rule 144 of the Securities Act (“Rule 144”), subject to certain
requirements.  In general, under Rule 144, unaffiliated stockholders
(or stockholders whose shares are aggregated) who have satisfied a six month
holding period may sell shares of our common stock, so long as we have filed all
required reports under Section 13 or 15(d) of the Exchange Act during the
12-month period preceding such sale.  Once a period of six months has
elapsed since the date the common stock was acquired from us or from an
affiliate of ours, unaffiliated stockholders can freely sell shares of our
common stock.  12 months after acquiring shares from us or an
affiliate, unaffiliated stockholders can freely sell their shares without any
restriction or requirement that we are current in our SEC
filings.  Because we were a shell company until December 27, 2007, our
stockholders holding unregistered shares of common stock are initially subject
to a 12 month holding period, instead of a six month holding period, which began
to run on January 4, 2008, the date we filed a “super” Form 8-K with the
SEC.  Any substantial sale of common stock pursuant to Rule 144 may
have an adverse affect on the market price of our common stock.





Failure
to Achieve and Maintain Internal Controls in Accordance With Sections 302 and
404 of the Sarbanes-Oxley Act of 2002 Could Have A Material Adverse Effect on
Our Business and Stock Price.





We are
examining and evaluating our internal control procedures to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act, as required for our
Annual Report on Form 10-K for the year ending December 31, 2007. If we fail to
maintain adequate internal controls or fail to implement required new or
improved controls, as such control standards are modified, supplemented or
amended from time to time; we may not be able to assert that we can conclude on
an ongoing basis that we have effective internal controls over financial
reporting. Effective internal controls are necessary for us to produce reliable
financial reports and are important in the prevention of financial
fraud.  If we cannot produce reliable financial reports or prevent
fraud, our business and operating results could be harmed, investors could lose
confidence in our reported financial information, and there could be a material
adverse effect on our stock price.





Lawsuits
and legal proceedings.





From time
to time, we may become involved in various lawsuits, disputes and claims
(“Actions”), arising in the ordinary course of business.  These
Actions may raise complex factual and legal issues and are subject to
uncertainties.  Actions filed against us could include product
liability, commercial, intellectual property, customer, employment and
securities related claims, including class action
lawsuits.  Plaintiffs in some Actions may seek unspecified damages or
injunctive relief, or both.  Adverse results in Actions may harm our
business and have material adverse effects on our business, results of
operations, liquidity or financial position any or all of which could adversely
affect our stock price.





Item
1B.  Unresolved Staff Comments.





Not
applicable.


21


Item
2.  Properties.




Our
principal executive offices are located at 2033 Gateway Plaza, Suite 500, San
Jose, California, 95110.   Our offices consist of approximately
430 square feet, which we lease on a month-to-month basis for approximately
$2,400 per month for rent and related costs.  In April 2008, we will
be moving our principal executive offices into a larger facility, consisting of
approximately 2,000 square feet, which will also provide us with space for
product development. This new facility is located at 2350 Mission College
Boulevard, Suite 1175, Santa Clara, California, 95054.  We have
entered into a 38-month lease for this facility, with an average cost of
approximately $5,800 per month. We also work with a research team in Belgrade
and reimburse them for space at an approximate cost of $500 per month. We
believe that our properties are adequate for our current and immediately
foreseeable operating needs. We do not have any policies regarding investments
in real estate, securities or other forms of property.





Item
3.  Legal Proceedings.





None.





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





Not
applicable.








PART
II





Item
5.  Market for Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.





Our
common stock is traded on the OTCBB under the trading symbol
"NWCI.OB."  Trading commenced in our stock on January 4,
2008.  The following table sets forth, for the period indicated, the
range of the high and low bid quotations of our common stock, as reported by the
OTCBB.  The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual
transactions.





2008High
            
            
            Low1st
      Quarter (from January 4 - March 28)
            
            $
            2.42
            
            
            $
            1.20





There
were approximately 66 holders of record of our common stock as of March 28,
2008.




We have
never declared or paid cash dividends on our common stock and do not expect to
pay any dividends on our common stock in the foreseeable future. We currently
intend to retain any future earnings for our business. The payment of any future
dividends on our common stock will be determined by our Board of Directors and
will depend on business conditions, our financial earnings and other
factors.





Recent
Sale of Unregistered Securities





On
December 27, 2007, we sold 8,200 shares of Preferred Stock for $8,200,000 to six
accredited investors in a private placement.  The Preferred Stock is
convertible into an aggregate of 8,631,579 shares of our common
stock.  Holders of the Preferred Stock are entitled to receive
dividends at the rate per share of 10% per annum of the stated value, payable
quarterly on April 1, July 1 and October 1, in cash or shares of common stock,
or a combination of cash and shares of common stock, at our
election.  Purchasers of the Preferred Stock were issued five-year
Series A warrants to purchase 5,178,949 shares of our common stock at an
exercise price of $1.14 per share. The two largest investors also received a
one-year Series J warrants to purchase 5,157,895 shares of our common stock at
an exercise price of $1.235 per share and five-year Series J-A warrants to
purchase 3,094,737 shares of our common stock at an exercise price of $1.425,
the Series J-A warrants may only be exercised if, and after, the J Warrants are
exercised.  We paid finders’ fees of $674,000 and issued to finders
five-year warrants to purchase 604,211 shares of our common stock at the
exercise price of $0.95.




Item
6.  Selected Financial Data.





Not
applicable.


22


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





The
following management’s discussion and analysis of financial condition and
results of operations (“MD&A”) should be read in conjunction with the
restatement of our consolidated financial statements and notes thereto which
appear elsewhere in this Amendment No. 2. We have revised language in the
MD&A from the Original Filing to reflect the restatement of our consolidated
financial statements and, in accordance with APB Opinion No. 20, “Accounting
Changes,” correction of errors in prior financial periods relating to the
treatment of our Preferred Stock and warrants issued in our December 27, 2007
private placement and fees and warrants issued in connection with the private
placement.  No other information has been amended or updated to
reflect other events occurring after the Original Filing or to modify or update
those disclosures affected by subsequent events.  The information
contained in this MD&A, other than historical information, contains “forward
looking statements” that are based on management’s current expectations and
assumptions. Actual future results could differ materially. This MD&A should
also be read in conjunction with the Item 1.A. “Risk Factors.”





Financial
Condition and Results of Operations





NEWCARDIO,
      INC(a
      development stage company)CONSOLIDATED
      STATEMENTS OF OPERATIONSYear
      ended December 31,2007
            
            
            2006
            
            
            Change
            
            
            %RestatedOperating
      expenses:Selling,
      general and administrative
            
            $
            1,729,901
            
            
            $
            128,769
            
            
            $
            1,601,132
            
            
            
            1243%Depreciation
            
            
            594
            
            
            
            -
            
            
            
            594
            
            
            
            0%Research
      and development
            
            
            369,674
            
            
            
            246,782
            
            
            
            122,892
            
            
            
            50%Total
      operating expenses
            
            
            2,100,169
            
            
            
            375,551
            
            
            
            1,724,618
            
            
            
            459%Net
      loss from operations
            
            
            (2,100,169
            )
            
            
            (375,551
            )
            
            
            (1,724,618
            )
            
            
            459%Other
      income (expense)Interest
            
            
            (1,084,972
            )
            
            
            (2,624
            )
            
            
            (1,082,348
            )
            
            
            41,248%Net
      loss before income taxes
            
            
            (3,185,141
            )
            
            
            (378,175
            )
            
            
            (2,806,966
            )
            
            
            742%Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            0%NET
      LOSS
            
            $
            (3,185,141
            )
            
            
            (378,175
            )
            
            
            (2,806,966
            )
            
            
            742%Preferred
      Stock Dividend
            
            
            (2,817,710
            )
            
            
            -
            
            
            
            (2,817,710)
            
            
            
            0%Net
      Loss Attributable to Common Shareholders
            
            $
            (6,002,851
            )
            
            
            (378,175
            )
            
            
            (5,624,676
            )
            
            
            1,487%





As a
development stage company, we have limited capital and limited capital
resources.  As we have not generated any revenues from operations from
our inception, we are not able to meet our needs for cash by generating
cash.  Historically, as a private company, we relied on small,
short-term convertible promissory notes and private placements of our securities
to fund the development of our technology and products.  As a result
of our December 27, 2007, private placement, which we completed shortly after
our reverse merger with a public shell corporation, we raised $8,200,000,
approximately $7,000,000 net, which we believe will sufficiently fund our
operations and business plan into 2009.  However, as a development
stage company, it is possible that the money we raised in the private placement
will not be sufficient to meet our projected cash flow deficits from operations
or to fund the development of our technology and products and we may find
ourselves seeking additional financing to meet our capital
needs.  Thus, for the most part, comparisons between years are not
meaningful.


23


By
adjusting our operations and development to the level of our capitalization, we
spent limited resources in 2006, primarily on clinical and software development
of our initial products, QTinnoTM and VisualECGTM.  As we moved towards
a funding strategy we added key resources to support that process and initiate a
base to build a sales and marketing organization. We believe that our existing
and planned capital resources will be sufficient to fund our current level of
operating activities, capital expenditures and other obligations through the
next 18 months. However, if during that period or thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, including the
$6,370,000 from the exercise of the J Warrants on or before December 27, 2008,
this could have a material adverse affect on our business, results of
operations, liquidity and financial condition.




Selling,
general and administrative expenses grew 1243% to $1,730,000 at December 31,
2007, an increase of $1,601,000 from $129,000 in 2006.  The increase
includes both cash expenditures for key executives, largely tied to incentives
related to closing the reverse merger and related $8,200,000 funding in late
December 2007, as well as stock-based non-cash compensation
charges.




Research
and development expenses grew 50% to $370,000 at December 31, 2007, or
approximately $123,000 from $247,000 in 2006.  A significant portion
of this increase is attributable to the 2,000 person clinical trial study for
QTinno we completed in 2007.  We primarily use consultants to engineer
our product development and to conduct our clinical trial studies.  We
have also focused resources on the development of VisualECGTM.  For
strategic timing reasons, no significant work was performed on CardioBipTM during
2006 and 2007.  We plan to increase development efforts and the number
of clinical trial studies as well as the size of clinical trial studies for both
QTinnoTM and VisualECGTM in the future, with the expectation of bringing QTinnoTM
to market sometime in 2009.  As a research tool, we believe QTinnoTM
will not require a regulatory approval process beyond standard software
development quality control systems.  We expect to begin clinical
trials for VisualECGTM in the second half of 2008.




Our
available working capital and capital requirements will depend upon numerous
factors, including progress of our research and development programs, our
progress in and the cost of pre-clinical and clinical testing, the timing and
cost of obtaining regulatory approvals, the cost of filing and prosecuting
patent claims and other intellectual property rights, completing technological
and market developments, current and future licensing relationships, the status
of our competitors, and our ability to establish collaborative arrangements with
other organizations or otherwise establish sales channels to sell our
products.




We have
historically principally relied on the services of consultants and part-time
employees.  We currently have three full-time employees and
approximately 12 consultants.  We anticipate that it may become
desirable to add additional full- and or part-time employees to discharge
certain critical functions during the next 12 months.  In order for us
to attract and retain quality personnel, we anticipate we will have to hire
employees and offer them competitive salaries.  This projected
increase in personnel could impact the speed at which we spend our current cash
reserves and our ability and timing in bringing products through the research
and development and commercialization stages.  As we continue to
expand, we will incur additional costs for personnel.




We have
historically relied on the issuance of equity securities to consultants in
exchange for services. Our management enters into equity compensation agreements
with non-employees, if it is in our best interest, under terms and conditions
consistent with the requirements of Financial Accounting Standards No. 148,
"Accounting for Stock Based Compensation - Transition and Disclosure - an
amendment of SFAS 123."   In order to conserve our limited
operating capital resources, we anticipate continuing to compensate certain
non-employees for services using equity or a combination of cash and equity
during the next 12 months. Further, stock options will be a key element of
employee compensation and, with the increase in our market capitalization as a
result of our transition from a private company to a public company, the value
of our equity is materially higher. This is expected to have a material effect
on our results of operations during the next 12 months.





Interest
of $1,085,000 (compared to almost none in 2006) is primarily related to costs
associated with the 5% subordinated convertible notes that were either converted
to common stock or re-paid at the time of the December 2007 private placement
financing. The preferred stock dividend in 2007 is a beneficial conversion
feature of $2,818,000 that we attributed to the Preferred Stock based upon
the difference between the effective conversion price of those shares and the
fair value of our common shares on the date of issuance.




Critical Accounting
Policies




The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (“GAAP”) requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities. A summary of the critical
accounting policies and the judgments that we make in the application of those
policies is presented in Note B to our consolidated financial
statements.


24


Our
consolidated financial statements are based on the selection of accounting
policies and the application of accounting estimates, some of which require
management to make significant assumptions. Actual results could differ
materially from the estimated amounts. The following accounting policy is
critical to understanding and evaluating our reported financial
results:





Accounting for Stock-Based
Compensation





We
account for our stock options and warrants using the fair value method
promulgated by Statement of Financial Accounting Standards No. 123R “Share-Based
Compensation” which addresses the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. Therefore, our results
include non-cash compensation expense as a result of the issuance of stock
options and warrants and we expect to record additional non-cash compensation
expense in the future.




Accounting for and
Classifying Series A Stock





We may be
required to redeem the Series A shares for cash in an amount equal to the stated
value of the Series A shares, plus accrued and unpaid dividends, upon the
occurrence of certain events. As the Series A shares redemption requirement
may be triggered by events that are outside of our control, in accordance with
Emerging Issues Task Force Topic D-98, Classification and Measurement of
Redeemable Securities, we recorded the fair value of the Series A shares outside
of common shareholders’ equity in the consolidated balance sheet.





Accounting for and
Classifying Warrants





The
warrants we issued to the investors in the December 2007 private placement
contain a “fundamental transaction” clause that, if while the warrants are
outstanding, we effect a merger or consolidation, or similar transactions as
defined in the warrants, the warrant holders can demand net cash settlement. As
the warrants contain a provision that could require cash settlement, pursuant
to  EITF 00-19,“Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock,”  the warrants were recorded as a
derivative liability and valued at fair market value until we meet the criteria
under EITF 00-19 for permanent equity. The net value of the warrants at the date
of issuance was recorded as a warrant liability on the balance sheet in the
amount of $4,802,973 and reduced the value of the shares of Series A Stock
subject to redemption. Subsequent to the initial issuance date, we are
required to adjust, and have been adjusting, the warrants to fair value through
current period operations.





In
preparing our financial statements, management made a number of assumptions
in connection with the accounting and reporting the issuance of the warrants as
non-current liabilities:





●
            The
      Series J-A warrants are only exercisable in the event the Series J
      warrants are exercised.●
            If
      the Series J warrants are exercised, the term of the Series J-A will
      automatically extend until December 27, 2012, which would give them a
      five- year term from date of issuance.●
            The
      holders of the warrants may exercise their options to purchase our common
      stock at any time during the term of the warrants.  Absent
      specific events, described as a “Fundamental Transactions,” we are
      obligated to settle the warrants with unregistered shares of common
      stock.●
            The
      warrant holders can demand net cash settlement if we enter into a
      transaction that is either:








●
            an
      all cash sale,●
            a
      “going private transaction,” or●
            a
      transaction involving a person or entity not traded on a national
      securities exchange, the NASDAQ Global Select Market, the NASDAQ Global
      Market or the NASDAQ Capital
Market.





25





●
            Absent
      the occurrence of any of the three events described above, should the
      holders of the warrants exercise their warrants, we would meet the
      obligation by issuing shares of our unregistered common stock, not the
      transfer of current assets.●
            Based
      upon the facts and circumstances available to management, management made
      the following estimates and assumptions in accounting and reporting of the
      liabilities associates with the Series J and Series J-A warrant
      liabilities:





●
            During
      the foreseeable future, we have no plan to enter into a transaction that
      would require us to settle the Series J and Series J-A warrants with
      cash.●
            The
      holders of the Series J warrants will exercise their warrants and we will
      receive shares of unregistered common stock. This assumption is based upon
      the economic value of the warrants.●
            As
      a result of the Series J warrants being exercised, the Series J-A warrants
      will not expire until December 27, 2012.●
            Further,
      if the Series J warrants are not exercised by December 27, 2008, the
      warrant liability for both the Series J and Series J-A warrants
      terminates.●
            As
      of the date of the second quarter 2008 financial statements, we believe an
      event that would create an obligation to settle the warrants in cash or
      other current assets is remote and have classified the obligation as a
      long term liability.




If an
event occurs that would require the net cash settlement of the warrants, we will
reclassify the obligation to current liabilities.





Financial Instruments
Measured at Fair Value





We carry
certain financial instruments in the form of liabilities at fair value with
changes in fair value recognized in earnings each period. We make estimates
regarding valuation of assets and liabilities measured at fair value in
preparing the consolidated financial statements. The assets are comprised solely
of short term investments consisting of certificate of deposits. The liabilities
are comprised solely of derivative contracts that may have to settle in the form
of cash if certain events occur. The derivative contracts comprise 100% of the
liabilities measured at fair value.




Liquidity
and Capital Resources





We have
incurred losses of $4,340,398 from our inception in September 2004 through
December 31, 2007.  These losses stem from expenses associated
principally with equity-based compensation to consultants who have provided
marketing, public relations and investor services, acquisition costs and
professional service, including legal and accounting fees.  We believe
that we will continue to incur net losses and negative cash flow from operating
activities for the next two years.




As of
December 31, 2007, we had working capital of approximately
$5,600,000.  As a result of operating losses from our inception on
September 7,2004
through December 31, 2007, we generated a cash flow deficit of approximately
$1.2 million from operating activities from our inception on September 7,2004 through December 31,
2007.  Cash flow used in investing activities was primarily related to
the purchase of a certificate of deposit for $5,000,000 at the end of December
2007.  We met our cash requirements during this period through the
private placement of common stock, the exercise of common stock options, the
private placement of preferred stock and the issuance of convertible
notes.  We raised a net amount of approximately $7,700,000 during 2006
and 2007, most of which was raised in our December 2007 private placement, which
we completed shortly after our reverse merger with Marine Park.




As a
result of our December 2007 private placement, we raised a net amount of
approximately $7,000,000, which we believe will sufficiently fund our operations
and business plan into 2009.  However, as a development stage company,
it is possible that the money we raised in the private placement will not be
sufficient to meet our projected cash flow deficits from operations or to fund
the development of our technology and products and we may find ourselves seeking
additional financing to meet our capital needs.


26


By
adjusting our operations and development to the level of our capitalization, we
believe that our existing and planned capital resources will be sufficient to
fund our current level of operating activities, capital expenditures and other
obligations through the next 18 months. However, if during that period or
thereafter, we are not successful in generating sufficient liquidity from
operations or in raising sufficient capital resources, on terms acceptable to
us, this could have a material adverse effect on our business, results of
operations, liquidity and financial condition.




Our
continued operations will depend on whether we are able to raise additional
funds through various potential sources, such as equity and debt financing,
including, without limitation, through the exercise of the one-year Series J
Warrants issued in the December 2007 private placement financing, collaborative
and licensing agreements, strategic alliances, and our ability to realize the
full potential of our technology in development. Such additional funds may not
become available on acceptable terms, if at all, and there can be no assurance
that any additional funding that we do obtain will be sufficient to meet our
needs in the long term. We intend to continue to fund operations from cash
on-hand and through private placements of our securities. We can give no
assurances that any additional capital, if any, that we are able to obtain will
be sufficient to meet our needs.




We may
experience fluctuations in operating results in future periods due to a variety
of factors, including our ability to obtain additional financing in a timely
manner and on terms favorable to us, our ability to successfully develop our
business model, the amount and timing of operating costs and capital
expenditures relating to the expansion of our business, operations and
infrastructure and the implementation of marketing programs, key agreements, and
strategic alliances, and general economic conditions specific to our
industry.





We also
have an outstanding promissory note to a former member of our Board of Directors
in the principal amount of $10,316.  The promissory note has a
two-year term and an interest rate of 4.9%.  Principal and interest
accrued thereon are payable in full on the promissory note’s due date in October
2008.




We
believe that we will continue to incur net losses and negative cash flows from
operating activities beyond 2008.





Off-Balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements.





Forward-Looking
Statements





This
MD&A contains forward-looking statements regarding our business
development plans, clinical trials, regulatory reviews, timing, strategies,
expectations, anticipated expenses levels, projected profits, business prospects
and positioning with respect to market, demographic and pricing trends, business
outlook, technology spending and various other matters (including contingent
liabilities and obligations and changes in accounting policies, standards and
interpretations) and express our current intentions, beliefs, expectations,
strategies or predictions.  These forward-looking statements are based
on a number of assumptions and currently available information and are subject
to a number of risks and uncertainties.





Forward-looking
statements are generally identifiable by the use of terms such as “anticipate,”
“will,” “expect,” “believe,” “should” or similar expressions. Although we
believe that the assumptions on which the forward-looking statements contained
herein are based are reasonable, any of those assumptions could prove to be
inaccurate given the inherent uncertainties as to the occurrence or
nonoccurrence of future events. These statements are not guarantees of future
performance and involve risks and uncertainties that are difficult to
predict.  Therefore, actual outcomes and results may, and are likely
to, differ materially from what is expressed or forecasted in the
forward-looking statements due to numerous factors, including the potential
risks and uncertainties set forth in Item 1A of this Amendment No. 2 and
relate to our business plan, our business strategy, development of our
proprietary technology platform and our products, timing of such development,
timing and results of clinical trials, level and timing of FDA regulatory
clearance or review, market acceptance of our products, protection of our
intellectual property, implementation of our strategic, operating and people
initiatives, benefits to be derived from personnel and directors, ability to
commercialize our products, our assumptions regarding cash flow from operations
and cash on-hand, the amount and timing of operating costs and capital
expenditures relating to the expansion of our business, operations and
infrastructure, implementation of marketing programs, our key agreements and
strategic alliances, our ability to obtain additional capital as, and when,
needed, and on acceptable terms and general economic conditions specific to our
industry, any of which could impact sales, costs and expenses and/or planned
strategies and timing.  As a result, it is possible that the money we
raised in the December 2007 private placement will not be sufficient to meet our
projected cash flow deficits from operations or to fund the development of our
technology and products.  If we are not able to generate sufficient
liquidity from operations or raise sufficient additional capital, this could
have a material adverse affect on our business, results of operations, liquidity
and financial condition. We assume no obligation to, and do not currently
intend to, update these forward-looking statements.


27


Item
7A.  Quantitative and Qualitative Disclosures about Market
Risk.





Not
Applicable.





Item
8.  Financial Statements and Supplementary Data.





The
consolidated financial statements of NewCardio and NewCardio Technologies,
including the notes thereto, together with the report thereon of Russell Bedford
Stefanou Mirchandani LLP ("RBSM LLP") is presented beginning at page
F-1.





Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.




Previous
independent registered public accounting firm





On
January 4, 2008 (the “Dismissal Date”), Marine Park (or the “Company”) advised
Li & Company, P.C. ( the “Former Auditor”) that it was dismissed as the
Company’s independent registered public accounting firm. The decision to dismiss
the Former Auditor as the Company’s independent registered public accounting
firm was approved by the Company’s Board of Directors on January 4, 2008. Except
as noted in the paragraph immediately below, the reports of the Former Auditor
on the Company’s financial statements for the year ended December 31, 2006 did
not contain an adverse opinion or disclaimer of opinion, and such reports were
not qualified or modified as to uncertainty, audit scope, or accounting
principle .





The
Company’s financial statements for the year ended December 31, 2005 were audited
by another registered public accounting firm.





The
report of the Former Auditor on the Company’s financial statements as of and for
the year ended December 31, 2006 contained an explanatory paragraph which noted
that there was substantial doubt as to the Company’s ability to continue as a
going concern as the Company was inactive, had ceased operations and
discontinued all business activities.





During
the year ended December 31, 2006 and through January 4, 2008, the Company has
not had any disagreements with the Former Auditor on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the Former Auditor’s
satisfaction, would have caused them to make reference thereto in their reports
on the Company’s financial statements for such year.





During
the year ended December 31, 2006 and through January 4, 2008, there were no
reportable events, as defined in Item 304(a)(1)(v) of
Regulation S-K.





New
independent registered public accounting firm





On
January 4, 2008 (the “Engagement Date”), the Company engaged RBSM LLP (“New
Auditor”) as its independent registered public accounting firm for the Company’s
fiscal year ended December 31, 2007. The decision to engage the New Auditor as
the Company’s independent registered public accounting firm was approved by the
Company’s Board of Directors.





During
the two most recent fiscal years and through the Engagement Date, the Company
has not consulted with the New Auditor regarding either:





1.
            the
      application of accounting principles to any specified transaction, either
      completed or proposed, or the type of audit opinion that might be rendered
      on the Company’s financial statements, and neither a written report was
      provided to the Company nor oral advice was provided that the New Auditor
      concluded was an important factor considered by the Company in reaching a
      decision as to the accounting, auditing or financial reporting issue;
      or





2.
            any
      matter that was either subject of disagreement or event, as defined in
      Item 304(a)(1)(iv) of Regulation S-K and the related instruction to Item
      304 of Regulation S-K, or a reportable event, as that term is explained in
      Item 304(a)(1)(v) of Regulation
S-K.





28


Item 9A.Controls and
Procedures.





Management’s
Report of Internal Control over Financial Reporting





We are
responsible for establishing and maintaining adequate internal control over
financial reporting in accordance with Exchange Act Rule 13a-15. With the
participation of our Chief Executive Officer and Chief Financial Officer, our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2007 based on the criteria
established in Internal
Control-Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on this evaluation,
management concluded that our internal control over financial reporting was
effective as of December 31, 2007, based on those criteria.  A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are
met.  Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been
detected.




This
Annual Report does not include an attestation report of the Company’s registered
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
SEC.





Evaluation
of Disclosure Controls and Procedures





Disclosure
controls and procedures and other procedures that are designed to ensure that
information required to be disclosed in our reports or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
period specified in the SEC’s rules and forms.  Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to management including our Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.





As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our Chief Executive Officer and
our Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act).  As previously disclosed in our
Current Report on Form 8-K, filed on August 15, 2008 and as described in our
Explanatory Note to this Amendment No. 2 and Note 13 to our accompanying
consolidated financial statements, as a result of comments raised by the
Accounting Staff of the Division of Corporate Finance of the SEC, we determined
that accounting errors were made in connection with accounting for and
disclosing the issuance of our Preferred Stock and related warrants issued to
investors in our December 2007 private placement. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective as of the end of the
period covered by this report.





Based on
the impact of the aforementioned accounting errors, we determined to restate our
consolidated financial statements as of December 31, 2007 and the year then
ended and the period September 7, 2004 (date of inception as a development stage
company) through December 31, 2007 as well as our consolidated unaudited
financial statements as of March 31, 2008.





Subsequent
to the date of the financial statements, we have taken remedial measures to
establish effective disclosure controls and procedures and internal control over
financial reporting, including reviewing all equity instruments to identify any
securities that may have to be classified as outside of shareholders’ equity;
hiring an outside accountant with expertise in derivatives accounting to assist
us in this review; improving the supervision and training of our accounting
staff to understand and implement accounting requirements, policies and
procedures for the accounting of redeemable preferred securities.





Changes
in Internal Control Over Financial Reporting





There was
no change in our internal control over financial reporting during the most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





Item
9B.  Other Information.





Not
applicable


29


PART
III





Item
10.  Directors, Executive Offices and Corporate
Governance.





Directors
and Executive Officers





The
following table and text sets forth the names and ages of all our directors and
executive officers and our key management personnel as of March 15,
2008.  All of our directors serve until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal. Executive officers
serve at the discretion of the Board of Directors, and are elected or appointed
to serve until the next Board of Directors meeting following the annual meeting
of stockholders.  Also provided is a brief description of the business
experience of each director and executive officer and the key management
personnel during the past five years and an indication of directorships held by
each director in other companies subject to the reporting requirements under the
Federal securities laws.





Name
      of Individual
            
            Age
            
            Position
      with company and subsidiaries
            
            Director
      or
              officer
      sinceBranislav
      Vajdic, Ph.D.
            
            54
            
            Director,
      President  and Chief
Executive  Officer
            
            2004Mark
      W. Kroll, Ph.D., FACC, FHRS
            
            55
            
            Chairman
      of the Board of Directors
            
            2008Robert
      N. Blair, M. Inst. P.
            
            65
            
            Director
            
            2006Patrick
      Maguire, M.D., Ph.D.
            
            55
            
            Director
            
            2008Richard
      D. Brounstein
            
            58
            
            Executive
      Vice President, Chief  Financial Officer and
      Secretary
            
            2008


___________




Branislav Vajdic, Ph.D.-
President, Chief Executive Officer and director.  Dr. Vajdic is the
founding stockholder of NewCardio Technologies.  He served as
President and Chief Executive Officer of NewCardio Technologies since October
2006.  Prior to October 2006, Dr. Vajdic was employed for 22 years at
Intel. At Intel he held various senior product development management positions.
At Intel, he directed Pentium microprocessor and flash memory development teams,
and was the inventor on several key flash memory design patents held by Intel.
He holds a Ph.D. in electrical engineering from the University of
Minnesota.




Mark W. Kroll, Ph.D., FACC, FHRS -Chairman of the Board of Directors.  Dr. Kroll became a member
of our Board and Chairman of the Board of Directors on March 18,
2008.  Dr. Kroll is well-known throughout the global medical device
industry as a top technology expert, particularly in the area of implantable
cardioverter defibrillators (ICD).  Dr. Kroll is the named inventor on
over 260 U.S. patents as well as numerous international patents.  He
is co-author of the books Implantable Cardioverter
Defibrillator Therapy (1996), and Cardiac Bioelectric Therapy
(in press), contributor to treatises, public speaker and author of more than 150
papers, and abstracts.  Dr. Kroll most recently served as the Senior
Vice President and Chief Technology Officer for the Cardiac Rhythm Management
division of St. Jude Medical Inc.  Prior to that, he served as Vice
President of the Tachycardia Business division and in various senior executive
roles within St. Jude from 1995 through his retirement in
2005.  Previously, he served as Vice President of Research for the
Angemed division of Angeion, Inc., where he was instrumental in the development
of the technology which led to the first ICD smaller than 90 ml in
volume.  Dr. Kroll has been listed in 'Who's Who in Science and
Engineering' since 1992, has been named a Fellow of both the American College of
Cardiology and the Heart Rhythm Society, and serves as a member of the Board of
Directors of two other publicly traded companies.  At present, he
holds the position of Distinguished Faculty at the UCLA Anderson School of
Business Creativity and Innovation annual program, and serves as an Adjunct Full
Professor of Biomedical Engineering and Lecturer on Cardiovascular Physiology at
California Polytechnic University-San Luis Obispo, California, and as an Adjunct
Full Professor of Biomedical Engineering at the University of Minnesota. Dr.
Kroll is also a director of Haemonetics Corporation and Taser International,
Inc.




Robert N. Blair, Member of the
Institute of Physics (M.Inst.P.)- Director.  Mr. Blair
served as a member of the Board of Directors of NewCardio Technologies from its
inception in September 2004 through August 2005 and again since July
2006.  He was appointed Chairman of the Board of Directors in July
2006.  Mr. Blair was Chairman of the Board of Directors until his
successor Dr. Kroll, Ph.D. was appointed on March 18, 2008.  Mr.
Blair serves as the Chairman and Chief Executive Officer of Mobi33,
Inc., a private internet based advertising company which was co-founded by
Mr. Blair, in 2007. Prior to that, Mr. Blair served as the Chairman and Chief
Executive Officer of VivoMedical Inc., a private medical device company, which
was co-founded by Mr. Blair, from 1999 through 2006. He served as the Chief
Executive Officer and director of Crosspoint Solutions Inc. from 1995
through 1996. Mr. Blair served as the Chief Executive Officer and director of
LSI Logic Europe PLC from 1984 until 1989. Mr. Blair has degrees in Applied
Physics from the Anglia Ruskin University in the United Kingdom and from
The London Institute of Physics in the United Kingdom.


30


Patrick Maguire, M.D., Ph.D. –
Director.  Dr. Maguire became a member of our Board of Directors on
March 18, 2008.  Dr. Maguire has served as Chief Executive Officer and
President of CyberHeart Inc. since 2006.  He joined CyberHeart
following the acquisition of the oncology assets of Targent Incorporated, where
Dr. Maguire served as President, Chief Executive Officer and director since
2002.  Dr. Maguire oversaw the in-licensing of three compounds and and
the out-licensing of another, prior to the acquisition of the
company.  Prior to joining Targent, Dr. Maguire was Vice President of
Medical Affairs and Technology Development at VitaGen Incorporated, where he
oversaw the preparation of IND’s, NDA’s, and IDE’s and managed VitaGen’s
clinical trials in acute and chronic liver failure as well as medical and
industry collaborations. He is a cardiovascular and thoracic surgeon and has
acted as a principal investigator for medical devices and associated clinical
trials. Dr. Maguire is a fellow of the American and Royal College of Surgeons
and a member of more than 20 medical, academic and business
societies.  Dr. Maguire received an AB degree from Wesleyan
University, an MD and PhD (Physiology and Biophysics) degrees from Georgetown
University and an MBA degree from Pepperdine University. He completed surgical
and cardiovascular fellowships at The Peter Bent Brigham Hospital, Harvard
University, and Stanford University.




Richard D. Brounstein –
Executive Vice President, Chief Financial Officer and Secretary.  Mr.
Brounstein became our principal financial officer and Secretary on a part-time
basis on January 23, 2008.  He took on his current role on a full-time
basis on March 1, 2008.  From June 2001 through November 2007, Mr.
Brounstein held several positions at Calypte Biomedical Corporation, a publicly
traded medical device company, including Chief Financial Officer and most
recently, Executive Vice President.  Mr. Brounstein currently serves
as a Director of The CFO Network, a financial advisory firm.  In
January 2007, Mr. Brounstein was appointed as the National Member Representative
for Financial Executives International (FEI) on the 2007 COSO Monitoring
Project, a task force developing tools for monitoring internal financial
controls. In March 2005, Mr. Brounstein was appointed to the SEC Advisory
Committee on Smaller Public Companies.  Mr. Brounstein earned his
Certified Public Accountant (CPA) certification while working at Arthur
Andersen, formerly a public accounting firm.  Mr. Brounstein holds a
B.A. in Accounting and an M.B.A. in Finance, both from Michigan State
University.





The
Board of Directors and Its Committees




Our Board
of Directors directs the management of our business and affairs as provided by
Delaware law and conducts its business through meetings of the full board of
directors.  At December 31, 2007, our Board of Directors consisted of
two directors, one was an independent Chairman of the Board of Directors and the
other was our Chief Executive Officer.  We have since expanded the
Board of Directors to include two additional independent
directors.  We intend to create three standing committees of our Board
of Directors, an audit committee, a compensation committee and a nominating
committee.




Currently,
all actions that would otherwise be performed by standing committees of the
Board, are performed by the Board, including the recent appointments of our two
additional independent Board members, the compensation of members of the Board,
the administration of our stock option plan, the recent hiring of an executive
officer and his compensation, the hiring of our independent public accountants
and the oversight of the independent auditor relationship, the review of our
significant accounting policies and our internal controls.




There is
also no established procedure for stockholder communications with members of the
Board or the entire Board.  However, stockholders may communicate with
our investor relations department and such communications are either responded
to immediately or are referred to the Chief Executive Officer or Chief Financial
Officer for response.




Compensation
of the Board




Directors
who are also our employees do not receive additional compensation for serving on
the Board. Non-employee directors are paid a director’s fee of $1,500 for each
meeting of the Board of Directors they attend in person.  In addition,
each non-employee director receives a stock option grant, pursuant to our 2004
Incentive Stock Plan, of 100,000 shares of our common stock, vesting in equal
monthly increments over 48 months.  The stock option is subject to
full acceleration upon a change of control transaction.  The Chairman
of the Board receives a stock option grant of 400,000 shares of our common
stock, instead of the 100,000 shares granted to other members of our
Board.  Additional stock option grants will be granted to non-employee
directors, other than the Chairman of the Board, on an annual basis as
compensation for their participation in committees of the Board.  All
directors are reimbursed for their reasonable expenses incurred in attending
Board of Directors meetings. We maintain directors and officers liability
insurance.


31


Limitation
on Liability and Indemnification of Directors and Officers




Our
certificate of incorporation provides that no director or officer shall have any
liability to the company if that person acted in good faith and with the same
degree of care and skill as a prudent person in similar
circumstances.




Our
certificate of incorporation and bylaws provide that we will indemnify our
directors and officers and may indemnify our employees or agents to the fullest
extent permitted by law against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices or
positions with us.  However, nothing in our certificate of
incorporation or bylaws protects or indemnifies a director, officer, employee or
agent against any liability to which that person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of that person’s office or
position.  To the extent that a director has been successful in
defense of any proceeding, the Delaware General Corporation Law provides that
the director shall be indemnified against reasonable expenses incurred in
connection with the proceeding.





CODE
OF ETHICS





We have
not as yet adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions because we just recently
became subject to this requirement.  We plan to adopt a code of ethics
as soon as practicable, at which time, it will be available in print to any
person who requests it and on our website, when our website is
completed.  Any amendments and waivers to the code will also be
available in print and on our website.




Item
11.  Executive Compensation.





SUMMARY
COMPENSATION TABLE




The
following table sets forth all compensation we awarded or paid to all
individuals serving as our chief executive officer and those individuals who
received compensation in excess of $100,000 per year for the fiscal year ended
December 31, 2007 (collectively, the “Named Executives”) for the fiscal years
ended December 31, 2007 and 2006.





SUMMARY
COMPENSATION TABLE





Name
      and Principal
              Position
            
            Year
            
            Salary
              ($)
            
            
            Bonus
              ($)
            
            
            Stock
              Awards
            
            
            Option
              awards
              ($)
            
            
            Total
              ($)(a)
            
            (b)
            
            (c)
            
            
            (d)
            
            
            (e)(1)
            
            
            (f)(1)
            
            
            (j)Branislav
      Vajdic, President,
            
            2007
            
            $
            217,500
            
            
            $
            97,150
            
            
            $
            --
            
            
            $
            125,532
            
            
            $
            440,182Chief
      Executive Officer and Director (2)
            
            2006
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --Kenneth
      Londoner (3)
            
            2007
            
            $
            210,000
            
            
            $
            88,200
            
            
            $
            336,000
            
            
            $
            29,160
            
            
            $
            663,360Executive
      Vice President of Corporate Business Development
            
            2006
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --
            
            
            $
            --


____________





(1)
            This
      is the dollar amount recognized for financial statement reporting purposes
      with respect to the fiscal year in accordance with FAS
      123R.  Mr. Vajdic was granted options to purchase 880,000 shares
      of common stock at $0.02 per share pursuant to a consulting agreement we
      had with him dated March 1, 2007 and 1,000,000 at $0.22 per share pursuant
      to his employment agreement dated November 1, 2007.  Mr.
      Londoner purchased 4,200,000 shares of our common stock for $84,000, and
      received $336,000 as a stock award based on the value of the services
      rendered.  The shares are subject to a repurchase option by us,
      pursuant to a restricted stock purchase agreement dated June 4, 2007, as
      amended on September 15, 2007.  At December 31, 2007, 192,000
      shares remain subject to the repurchase option.  Mr. Londoner
      also was granted a stock option to purchase 750,000 shares of common stock
      at $0.22 per share pursuant to his employment agreement with
      us.


32





(2)
            Branislav
      Vajdic’s salary includes the monthly salary of $12,000 he received from
      July 1, 2007 through December 27, 2007, plus compensation he earned under
      his employment agreement with us dated November 1, 2007.  Under
      his employment agreement, Mr. Vajdic earned a mandatory bonus, which we
      have treated as salary (because he earned it in lieu of the annual salary
      of $290,000 he was entitled to under his employment agreement upon the
      closing of our December 27, 2007 PIPE financing).   Mr.
      Vajdic received a lump sum payment equal to $217,500, his annual salary
      prorated from April 1, 2007, minus the monthly salary he received from
      July 1, 2007.  Mr. Vajdic also received a performance-based
      bonus under his employment agreement based on reaching certain milestones
      enumerated in his employment agreement.  The Board of Directors
      determined his bonus as a percentage of his base salary based on the
      formula set forth in his employment agreement.  His bonus
      equaled 33.5% of his base salary.  The bonus formula range was
      0% to 37.5%.





(3)
            Kenneth
      Londoner resigned as Executive Vice President of Corporate Business
      Development on December 20, 2007.  Mr. Londoner continues to be
      employed as Senior Director of Business Development, although he is no
      longer a Named Executive.  Mr. Londoner’s salary includes the
      monthly salary of $10,000 he received from July 1, 2007 through December
      27, 2007, plus compensation he earned under his employment agreement with
      us dated October 31, 2007.  Under his employment agreement, Mr.
      Londoner earned a mandatory bonus, which we have treated as salary
      (because he earned it in lieu of the annual salary of $280,000 he was
      entitled to under his employment agreement upon the closing of our
      December 27, 2007 PIPE financing).  Mr. Londoner received a lump
      sum payment equal to $210,000, his annual salary prorated from April 1,
      2007, minus the monthly salary he received from July 1,
      2007.  Mr. Londoner received a performance-based bonus under his
      employment agreement, based on reaching certain milestones enumerated in
      his employment agreement.  The Board of Directors determined his
      bonus as a percentage of his base salary based on the formula set forth in
      his employment agreement. His bonus equaled 31.5% of his base
      salary.  The bonus formula range was 0% to
  37.5%.




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END





The
following table sets forth information concerning equity awards granted to the
Named Executive Officers that are outstanding at December 31, 2007.





Name
            
            Number
      of securities underlying unexercised options (#) exercisable
            
            
            Number
      of securities underlying
              unexercised
      options (#) unexercisable
            
            
            Option
              Exercise
              Price
            
            Option
              Expiration
              Date(a)
            
            (b)
            
            
            (c)(1)
            
            
            (e)
            
            (f)Branislav
      Vajdic, President,
            
            81,250 (A)
            
            
            18,750
            
            
            $0.001
            
            09/24/14Chief
      Executive Officer and
            
            880,000
(B)
            
            
            0
            
            
            $0.02
            
            03/09/17Director
            
            55,556 (C)
            
            
            944,444
            
            
            $0.22
            
            10/31/17Kenneth
      Londoner, Senior
            
            41,667 (C)
            
            
            708,333
            
            
            $0.22
            
            10/30/17Director
      of Business Development (2)


______


(1)
            All
      awards were made under our 2004 Equity Incentive Plan.  The
      following footnotes set forth the vesting dates for the outstanding option
      awards (vesting generally depends upon continued employment and
      accelerates upon a change of control, as defined in the
    Plan):





A.
            Options
      vest in equal monthly increments over 48 months or 1/48 per
      month.B.
            Options
      are fully vested.C.
            Options
      vest in equal monthly increments over 36 months or 1/36 per
      month.





(2)
            Kenneth
      Londoner is included in this table because he was a Named Executive until
      December 20, 2007.




33


COMPENSATION
OF DIRECTORS




Name
            
            Option
      awards
              ($)
            
            
            Total
              ($)(a)
            
            (d)
            
            
            (j)Branislav
      Vajdic, Ph.D.
            
            --
            
            
            --Robert
      N. Blair, M.Inst.P.
            
            $6,221
            
            
            $6,221


____________





(1)
            This
      is the dollar amount recognized for financial statement reporting purposes
      with respect to the fiscal year in accordance with FAS
      123R.  Mr. Blair was granted options to purchase 250,000 shares
      of common stock at $0.01 per share.




As of the
December 31, 2007, we had no compensation arrangements with our
directors.  Directors were reimbursed for their out-of-pocket travel
expenses associated with their attendance at Board of Directors
meetings.





Potential
Payments Upon Termination





Branislav
Vajdic





Under the
terms of his employment agreement, if Branislav Vajdic is “terminated other than
for cause” or if he “voluntarily resigns for good reason” (as those terms are
defined in his employment agreement), he is entitled to three years of “total
cash compensation” less cash compensation he receives under the employment
agreement.  “Total cash compensation” includes his base salary plus
any cash bonuses, similar payments and benefits accrued to him.





Kenneth
Londoner





Under the
terms of his employment agreement, if Kenneth Londoner is “terminated other than
for cause” (as that term is defined in his employment agreement), he is entitled
to three years of “total cash compensation” less cash compensation he receives
under the employment agreement.  “Total cash compensation” includes
his base salary plus any cash bonuses and similar payments owed to
him.   If he “voluntarily resigns,” he will receive base salary
and benefits for a 30-day period, in addition to all accrued
compensation.





Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.








EQUITY
COMPENSATION PLAN INFORMATION





Plan
      category
            Number
      of securities
              to
      be issued upon
              exercise
      of
              outstanding
      options,
              warrants
      and rights
            Weighted
      average
              exercise
      price of
              outstanding
      options,
              warrants
      and rights
            Number
      of securities
              remaining
      available for future
              issuance
      under equity
              compensation
      plans
              (excluding
      securities reflected
              in
      column (a)(a)
            (b)
            (c)Equity
      compensation plans approved by security holders
            3,796,959
            $0.12
            5,301,647Equity
      compensation plans not approved by security holders
            ------
            ------
            ------Total
            3,796,959
            $0.12
            5,301,647




34


SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
following table sets forth the number of shares of common stock beneficially
owned as of March 21, 2008 by (i) those persons or groups known to us to
beneficially own more than 5% of our common stock; (ii) each director; (iii)
each executive officer; and (iv) all directors and executive officers as a
group. The information is determined in accordance with Rule 13d-3 promulgated
under the Exchange Act based upon information furnished by persons listed or
contained in filings made by them with the SEC or by information provided by
such persons directly to us. Except as indicated below, each of the stockholders
listed below possesses sole voting and investment power with respect to their
shares and the address of each person is c/o NewCardio, Inc., 2350 Mission
College Boulevard, Suite 1175, Santa Clara, California, 95054.





Name
      of Beneficial Owner
            
            Common
      Stock
              Beneficially
      Owned
            
            Percentage
      of
              Common
      Stock (1)Branislav
      Vajdic, Ph.D. (2)
            
            
            8,448,077
            
            
            41.74%Richard
      Brounstein (3)
            
            
            55,000
            
            
            0.27%Robert
      N. Blair, M.Inst.P. (4)
            
            
            634,889
            
            
            3.14%Mark
      W. Kroll, Ph.D., FACC, FHRS (5)
            
            
            16,667
            
            
            0.08%Patrick
      Maguire, M.D., Ph.D. (6)
            
            
            4,167
            
            
            0.02%Nenad
      Macvanin (7)
            
            
            3,562,000
            
            
            17.60%Kenneth
      Londoner (8)
            
            
            2,040,546
            
            
            10.08%E4,
      LLC
            
            
            1,915,546
            
            
            9.47%Milic
      Petkovic
            
            
            1,488,579
            
            
            7.36%Bosko
      Bojovic (9)
            
            
            1,351,166
            
            
            6.68%All
      officers and directors as a group (5 persons)
            
            
            9,158,800
            
            
            45.26%


____________


(1)
            Applicable
      percentage ownership is based on 20,237,522 shares of common stock
      outstanding as of March 21, 2008, together with securities exercisable or
      convertible into shares of common stock within 60 days of March 21, 2008
      for each stockholder. Shares of common stock that are currently
      exercisable or exercisable within 60 days of March 21, 2008 are deemed to
      be beneficially owned by the person holding such securities for the
      purpose of computing the percentage of ownership of such person, but are
      not treated as outstanding for the purpose of computing the percentage
      ownership of any other person.(2)
            Includes
      options to purchase 1,136,250 shares of common stock and warrants to
      purchase 2,000 shares of common stock.(3)
            Includes
      options to purchase 55,000 shares of common stock.(4)
            Includes
      options to purchase 34,583 shares of common stock and warrants to purchase
      135,500 shares of common stock.(5)
            Includes
      options to purchase 16,667 shares of common stock.(6)
            Includes
      options to purchase 4,167 shares of common
  stock.





(7)
            Includes
      warrants to purchase 2,092,000 shares of common stock.(8)
            Includes
      options to purchase 125,000 shares of common stock.(9)
            Includes
      options to purchase 69,792 shares of common
  stock.





Item
13.  Certain Relationships and Related Transactions, and Director
Independence.





A former
member of our Board of Directors made a loan to us in the principal amount of
$10,316 in October 2006 pursuant to the terms of a promissory
note.  The promissory note has a two-year term and an annual interest
rate of 4.9%.  Principal and interest accrued thereon are payable in
full on the promissory note’s due date in October 2008.




DIRECTOR
INDEPENDENCE




The Board
of Directors has analyzed the independence of each director and has determined
that the following directors are independent under the NASDAQ Stock Market LLC
("NASDAQ") rules and have no direct or indirect material relationships with
the Company:




Mark W.
Kroll, Ph.D. FACC, FHRS


Robert N.
Blair, M.Inst.P.


Patrick
Maguire, M.D., Ph. D.




In
particular, the Board of Directors has determined that these directors have
no relationships that would cause them not to be independent under the specific
criteria of Section 4200(15) of the NASDAQ Manual.


35


Item
14.  Principal Accounting Fees and Services.





Summary
of Principal Accounting Fees for Professional Services Rendered





The
following table presents the aggregate fees for professional audit services and
other services rendered by RBSM LLP, our independent registered public
accountants in 2007.  We did not have independent registered public
accountants in 2006.





Year
      Ended December 31, 2007Audit
      Fees
            
            $
            47,500Audit-Related
      Fees
            
            
            104,000Tax
      Fees
            
            
            9,025All
      Other Fees
            
            
            -$
            160,525


____________




Audit Fees consist of fees
billed for the annual audit of our financial statements and other audit services
including the provision of consents and the review of documents filed with the
SEC.




We do not
have an independent audit committee and the full Board of Directors, therefore,
serves as the audit committee for all purposes relating to communication with
our auditors and responsibility for our audit. All engagements for audit
services, audit- related services and tax services are approved in advance by
our full Board of Directors. Our Board of Directors has considered whether the
provision of the services described above for the fiscal year ended December 31,
2007, is compatible with maintaining the auditor’s independence.




All audit
and non-audit services that may be provided by our principal accountant to us
shall require pre-approval by the Board of Directors. Further, our auditor shall
not provide those services to us specifically prohibited by the SEC, including
bookkeeping or other services related to the accounting records or financial
statements of the audit client; financial information systems design and
implementation; appraisal or valuation services, fairness opinion, or
contribution-in-kind reports; actuarial services; internal audit outsourcing
services; management functions; human resources; broker-dealer, investment
adviser, or investment banking services; legal services and expert services
unrelated to the audit; and any other service that the Public Company Oversight
Board determines, by regulation, is impermissible.




Item
15.  Exhibits, Financial Statement Schedules.





1.
            Financial
      Statements:  See “Index to Consolidated Financial Statements” in
      Part II, Item 8 of the Form 10-K.2.
            Financial
      Statement Schedule:  Schedules are included in the Consolidated
      Financial Statements or notes of this Form 10-K or are not
      required.


3.
            Exhibits:  The
      exhibits listed in the accompanying index to exhibits are filed or
      incorporated by reference as part of this Form
  10-K.





3.1a
            Certificate
      of Incorporation of EP Floors, Inc., originally filed as Exhibit 3.1a to
      Registrant’s Registration Statement on Form SB-2 filed on March 22, 2006
      and filed herewith.3.1b
            Amended
      Certificate of Incorporation of EP Floors, Inc., originally filed as
      Exhibit 3.1b to Registrant’s Registration Statement on Form SB-2 filed
      March 22, 2006 and filed herewith.3.1c
            Certificate
      of Amendment of Certificate of Incorporation, originally filed as Exhibit
      3.2 to Registrant’s Form 8-K filed on February 1, 2008 and filed
      herewith.3.2
            Bylaws
      , (incorporated herein by reference to Exhibit No. 3.2 of Registrant’s
      Registration Statement on Form SB-2 filed on March 22,
    2006).3.3
            Certificate
      of Designation of Series A Preferred Stock, filed as Exhibit 3.1 to
      Registrant’s Form 8-K filed on January 4, 2008.3.4
            Certificate
      of Amendment of Certificate of Incorporation, filed as Exhibit 3.2 to
      Registrant’s Form 8-K filed on February 1, 2008.4.1
            Securities
      Purchase Agreement (Incorporated herein by reference to Exhibit
      No. 4.1 of Registrant's Form 8-K filed on January 4,
      2008).4.2
            Form
      of Series A Warrant (Incorporated herein by reference to Exhibit
      No. 4.2 of Registrant's Form 8-K filed on January 4,
      2008).


36





4.3
            Form
      of Series J Warrant (Incorporated herein by reference to Exhibit
      No. 4.3 of Registrant's Form 8-K filed on January 4,
      2008).4.4
            Form
      of Series J-A Warrant (Incorporated herein by reference to Exhibit
      No. 4.4 of Registrant's Form 8-K filed on January 4,
      2008).4.5
            Registration
      Rights Agreement (Incorporated herein by reference to Exhibit
      No. 4.5 of Registrant's Form 8-K filed on January 4,
      2008).4.6
            Amendment
      No. 1 to Securities Purchase Agreement dated as of December 27, 2007,
      between Marine Park Holdings, Inc. and certain of the purchasers signatory
      hereto (Incorporated herein by reference to Exhibit No. 4.6 of
      Registrant's Form 8-K filed on February 6, 2008).4.7
            Amendment
      No. 1 to Registration Rights Agreement dated as of December 27, 2007,
      between Marine Park Holdings, Inc. and certain of the purchasers signatory
      hereto (Incorporated herein by reference to Exhibit No. 4.7 of
      Registrant's Form 8-K filed on February 6, 2008).4.8
            Certificate
      of Designation of Series A Preferred Stock (incorporated herein by
      reference to Exhibit No. 3.1 of the Registrant’s Form 8-K filed on January
      4, 2008).10.1
            Share
      Exchange Agreement by and among Marine Park Holdings, Inc., NewCardio,
      Inc., and the shareholder of NewCardio, Inc. (Incorporated herein by
      reference to Exhibit No. 10.1 of Registrant's Form 8-K filed on
      January 4, 2008).10.2
            Return
      to Treasury Agreement between Marine Park Holdings, Inc. and Harborview
      Master Fund L.P., dated as of December 27, 2007 (Incorporated herein
      by reference to Exhibit No. 10.2 of Registrant's Form 8-K filed on
      January 4, 2008).10.3
            Return
      to Treasury Agreement between Marine Park Holdings, Inc. and Diverse
      Trading Ltd., dated as of December 27, 2007 (Incorporated herein by
      reference to Exhibit No. 10.3 of Registrant's Form 8-K filed on
      January 4, 2008).10.4
            2004
      Equity Incentive Plan (Incorporated herein by reference to Exhibit
      No. 10.4 of Registrant's Form S-8 POS filed on March 7,
      2008).10.5
            Employment
      Agreement between NewCardio, Inc. and Branislav Vajdic, dated November 1,
      2007.10.6
            Consulting
      Agreement between NewCardio, Inc. and Branislav Vajdic, dated March 1,
      2007.10.7
            Employment
      Agreement between NewCardio, Inc. and Kenneth Londoner, dated October 31,
      2007.10.8
            Restricted
      Stock Purchase Agreement between NewCardio, Inc. and Kenneth Londoner,
      dated as of June 4, 2007, as amended by Amendment No. 1 to Restricted
      Stock Purchase Agreement between NewCardio, Inc. and Kenneth Londoner,
      dated as of September 15, 2007.31.1
            Certification
      of principal executive officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            Certification
      of principal financial officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
            Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act32.2
            Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act




37




SIGNATURES





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




NEWCARDIO,
      INC.By:
            /s/
      Branislav Vajdic,
      Ph.D.Branislav
      Vajdic, Ph.D.President
      and Chief Executive Officer





Dated:  August
22, 2008





Pursuant
to the requirements of the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.





Signature
            
            Title
            
            Date/s/
      Branislav Vajdic, Ph.D.
            
            President,
      Chief Executive Officer and Director
            
            August
      22, 2008Branislav
      Vajdic, Ph.D./s/
      Richard D. Brounstein
            
            Executive
      Vice President, Chief Financial Officer
            
            August
      22, 2008Richard
      D. Brounstein/s/
      Robert M. Blair, M.Inst.P.
            
            Director
            
            August
      22, 2008Robert
      N. Blair, M.Inst.P./s/
      Mark W. Kroll, Ph.D., FACC, FHRS
            
            Director
            
            August
      22, 2008Mark
      W. Kroll, Ph.D., FACC, FHRS/s/
      Patrick Maguire, M.D., Ph.D.
            
            Director
            
            August
      22, 2008Patrick
      Maguire, M.D., Ph.D./s/
      James A. Heisch
            
            Director
            
            August
      22, 2008James
      A. Heisch




38




NEWCARDIO,
INC.




INDEX
TO FINANCIAL STATEMENTS







PageReport
      of Independent Registered Public Accounting Firm
            F-1Consolidated
      Balance Sheets as of December 31, 2007 and 2006
            F-2Consolidated
      Statements of Operations for the year ended December 31, 2007, 2006
      and
              from
      the period September 7, 2004 (date of inception) to December 31,
      2007
            F-3Consolidated
      Statements of Stockholders Deficit for the period from September 7,
      2004
              (date
      of inception) to December 31, 2007
            F-4
      – F-8Consolidated
      Statements of Cash Flows for the year ended December 31,
      2007,2006
              and
      from the period September 7, 2004 (date of inception) to December 31,
      2007
            F-9





39




RBSM
LLP





CERTIFIED
PUBLIC ACCOUNTANTS





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board of
Directors


NewCardio,
Inc.


Santa
Clara, California




We have
audited the accompanying consolidated balance sheets of NewCardio, Inc. and its
wholly owned subsidiaries (the “Company”), a development stage Company as of
December 31, 2007 and 2006, and the related consolidated statements of
operations, deficiency in stockholder’s equity and cash flows for each of the
two years in the period ended December 31, 2007 and the period September 7, 2004
(date of inception) through December 31, 2007. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audits.




We have
conducted our audits in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable
assurance   about whether the
financial   statements are free of material
misstatement.  An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of New Cardio,
Inc.  at  December 31, 2007 and 2006 and the results of its
operations  and its cash flows for the each of the
two  years  in the period ended  December 31, 2007
and the period September 7, 2004 (date of inception) through December 31, 2007
in conformity with accounting principles generally accepted in the United States
of America.




As
discussed in Note 1 to the consolidated financial statements, the Company
adopted the provision of Statements of Financial Accounting Standards No. 123
(R), “Shared based Payment”, effective January 1, 2006.




As
discussed in Note 13, the Company has restated the consolidated balance sheet as
of December 31, 2007 related consolidated statements of operations, deficiency
in stockholder’s equity and cash flows for the year ended December 31, 2007 and
the period September 7, 2004 (date of inception) through December 31,
2007.






/s/ RBSM
      LLP
              RBSM
      LLPCertified
      Public Accountants






New York,
New York


April 3,
2008, except for Note 13, as to which date is July 22, 2008


F-1





NEWCARDIO,
      INC.(a
      development stage company)CONSOLIDATED
      BALANCE SHEETSDECEMBER
      31, 2007 AND 2006




2007
              Restated
            
            
            2006ASSETSCurrent
      assets:Cash
            
            $
            1,476,625
            
            
            $
            12Short
      term investment
            
            
            5,000,000
            
            
            
            -Total
      current assets
            
            
            6,476,625
            
            
            
            12Property,
      plant and equipment, net of accumulated depreciation of $594 and $-0- as
      of December 31, 2007 and 2006, respectively
            
            
            7,687
            
            
            
            -$
            6,484,312
            
            
            $
            12LIABILITIES
      AND DEFICIENCY IN STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses
            
            $
            871,246
            
            
            $
            426,251Note
      payable, related party, current portion
            
            
            10,316
            
            
            
            -Subordinated
      notes payable, net of unamortized debt discount of $-0-
      and  $917 as of December 31, 2007 and 2006,
      respectively
            
            
            -
            
            
            
            19,083Total
      current liabilities
            
            
            881,562
            
            
            
            445,334Long
      term debt:Warrant
      liability
            
            
            4,802,973
            
            
            
            -Note
      payable, related party
            
            
            -
            
            
            
            10,316Total
      liabilities
            
            
            5,684,535
            
            
            
            455,650Commitments
      and contingenciesShares
      subject to redemption, liquidation value as $9,849,111 and $259,200 as of
      December 31, 2007 and 2006, respectively
            
            
            2,084,493
            
            
            
            259,200Stockholders'
      DeficitSeries
      A preferred stock, $0.0001 par value, -0- and 4,563,206 shares authorized,
      issued and outstanding as of December 31, 2007 and 2006
            
            
            -
            
            
            
            456Common
      stock, $0.001 par value, 99,000,000 shares authorized; 20,237,522 and
      4,090,169 shares issued and outstanding as of December 31, 2007 and 2006,
      respectively
            
            
            20,238
            
            
            
            4,090Additional
      paid in capital
            
            
            5,853,154
            
            
            
            435,873Deficit
      accumulated during development stage
            
            
            (7,158,108
            )
            
            
            (1,155,257
            )Total
      deficiency in stockholders' equity
            
            
            (1,284,716
            )
            
            
            (714,838
            )$
            6,484,312
            
            
            $
            12




See
      the accompanying notes to the consolidated financial
      statements


F-2




NEWCARDIO,
      INC.(a
      development stage company)CONSOLIDATED
      STATEMENTS OF OPERATIONS




From
              September
      7,
              2004Year
      ended December 31,
            
            
            (date
      of inception) through
              December
      31,2007
              Restated
            
            
            2006
            
            
            2007
              RestatedOperating
      expenses:Selling,
      general and administrative
            
            $
            1,729,901
            
            
            $
            128,769
            
            
            $
            2,086,154Depreciation
            
            
            594
            
            
            
            -
            
            
            
            594Research
      and development
            
            
            369,674
            
            
            
            246,782
            
            
            
            1,159,026Total
      operating expenses
            
            
            2,100,169
            
            
            
            375,551
            
            
            
            3,245,774Net
      loss from operations
            
            
            (2,100,169
            )
            
            
            (375,551
            )
            
            
            (3,245,774
            )Other
      income (expense)Interest
            
            
            (1,084,972
            )
            
            
            (2,624
            )
            
            
            (1,094,624
            )Net
      loss before income taxes
            
            
            (3,185,141
            )
            
            
            (378,175
            )
            
            
            (4,340,398
            )Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -Net
      loss
            
            
            (3,185,141
            )
            
            
            (378,175
            )
            
            
            (4,340,398
            )Preferred
      dividend
            
            
            (2,817,710
            )
            
            
            -
            
            
            
            (2,817,710
            )NET
      LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
            
            $
            (6,002,851
            )
            
            $
            (378,175
            )
            
            $
            (7,158,108
            )Net
      loss per share, basic and diluted
            
            $
            (0.55
            )
            
            $
            (0.09
            )Weighted
      average number of shares (basic and fully diluted)
            
            
            10,953,288
            
            
            
            3,983,322




See
      the accompanying notes to the consolidated financial
      statements


F-3




NEWCARDIO,
      INC.(a
      development stage company)CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' DEFICITFrom
      September 7, 2004 (date of inception) through December 31,
      2007
              RESTATED






DeficitPreferred
      Series A
            
            Common
            
            Additional
              Paid
      in
            
            Common
              stock
            
            accumulated
              during
              developmentStock
            
            
            Amount
            
            Stock
            
            
            Amount
            
            Capital
            
            Subscriptions
            
            stage
            
            TotalBalance,
      September 7, 2004
            
            
            -
            
            
            $
            -
            
            
            -
            
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Adjusted
      for recapitalizationCommon
      stock issued to founders at $0.001 per share in September
    2004
            
            
            -
            
            
            
            -
            
            
            3,176,642
            
            
            
            3,177
            
            
            -
            
            
            -
            
            
            -
            
            
            3,177Common
      stock issued for intellectual property at $0.001 per share in September
      2004
            
            
            -
            
            
            
            -
            
            
            260,152
            
            
            
            260
            
            
            -
            
            
            -
            
            
            -
            
            
            260Common
      stock issued in connection with options exercised at $0.001 per share in
      November 2004
            
            
            -
            
            
            
            -
            
            
            300,000
            
            
            
            300
            
            
            -
            
            
            -
            
            
            -
            
            
            300Series
      A preferred stock issued to founders at $0.01 per share in September
      2004
            
            
            4,563,206
            
            
            
            456
            
            
            -
            
            
            
            -
            
            
            45,176
            
            
            -
            
            
            -
            
            
            45,632Fair
      value of options issued in September 2004
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            263
            
            
            -
            
            
            -
            
            
            263Net
      loss
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            -
            
            
            (172,343
            )
            
            (172,343
            )Balance,
      December 31, 2004
            
            
            4,563,206
            
            
            
            456
            
            
            3,736,794
            
            
            
            3,737
            
            
            45,439
            
            
            -
            
            
            (172,343
            )
            
            (122,711
            )Fair
      value of options issued in August 2005
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            44,558
            
            
            -
            
            
            -
            
            
            44,558Fair
      value of warrants issued in conjunction with issuance of Series A-2
      preferred stock
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            232,502
            
            
            -
            
            
            -
            
            
            232,502Net
      loss
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -
            
            
            -
            
            
            (604,739
            )
            
            (604,739
            )Balance,
      December 31, 2005
            
            
            4,563,206
            
            
            $
            456
            
            
            3,736,794
            
            
            $
            3,737
            
            $
            322,499
            
            $
            -
            
            $
            (777,082
            )
            $
            (450,390
            )




See
      the accompanying notes to the consolidated financial
      statements




F-4




NEWCARDIO,
      INC.(a
      development stage company)CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)From
      September 7, 2004 (date of inception) through December 31,
      2007
              RESTATED




DeficitPreferred
      Series A
            
            Common
            
            Additional
      Paid in
            
            Common
              Total
            
            accumulated
              during
              developmentStock
            
            
            Amount
            
            Stock
            
            
            Amount
            
            Capital
            
            Subscriptions
            
            stage
            
            TotalBalance
      forward
            
            $
            4,563,206
            
            
            $
            456
            
            3,736,794
            
            
            $
            3,737
            
            $
            322,499
            
            $
            -
            
            $
            (777,082
            )
            $
            (450,390
            )Common
      stock issued at $0.10 per share for services rendered in March
      2006
            
            
            -
            
            
            
            -
            
            278,375
            
            
            
            278
            
            
            27,560
            
            
            -
            
            
            -
            
            
            27,838Fair
      value of options issued in July 2006
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            60,082
            
            
            -
            
            
            -
            
            
            60,082Fair
      value of warrants issued in conjunction with convertible
      debenture
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            1,572
            
            
            -
            
            
            -
            
            
            1,572Fair
      value of options issued in September 2006
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            9,729
            
            
            -
            
            
            -
            
            
            9,729Common
      stock issued at $0.10 per share for services rendered in October
      2006
            
            
            -
            
            
            
            -
            
            75,000
            
            
            
            75
            
            
            7,425
            
            
            -
            
            
            
            
            
            7,500Fair
      value of options issued in October 2006
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            7,006
            
            
            -
            
            
            -
            
            
            7,006Net
      loss
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            -
            
            
            -
            
            
            (378,175
            )
            
            (378,175
            )Balance,
      December 31, 2006
            
            $
            4,563,206
            
            
            $
            456
            
            4,090,169
            
            
            $
            4,090
            
            $
            435,873
            
            $
            -
            
            $
            (1,155,257
            )
            $
            (714,838
            )




See the
accompanying notes to the consolidated financial statements


F-5




NEWCARDIO,
INC.(a
      development stage company)CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)From
      September 7, 2004 (date of inception) through December 31,
      2007
              RESTATED




DeficitPreferred
      Series A
            
            Common
            
            Additional
              Paid
      in
            
            Common
              stock
            
            accumulated
              during
              developmentStock
            
            
            Amount
            
            Stock
            
            
            Amount
            
            Capital
            
            Subscriptions
            
            stage
            
            TotalBalance
      forward
            
            
            4,563,206
            
            
            $
            456
            
            4,090,169
            
            
            $
            4,090
            
            $
            435,873
            
            $
            -
            
            $
            (1,155,257
            )
            $
            (714,838
            )Fair
      value of warrants issued in conjunction with convertible
      debenture
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            4,141
            
            
            -
            
            
            -
            
            
            4,141Fair
      value of options for services rendered
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            201,424
            
            
            -
            
            
            -
            
            
            201,424Common
      stock subscription received in June 2007
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            -
            
            
            84,000
            
            
            -
            
            
            84,000Common
      stock issued in June 2007 at $0.02 per share for services rendered issued
      at fair value of $0.10 per share
            
            
            -
            
            
            
            -
            
            4,200,000
            
            
            
            4,200
            
            
            415,800
            
            
            (84,000
            )
            
            -
            
            
            336,000Common
      stock issued in connection with options exercised at $0.01 per share in
      June 2007
            
            
            -
            
            
            
            -
            
            137,500
            
            
            
            138
            
            
            1,237
            
            
            -
            
            
            -
            
            
            1,375Common
      stock issued in connection with options exercised at $0.001 per share in
      July 2007
            
            
            -
            
            
            
            -
            
            100,000
            
            
            
            100
            
            
            -
            
            
            -
            
            
            -
            
            
            100Common
      stock issued in connection with options exercised at $0.01 per share in
      July 2007
            
            
            -
            
            
            
            -
            
            204,000
            
            
            
            204
            
            
            1,836
            
            
            -
            
            
            -
            
            
            2,040Common
      stock subscription received in September 2007
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            -
            
            
            29,513
            
            
            -
            
            
            29,513





See the
accompanying notes to the consolidated financial statements.


F-6




NEWCARDIO,
      INC.(a
      development stage company)CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)From
      September 7, 2004 (date of inception) through December 31,
      2007
              RESTATED




DeficitPreferred
      Series A
            
            Common
            
            Additional
              Paid
      in
            
            Common
              stock
            
            accumulated
              during
              developmentStock
            
            
            Amount
            
            Stock
            
            
            Amount
            
            Capital
            
            Subscriptions
            
            stage
            
            TotalCommon
      stock issued in September 2007 at $0.02 per share for services rendered
      issued at fair value of $0.10 per share
            
            
            -
            
            
            $
            -
            
            1,475,631
            
            
            $
            1,476
            
            $
            146,087
            
            $
            (29,513
            )
            $
            -
            
            $
            118,050Common
      stock issued in connection with options exercised at $0.001 per share in
      October 2007
            
            
            -
            
            
            
            -
            
            300,000
            
            
            
            300
            
            
            -
            
            
            -
            
            
            -
            
            
            300Common
      stock issued in connection with options exercised at $0.01 per share in
      December 2007
            
            
            -
            
            
            
            -
            
            110,000
            
            
            
            110
            
            
            990
            
            
            -
            
            
            -
            
            
            1,100Common
      stock issued in connection with options exercised at $0.02 per share in
      December 2007
            
            
            -
            
            
            
            -
            
            50,000
            
            
            
            50
            
            
            950
            
            
            -
            
            
            -
            
            
            1,000Effect
      of merger with New Cardio, Inc. (Formerly Marine Park Holdings, Inc.) on
      December 27, 2007
            
            
            -
            
            
            
            -
            
            1,554,985
            
            
            
            1,555
            
            
            (1,555
            )
            
            -
            
            
            -
            
            
            -Effective
      with the merger, the conversion of the preferred stock to common shares at
      December 27, 2007
            
            
            (4,563,206
            )
            
            
            (456
            )
            4,563,206
            
            
            
            4,563
            
            
            (4,107
            )
            
            -
            
            
            -
            
            
            -Effective
      with the merger, the conversion of the Series A-2 preferred stock to
      common shares at December 27, 2007
            
            
            -
            
            
            
            -
            
            2,592,000
            
            
            
            2,592
            
            
            256,608
            
            
            -
            
            
            -
            
            
            259,200Effective
      with the merger, the conversion of convertible debentures inclusive of
      interest to common shares at December 27, 2007
            
            
            -
            
            
            
            -
            
            267,900
            
            
            
            268
            
            
            196,691
            
            
            -
            
            
            -
            
            
            196,959Common
      stock issued as beneficial conversion feature in conjunction with
      settlement of convertible debentures
            
            
            -
            
            
            
            -
            
            592,131
            
            
            
            592
            
            
            425,742
            
            
            -
            
            
            -
            
            
            426,334Fair
      value of warrants issued for as compensation for financing
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            355,034
            
            
            -
            
            
            -
            
            
            355,034Fair
      value of warrants issued in conjunction with convertible
      debentures
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            598,693
            
            
            -
            
            
            -
            
            
            598,693Beneficial
      conversion feature of preferred stock
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            2,817,710
            
            
            -
            
            
            -
            
            
            2,817,710Dividend
      on preferred stock
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,817,710
            )
            
            (2,817,710
            )Net
      loss
            
            
            -
            
            
            
            -
            
            -
            
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,185,141
            )
            
            (3,185,141
            )-
            
            
            $
            -
            
            20,237,522
            
            
            $
            20,238
            
            $
            5,853,154
            
            $
            -
            
            $
            (7,158,108
            )
            $
            (1,284,716
            )




See the
accompanying notes to the consolidated financial statements.


F-7




NEWCARDIO,
      INC.(a
      development stage company)CONSOLIDATED
      STATEMENTS OF CASH FLOWS




For
      the year ended December 31,
            
            
            FromSeptember
      7,20042007
              Restated
            
            
            2006
            
            
            (date
      of inception)throughDecember
      31, 2007RestatedCash
      flows from operating activities:Net
      loss for the period
            
            $
            (3,185,141
            )
            
            $
            (378,175
            )
            
            $
            (4,340,398
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
            
            
            594
            
            
            
            
            
            
            
            594Common
      stock issued to founders for services rendered
            
            
            -
            
            
            
            -
            
            
            
            3,177Common
      stock issued for intellectual property
            
            
            -
            
            
            
            -
            
            
            
            260Common
      stock issued for services rendered
            
            
            454,050
            
            
            
            35,338
            
            
            
            489,388Common
      stock issued as beneficial conversion feature in conjunction with
      settlement of convertible debentures
            
            
            426,334
            
            
            
            -
            
            
            
            426,334Series
      A-Preferred stock issued to founders for services rendered
            
            
            -
            
            
            
            -
            
            
            
            45,632Series
      A-2-Preferred stock issued for services rendered
            
            
            -
            
            
            
            -
            
            
            
            180,121Notes
      payable issued in conjunction with services rendered
            
            
            -
            
            
            
            10,316
            
            
            
            10,316Fair
      value of options issued for services rendered
            
            
            201,424
            
            
            
            76,818
            
            
            
            323,062Fair
      value of warrants issued in conjunction with issuance of Series A-2
      preferred stock
            
            
            -
            
            
            
            -
            
            
            
            232,502Fair
      value of warrants issued in settlement of convertible
      debentures
            
            
            598,692
            
            
            
            -
            
            
            
            598,692Amortization
      of debt discount attributable to subordinated convertible
    debt
            
            
            5,058
            
            
            
            655
            
            
            
            5,713Increase
      (decrease) in:Accounts
      payable and accrued liabilities
            
            
            364,454
            
            
            
            205,686
            
            
            
            790,705Net
      cash used in operating activities
            
            
            (1,134,535
            )
            
            
            (49,362
            )
            
            
            (1,233,902
            )Cash
      flows from investing activities:Purchase
      of property plant and equipment
            
            
            (8,281
            )
            
            
            -
            
            
            
            (8,281
            )Purchase
      of short term investment
            
            
            (5,000,000
            )
            
            
            -
            
            
            
            (5,000,000
            )Net
      cash provided by (used in) investing activities
            
            
            (5,008,281
            )
            
            
            -
            
            
            
            (5,008,281
            )Cash
      flows from financing activities:Proceeds
      from exercise of common stock options
            
            
            5,916
            
            
            
            -
            
            
            
            6,216Proceeds
      from the sale of Series A-2 preferred stock
            
            
            -
            
            
            
            -
            
            
            
            79,079Proceeds
      from sale of Series A preferred stock
            
            
            7,342,500
            
            
            
            
            
            
            
            7,342,500Proceeds
      from sale of common stock
            
            
            113,513
            
            
            
            
            
            
            
            113,513Proceeds
      from convertible debt, net
            
            
            157,500
            
            
            
            20,000
            
            
            
            177,500Net
      cash provided by financing activities
            
            
            7,619,429
            
            
            
            20,000
            
            
            
            7,718,808Net
      increase (decrease) in cash
            
            
            1,476,613
            
            
            
            (29,362
            )
            
            
            1,476,625Cash  at
      beginning of period
            
            
            12
            
            
            
            29,374
            
            
            
            -Cash  at
      end of period
            
            $
            1,476,625
            
            
            $
            12
            
            
            $
            1,476,625Supplemental
      disclosures of cash flow information:Taxes
      paid
            
            $
            -
            
            
            $
            -
            
            
            $
            -Interest
      paid
            
            
            -
            
            
            
            -
            
            
            
            -Non
      cash transactions:Fair
      value of warrants issued as compensation for financing
            
            
            355,034
            
            
            
            -
            
            
            
            355,034Beneficial
      conversion feature of redeemable preferred stock
            
            
            2,817,710
            
            
            
            
            
            
            
            2,817,710Preferred
      stock dividend
            
            $
            2,817,710
            
            
            $
            -
            
            
            $
            2,817,710




See
      the accompanying notes to the consolidated financial
      statements





F-8




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES





A summary
of the significant accounting policies applied in the presentation of the
accompanying financial statements follows:





Basis and
business presentation





NewCardio,
Inc. (the “Company”) was incorporated under the laws of the State of Delaware in
September 2004.  The Company is in the development stage, as defined
by Statement of Financial Accounting Standards No. 7 ("SFAS No. 7") and its
efforts have been principally devoted to developing cardiac diagnostics
equipment in the United States. To date, the Company has not generated sales
revenues, has incurred expenses and has sustained
losses.  Consequently, its operations are subject to all the risks
inherent in the establishment of a new business enterprise.  For the
period from inception through December 31, 2007, the Company has accumulated
losses of $7,158,108.





The
consolidated financial statements include the accounts of the Company,
and its wholly-owned subsidiary NewCardio Technologies, Inc. (“New Cardio
Technologies”).  All significant intercompany balances and transactions
have been eliminated in consolidation.





Merger
and Corporate Restructure





On
December 27, 2007, the Company consummated a reverse merger by entering into a
share exchange agreement (the “Share Exchange”) with the stockholders of
NewCardio, Inc., pursuant to which the stockholders of NewCardio,
Inc.  exchanged all of the issued and outstanding capital stock of
NewCardio, Inc. for 18,682,537 shares of common stock of Marine Park
Holdings, Inc. (“Marine Park Holdings”) representing 92% of Marine Park
Holdings’ outstanding capital stock, after the return to treasury and retirement
of 9,445,015 shares of common stock of Marine Park Holdings held by certain
stockholders of Marine Park Holdings made concurrently with the Share
Exchange.





As a
result of the Share Exchange, there was a change in control of the
Company.  In accordance with SFAS No. 141, NewCardio, Inc. was
the acquiring entity. In substance the Agreement is a recapitalization of
NewCardio, Inc.’s capital structure rather than a business
combination.





For
accounting purposes, the Company accounted for the transaction as a reverse
acquisition with New Cardio, Inc.  as the surviving entity. The total
purchase price and carrying value of net assets acquired was $-0-. NewCardio,
Inc. did not recognize goodwill or any intangible assets in connection with
the transaction. Prior to the Share Exchange, Marine Park Holdings was an
inactive corporation with no significant assets and liabilities.





The
accompanying financial statements present the historical financial condition,
results of operations and cash flows of New Cardio, Inc.prior to the
Merger.




The total
consideration paid was $-0- and the significant components of the transaction
are as follows:




Assets:
            
            $
            -0-Liabilities:Net
      liabilities assumed
            
            $
            -0-Total
      consideration:
            
            $
            -0-





All
reference to Common Stock shares and per share amounts have been retroactively
restated to effect the reverse acquisition as if the transaction had taken place
as of the beginning of the earliest period presented.


F-9




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES (continued)





Estimates





The
preparation of the financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures.  Accordingly, actual
results could differ from those estimates.





Revenue
Recognition





The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No.
101, “Revenue Recognition in Financial Statements” ("SAB 101").  SAB
101 requires that four basic  criteria must be met
before  revenue can be recognized :(1) persuasive  evidence
of an arrangement  exists;  (2) delivery has occurred; (3)
the  selling  price is fixed
and  determinable;  and
(4)  collectibility  is
reasonably  assured.  Determination  of  criteria  (3)  and  (4)  are  based  on
management's  judgments  regarding the fixed nature of the
selling prices of the products  delivered and
the  collectibility  of
those  amounts.  Provisions for discounts and rebates to
customers, estimated returns and allowances, and other adjustments are provided
for in the same period the related sales are recorded.





On
December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition.  The staff updated and revised the existing
revenue recognition in Topic 13, Revenue Recognition, to make its interpretive
guidance consistent with current accounting guidance, principally EITF Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables."  Also, SAB
104 incorporates portions of the Revenue  Recognition in
Financial  Statements - Frequently Asked
Questions  and  Answers  document  that
the SEC staff  considered  relevant  and
rescinds  the  remainder.   The  company's  revenue  recognition   policies  are
consistent  with  this  guidance;  therefore,  this  guidance  will  not
have an immediate impact on the company's consolidated financial
statements.





Cash and
Cash Equivalents





For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.





Debt and
Equity Securities





The
Company follows the provisions ofStatement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115) . The Company classifies debt and equity securities
into one of three categories: held-to-maturity, available-for-sale or trading.
These security classifications may be modified after acquisition only under
certain specified conditions. Securities may be classified as held-to-maturity
only if the Company has the positive intent and ability to hold them to
maturity. Trading securities are defined as those bought and held principally
for the purpose of selling them in the near term. All other securities must be
classified as available-for-sale.





Short-term
investments consist of a bank certificate of deposit that matures within the
next 12 months.





Held-to-maturity
securities are measured at amortized cost in the consolidated balance sheets.
Unrealized holding gains and losses are not included in earnings or in a
separate component of capital. They are merely disclosed in the notes to the
consolidated financial statements.





Available-for-sale
securities are carried at fair value on the consolidated balance sheets.
Unrealized holding gains and losses are not included in earnings but are
reported as a net amount (less expected tax) in a separate component of capital
until realized.





Trading
securities are carried at fair value on the consolidated balance sheets.
Unrealized holding gains and losses for trading securities are included in
earnings.





Declines
in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses.





F-10




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES (continued)





Property
and Equipment





Property
and equipment are stated at cost. When retired or otherwise disposed, the
related carrying value and accumulated depreciation are removed from the
respective accounts and the net difference less any amount realized from
disposition, is reflected in earnings. For financial statement purposes,
property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives of 3 years.





Long-Lived
Assets





The
Company has adopted Statement of Financial Accounting Standards No. 144 (“SFAS
144”). The Statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undiscounted cash flows. Should impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to
sell.




Income
Taxes





The
Company has adopted Financial Accounting Standard No. 109 (SFAS 109) which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statement or tax returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.  Temporary
differences between taxable income reported for financial reporting purposes and
income tax purposes are insignificant.





Comprehensive
Income





The
Company does not have any items of comprehensive income in any of the periods
presented.





Net Loss
per Share





The
Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," specifying the computation, presentation and disclosure
requirements of earnings per share information. Basic earnings per share has
been calculated based upon the weighted average number of common shares
outstanding. Stock options and warrants have been excluded as common stock
equivalents in the diluted earnings per share because they are either
antidilutive, or their effect is not material. Fully diluted shares outstanding
were 14,859,674 and 8,427,822 for the years ended December 31, 2007 and 2006,
respectively.





F-11




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES (continued)





Stock
based compensation





On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123R (revised 2004), Share-Based Payment" which is a revision of
FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement
123R supersedes APB opinion No. 25, "Accounting for Stock Issued to Employees",
and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the
approach in Statement 123R is similar to the approach described in Statement
123.  However, Statement 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values.  Pro-forma disclosure is
no longer an alternative. This statement does not change the accounting guidance
for share based payment transactions with parties other than employees provided
in Statement of Financial Accounting Standards No. 123(R). This statement does
not address the accounting for employee share ownership plans, which are subject
to AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock
Ownership Plans.” On April 14, 2005, the SEC amended the effective date of the
provisions of this statement.  The effect of this amendment by the SEC
is that the Company had to comply with Statement 123R and use the Fair Value
based method of accounting no later than the first quarter of 2006. The Company
implemented SFAS No. 123(R) on January 1, 2006 using the modified
prospective method.





As more
fully described in Note 9 below, the Company granted stock options over the
years to employees of the Company under a non-qualified employee stock option
plan.  As more fully described in Note 9 below, the Company granted
2,630,000 and 350,000 stock options during the year ended December 31, 2007 and
2006, respectively to employees and directors of the Company under a
non-qualified employee stock option plan.





As of
December 31, 2007, 3,000,000 employee stock options were outstanding with
1,096,182 exercisable.





Concentrations
of Credit Risk





Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with high credit quality institutions.  At times, such investments may
be in excess of the FDIC insurance limit.





Research
and Development





The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred.  Third-party research and development costs are expensed
when the contracted work has been performed or as milestone results have been
achieved. Company-sponsored research and development costs related to both
present and future products are expensed in the period incurred.  The
Company incurred research and development expenses of $369,674, $246,782 and
$1,159,026 for the years ended December 31, 2007 and 2006 and from September 7,
2004 (date of inception) through December 31, 2007, respectively.





Fair
Value of Financial Instruments





Statement
of Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments," requires disclosure of the fair value of certain
financial instruments. The carrying value of cash and cash equivalents, accounts
payable and short-term borrowings, as reflected in the balance sheets,
approximate fair value because of the short-term maturity of these instruments.
The carrying amount for the Series A convertible preferred stock approximate
fair value.





Liquidity





As shown
in the accompanying financial statements, the Company incurred net loss from
operations of $3,245,774 from its inception on September 7, 2004 through
December 31, 2007.




F-12




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES (continued)





Recent
accounting pronouncements





In
February 2006, the FASB issued SFAS No. 155. “Accounting for certain Hybrid
Financial Instruments an amendment of FASB Statements No. 133 and
140,”  or SFAS No. 155. SFAS No. 155 permits fair value
remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of Statement No. 133, establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation, clarifies that concentrations of
credit risk in the form of subordination are not embedded derivatives, and
amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS 155
is effective for all financial instruments acquired or issued after the
beginning of an entity’s first fiscal year that begins after September 15,
2006. SFAS No. 155 did not have a material impact on our financial
position, results of operations or cash flows.





In March
2006, the FASB issued FASB Statement No. 156, Accounting for Servicing of
Financial Assets - an amendment to FASB Statement No. 140. Statement 156
requires that an entity recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
service contract under certain situations. The new standard is effective for
fiscal years beginning after September 15, 2006. The adoption of SFAS No.156 did
not have a material impact on the Company's financial position and results of
operations.





In July
2006, the FASB issued Interpretation No. 48 (FIN 48). “Accounting for uncertainty in Income
Taxes”. FIN 48 clarifies the accounting for Income Taxes by prescribing
the minimum recognition threshold a tax position is required to meet before
being recognized in the financial statements. It also provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition and clearly scopes income taxes
out of SFAS 5, “Accounting for
Contingencies”.  FIN 48 is effective for fiscal years beginning
after December 15, 2006. The adoption of FIN 48 did not have a material effect
on the Company’s consolidated financial position, operations or cash flows for
the year ending December 31, 2007 (See Note 10).




In
September 2006 the Financial Account Standards Board (the “FASB”) issued its
Statement of Financial Accounting Standards 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. FAS 157 effective date is for fiscal
years beginning after November 15, 2007. The Company does not expect adoption of
this standard will have a material impact on its financial position, operations
or cash flows.




In
September 2006 the FASB issued its Statement of Financial Accounting Standards
158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans”.. This Statement improves financial reporting by requiring an employer to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This Statement also improves financial reporting by requiring an
employer to measure the funded status of a plan as of the date of its year-end
statement of financial position, with limited exceptions. The effective date for
an employer with publicly traded equity securities is as of the end of the
fiscal year ending after December 15, 2006. The Company does not expect adoption
of this standard will have a material impact on its financial position,
operations or cash flows.




F-13




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES (continued)





Recent
accounting pronouncements (continued)





In
December 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2,
"Accounting for Registration Payment Arrangements" ("FSP 00-19-2") which
addresses accounting for registration payment arrangements. FSP 00-19-2
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with
FASB Statement No. 5, Accounting for Contingencies. FSP 00-19-2 further
clarifies that a financial instrument subject to a registration payment
arrangement should be accounted for in accordance with other applicable
generally accepted accounting principles without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. For registration payment arrangements and financial instruments
subject to those arrangements that were entered into prior to  the
issuance of EITF 00-19-2, this guidance shall be effective for financial
statements issued for fiscal years beginning after December 15, 2006 and interim
periods within those fiscal years. The Company does not expect adoption of this
FSP will have a material impact on its financial position, operations or cash
flows.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.”SFAS 159 permits entities to choose to
measure many financial instruments, and certain other items, at fair
value.SFAS 159 applies to
reporting periods beginning after November 15, 2007. The adoption of SFAS 159 is
not expected to have a material impact on the Company’s financial condition or
results of operations.





In
December 2007, the FASB issued SFAS No. 141(R),"Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15,
2008.  Earlier adoption is prohibited and the Company is currently
evaluating the effect, if any, that the adoption will have on its financial
position, results of operations or cash flows.





In
December 2007, the FASB issued SFAS No. 160,"Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB
No. 51"  ("SFAS No. 160"), which will change the
accounting and reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of equity within the
consolidated balance sheets.  SFAS No. 160 is effective as of the
beginning of the first fiscal year beginning on or after December 15,
2008.  Earlier adoption is prohibited and the Company is currently
evaluating the effect, if any, that the adoption will have on its financial
position, results of operations or cash flows.





NOTE
2 - PROPERTY, PLANT, AND EQUIPMENT





Property,
plant and equipment at December 31, 2007 and 2006 are as follows:





2007
            
            
            2006Computer
      equipment
            
            $
            8,281
            
            
            $
            -0-Less:
      accumulated depreciation
            
            
            (594
            )
            
            
            (-0-
            )$
            7,687
            
            
            $
            -0-





The
Company uses the straight line method of depreciation over 3 years. During the
years ended December 31, 2007 and 2006, depreciation expense charged to
operations was $594 and $-0-, respectively.





F-14




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
3 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





The
Company has consulting agreements with independent contractors, certain of whom
are also Company stockholders. See also Footnote 4 for related party
transactions. The agreements are generally short term and milestones based and
include cash compensation, equity compensation or a combination thereof.
 Accounts payable and accrued liabilities at December 31, 2007 and 2006 are
comprised of costs incurred in product development in addition to costs of
operations.





NOTE
4 – RELATED PARTY TRANSACTIONS





Notes
payable related party is comprised of a promissory note totaling $10,316 due
November 15, 2008 with interest at 4.9% due upon maturity to a former
director.





In
October 2006, the Company came to a mutually-agreed lump-sum settlement of
$95,000 plus expenses of approximately $42,000 with a former director of the
Company for services rendered and expenses incurred from September 2004 through
August 2006 for managing our clinical trials and the related peer reviewed
publications process. He was a director from August 2005 to June 2006. This
amount was payable at December 31, 2006, with payment subject to the company
having sufficient capital resources if and when it obtains
financing.  The Company paid $111,000 following the December 27, 2007
financing and the balance in the first quarter of 2008.





In
September 2007, the Company entered into a three-year consulting agreement with
E4, LLC, a greater than 5% shareholder of the Company. The Company sold E4, LLC
1,475,631 shares of common stock for $0.02 per share for cash, or $29,513. The
consultant also receives monthly cash payments of $24,000 as part of this
consulting agreement. His services are to provide business guidance, and
primarily in areas related to sales, marketing and business strategy. At
December 31, 2007 the Company owed E4, LLC $84,000 that was subsequently paid in
January 2008.




Another
former director received $40,000 as consulting fees during the year ended
December 31, 2007, all of which was paid as of year end.




NOTE
5 – SUBORDINATED CONVERTIBLE NOTES PAYABLE





Subordinated
convertible notes payable are comprised of the following:





December 31,
              2007
            
            
            December
      31,
              20066%
      subordinated convertible promissory note, due August 2007; net of
      unamortized discount of $-0- and $917, respectively
            
            $
            -
            
            
            $
            19,083





All
subordinated convertible notes payable outstanding as of December 31, 2006 and
subsequent issuances during the two years ended December 31, 2007 were issued by
the accounting predecessor and were converted to common stock at the time of the
Merger and corporate restructure (see note 1) or was repaid at the closing of
the Series A 10% Preferred Stock issuance (see note 6).




A summary
of common shares issued at December 27, 2007 in exchange for previously issued
convertible debt instruments is as follows:





Principal
            
            
            Accrued
              Interest
            
            
            Number
      of
              Shares
      Issued
            
            
            Conversion
              price
      per share6%
      Subordinated convertible notes dated August 2006
            
            $
            20,000
            
            
            $
            1,677
            
            
            
            22,815
            
            
            $
            0.956%
      Subordinated convertible notes dated February 2007
            
            
            2,500
            
            
            
            130
            
            
            
            2,768
            
            
            $
            0.955%
      Subordinated convertible notes dated July 2007
            
            
            25,000
            
            
            
            2,500
            
            
            
            38,596
            
            
            $
            0.71255%
      Subordinated convertible notes dated September 2007
            
            
            123,957
            
            
            
            12,396
            
            
            
            191,371
            
            
            $
            0.71255%
      Subordinated convertible notes dated November 2007
            
            
            8,000
            
            
            
            8,800
            
            
            
            12,350
            
            
            $
            0.7125Total
      common stock issued in settlement of convertible notes payable and accrued
      interest
            
            
            
            
            
            
            
            
            
            
            267,900


F-15




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
5 – SUBORDINATED CONVERTIBLE NOTES PAYABLE (continued)





6%
Subordinated convertible notes





In August
2006, in connection with a private placement, the Company issued 6% subordinated
convertible promissory notes in the aggregate of $20,000 and attached to the
notes were warrants to purchase 20,000 shares of common stock at a price of
$0.50 per share for five years. The principal amounts of the notes, along with
accrued and unpaid interest, were due in full in August, 2007.  The
effective interest rate at the date of inception was 6.52% per
annum





The
promissory notes are unsecured and convertible automatically to common stock
subject to the completion of a “qualified equity financing” transaction as
defined as $2,000,000 in equity financing before maturity (1 year) of the
notes.





The
warrants do not have registration rights for the underlying shares. Since the
contract may be settled by the delivery of unregistered shares and the delivery
of the unregistered shares is within the control of the Company, pursuant to
EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock”, the net value of the warrants at
the date of issuance was recorded as equity.





The
Company had recognized the value attributable to the warrants, being $ 1,572, to
additional paid-in capital and a discount against the convertible notes payable
in accordance with Emerging Issues Task Force Issue 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments (EITF 00-27).  The Company
valued the warrants in accordance with EITF 00-27 using the Black-Scholes
pricing model and the following assumptions: contractual terms of 5 years, an
average risk free interest rate of 4.90%, a dividend yield of 0%, and volatility
of 145.49%. The debt discount attributed to the warrants is amortized over the
convertible notes payable maturity period of one year as interest expense. For
the years ended December 31, 2007 and 2006, the Company amortized and charged to
interest $655 and $917 and of debt discounts attributable to subordinated
convertible notes payable, respectively





On
December 27, 2007, the Company issued 22,815 shares of common stock at $0.95 per
share in exchange for the subordinated convertible notes and accrued and unpaid
interest.





In
February 2007, in connection with a private placement, the Company issued 6%
subordinated convertible promissory notes in the aggregate of $2,500 and
attached to the notes were warrants to purchase 5,000 shares of common stock at
a price of $0.50 per share for five years. The principal amounts of the notes,
along with accrued and unpaid interest, are due in full in February,
2008.  The effective interest rate at the date of inception was 6.22%
per annum.




The
promissory notes are unsecured and convertible automatically to common stock
subject to the completion of a “qualified equity financing” transaction as
defined as $2,000,000 in equity financing before maturity (1 year) of the
notes.




The
warrants do not have registration rights for the underlying shares. Since the
contract may be settled by the delivery of unregistered shares and the delivery
of the unregistered shares is within the control of the Company, pursuant to
EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock”, the net value of the warrants at
the date of issuance was recorded as equity.


F-16




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
5 – SUBORDINATED CONVERTIBLE NOTES PAYABLE (continued)





The
Company had recognized the value attributable to the warrants, being $86, to
additional paid-in capital and a discount against the convertible notes payable
in accordance with Emerging Issues Task Force Issue 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments (EITF 00-27).  The Company
valued the warrants in accordance with EITF 00-27 using the Black-Scholes
pricing model and the following assumptions: contractual terms of 5 years, an
average risk free interest rate of 4.81%, a dividend yield of 0%, and volatility
of 77.81%. The debt discount attributed to the warrants is amortized over the
convertible notes payable maturity period of one year as interest expense. For
the year ended December 31, 2007, the Company amortized and charged to interest
$86 of debt discounts attributable to subordinated convertible notes payable,
respectively.





On
December 27, 2007, the Company issued 2,768 shares of common stock at $0.95 per
share in exchange for the subordinated convertible notes and accrued and unpaid
interest.





8%
subordinated convertible notes





In April
2007, in connection with a private placement, the Company issued 8% a
subordinated convertible promissory note in the aggregate of $50,000 .The
principal amounts of the notes, along with accrued and unpaid interest, are due
in full one year from issuance.





In the
event the Company consummates, prior to maturity, a convertible note and warrant
debt financing amounting to at least $250,000 in convertible note principal to
the Company, all principal and interest then outstanding under the note shall be
converted into the form of convertible promissory note issued and holder of the
note shall be afforded the same terms and conditions offered to all
investors.





In May
2007, in connection with a private placement, the Company issued 8% a
subordinated convertible promissory note in the aggregate of
$12,000.  The principal amounts of the notes, along with accrued and
unpaid interest, are due in full one year from issuance.





In the
event the Company consummates, prior to maturity, a convertible note and warrant
debt financing amounting to at least $250,000 in convertible note principal to
the Company, all principal and interest then outstanding under the note shall be
converted into the form of convertible promissory note issued and holder of the
note shall be afforded the same terms and conditions offered to all
investors





In
September, 2007, the April and May 2007  8% subordinated convertible
promissory notes along with accrued interest of $1,957 were converted to the
same terms and conditions as the 5% subordinated convertible notes described
below.





5%
subordinated convertible notes





In June
2007, in connection with a private placement, the Company issued a
5% subordinated convertible promissory note in the aggregate of $250,000.
The unpaid principal amounts of the notes times a premium factor of 1.10, along
with accrued and unpaid interest, are due in full in June
2008.  Additionally the Company agreed to issue additional shares in
the event of a completion of a recapitalization. In conjunction with the
issuance of the subordinated convertible promissory note, the Company issued
options to purchase 50,000 shares of the Company’s common stock for 142 days
(see below).





In July
2007, in connection with a private placement, the Company issued a
5% subordinated convertible promissory note in the aggregate of $25,000.
The unpaid principal amounts of the notes times a premium factor of 1.10, along
with accrued and unpaid interest, are due in full in July
2008.  Additionally the Company agreed to issue additional shares in
the event of a completion of a recapitalization.





In
September 2007, the 8% subordinated convertible notes as described above of
$62,000 along with accrued interest of $1,957 were converted to the
5% subordinated convertible promissory notes.  The unpaid
principal amounts of the notes times a premium factor of 1.10, along with
accrued and unpaid interest, are due in full in September 2008. Additionally the
Company agreed to issue additional shares in the event of a completion of a
recapitalization.


F-17




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006




NOTE
5 – SUBORDINATED CONVERTIBLE NOTES PAYABLE (continued)





In
September 2007, in connection with a private placement, the Company issued a
5% subordinated convertible promissory note in the aggregate of $60,000 and
in conjunction with the convertible promissory note, options to purchase 50,000
of the Company’s common stock at a price of $0.02 per share expiring November
30, 2007. The unpaid principal amounts of the notes times a premium factor
of 1.10, along with accrued and unpaid interest, are due in full in September
2008.  Additionally the Company agreed to issue additional shares in
the event of a completion of a recapitalization.




In
November 2007, in connection with a private placement, the Company issued a
5% subordinated convertible promissory note in the aggregate of $8,000. The
unpaid principal amounts of the notes times a premium factor of 1.10, along with
accrued and unpaid interest, are due in full in November
2008.  Additionally the Company agreed to issue additional shares in
the event of a completion of a recapitalization.





In
December 2007, in connection with a private placement, the Company issued a
5% subordinated convertible promissory note in the aggregate of $50,000.
The unpaid principal amounts of the notes times a premium factor of 1.10, along
with accrued and unpaid interest, are due in full in December
2008.  Additionally the Company agreed to issue additional shares in
the event of a completion of a recapitalization.





The
options do not have registration rights for the underlying shares. Since the
contract may be settled by the delivery of unregistered shares and the delivery
of the unregistered shares is within the control of the Company, pursuant to
EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock”, the net value of the options at
the date of issuance was recorded as equity.





The
Company had recognized the value attributable to the options, being $4,055, to
additional paid-in capital and a discount against the convertible notes payable
in accordance with Emerging Issues Task Force Issue 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments (EITF 00-27).  The Company
valued the warrants in accordance with EITF 00-27 using the Black-Scholes
pricing model and the following assumptions: contractual terms of 142 days, an
average risk free interest rate of 5.04%, a dividend yield of 0%, and volatility
of 153.51%. The debt discount attributed to the options is amortized over the
convertible notes payable maturity period of one year as interest expense. For
the year ended December 31, 2007, the Company amortized and charged to interest
$4,055 of debt discounts attributable to subordinated convertible notes
payable.





In the
event the Company closes, prior to maturity, a transaction as a publicly traded
Company involving a private placement in public equity (“PIPE”) with an
aggregate sales price of not less than $2,500,000, then the note holders, at
their option, can convert any unpaid principal of the note multiplied by the
premium factor of 1.0 into PIPE stock at a conversion price equal to the cash
price paid by investors in a Qualified PIPE multiplied by a factor of 0.75.
Additionally, the Company is required to issue warrants in the event of
qualified PIPE transactions, the terms, exercise price and number of warrants
are contingent to the future terms and conditions of a possible qualifying PIPE
transaction.





In
accordance with EITF 00-27, the Company did not record the contingent beneficial
conversion features or warrants.  Should the contingent event
(“triggering event”) occur, the Company is required to record the intrinsic
value of the conversion feature and the fair value of any warrants issued under
the note’s terms and conditions.





On
December 27, 2007, the Company issued 242,317 shares of common stock at $0.7125
per share in exchange for $156,957 in subordinated convertible notes and accrued
and unpaid interest.  Additionally, the Company issued and paid cash
for the remaining $300,000 in subordinated convertible notes and accrued and
unpaid interest including a 10% payoff fee. In conjunction with the settlement
of the 5% subordinated convertible notes, the Company issued an aggregate of
592,131 additional shares plus 592,131 warrants to purchase its common stock at
$0.96 per share and 473,705 at $1.15 per share expiring June 27,
2012.  The fair value of the additional shares at $0.72 per share
totaling $426,334 and the fair value (determined below) of the warrants of
$598,692 was charged to current year operations as interest, net.





The fair
values of the warrants were determined using the Black-Scholes option pricing
model with the following assumptions:  Term: contract: market value:
$0.72; dividend yield: -0-%; risk free rate: 3.64%, Volatility:
121.06%.


F-18




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
6-   REDEEMABLE SECURITIES





Series
A-2 – Convertible Preferred Stock





The
series A-2 – Convertible Preferred Stock was issued by the accounting
predecessor and was converted to common at the time of the recapitalization on
December 27, 2007 (see below) on a one-to-one share basis.





The
Company is authorized to issue 2,592,000 shares of Series A-2 preferred stock
with a par value of $0.0001 per share.





In June
2005, the Company sold through private placement 839,790 shares at $0.094 per
share, net.




In June
2005, the Company issued 1,752,210 shares as reimbursement for previously
incurred expenses and for services rendered. The Company valued the shares at
$.10 per share, which approximated the fair value of the reimbursed costs and
services rendered and did not differ materially from the fair value of the
preferred shares issued during the period.





The
Series A-2 preferred stock is convertible into the Company’s common stock at an
initial conversion rate of one for one subject to certain anti-dilution
provisions in the event the Company issues shares of its common stock or common
stock equivalents below the stated conversion price. Changes to the conversion
price are charged to operations and included in unrealized gain (loss) relating
to adjustment of derivative and to fair value of underlying
securities.





The
Company is obligated to redeem the Series A-2 Preferred Stock if requested by
the holders at any time after the fifth anniversary of the original issue date
from any funds legally available for such purpose.  The Company shall
effect redemptions by paying cash in an amount equal to the greater of (i) the
original issue price for the Series A-2 Preferred Stock (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like) plus all
declared by unpaid dividends on such shares for each Series A-2 Preferred stock
then outstanding or (ii) the fair market value of such shares of Series A-2
Preferred Stock.





Each
share of Series A-2 preferred stock shall be automatically converted into common
stock at the conversion price at the time in effect for such share immediately
upon the earlier of (i) the Company’s sale of common stock in a firm commitment
underwritten public offering pursuant to a registration statement under
Securities Act of 1933 which results in an aggregate cash proceeds to the
Company of not less than $20,000,000 or (ii) the date specified by written
consent or agreement of the holders of a majority of the then outstanding shares
of the Series A-2 preferred stock.





The
holders of record of the Series A-2 Preferred shall be entitled to receive non
cumulative dividends at the rate of eight percent per annum (8%) on the original
issue price when, if and as declared by the Board of Directors, if ever and only
shall be entitled to receive payments out of funds that are legally available in
preference to holders of any other stock of the Company. These dividends are not
recorded until declared by the Company.





Upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary,  and in preference to any distribution of any assets of the
Company to holders of any junior stock and before any distribution or payment is
made with respect to any Common Stock, holders of each share of the Series A-2
Preferred shall be entitled to be paid an amount equal to $0.10 per share
subject to adjustment for stock splits, stock dividends, reorganizations,
reclassification or other similar events. Upon completion of a liquidation
required by any series of Preferred Stock that from time to time come into
existence, if assets remain in the Company, such assets shall be distributed
ratably to the holders of the Common Stock and holders of the Preferred Stock on
an as-converted basis.





Attached
to the Series A-2 preferred shares, the Company issued warrants to purchase
shares of the Company’s common stock at $0.10 per share for the next five
years.  The warrants were valued using the Black Scholes option
pricing method with the following assumptions:  dividend yield $0;
volatility 141.5%; risk free interest rate: 3.84%.  The fair value of
the warrants of $232,502 was charged to operations in the year ended December
31, 2005.


F-19


NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
6 - REDEEMABLE SECURITIES (continued)




Although
the redemption is not certain to occur, the Series A-2 Convertible Preferred
stock is required to be classified as a liability in the balance sheet and is
stated at redemption value which approximates fair value.





On
December 27, 2007, the Company issued 2,592,000 shares of common stock in
exchange for outstanding shares of Series A-2 Preferred Stock.





Series
A – 10% Convertible Preferred Stock





The
Company is authorized to issue 1,000,000 shares of preferred stock with a par
value of $ 0.001 per share.  The Company's preferred stock may be
divided into such series as may be established by the Board of Directors. The
Board of Directors may fix and determine the relative rights and preferences of
the shares of any series established.





In
December, 2007, the Board of Directors authorized the issuance of up to 12,000
shares of Series A 10% convertible non-voting preferred stock (“Series A”)
having a stated value of $1,000 per share. The Series A shares are convertible
at any time, at the option of the holder, into the Company’s common stock
at an initial conversion rate determined by dividing the stated value of $1,000
by the initial conversion price of $0.95 per share. The conversion price is
subject to certain anti-dilution provisions in the event the Company issues
shares of its common stock or common stock equivalents below the stated
conversion price or pays a stock dividend or otherwise makes a distribution
payable in shares of common stock, with the exception of any shares issued upon
conversion or payment of dividend on this issuance, or other similar events such
as stock splits or common stock reclassifications. Changes to the conversion
price, if any, will be charged to operations and included in unrealized gain
(loss) relating to adjustment of derivative and to fair value of underlying
securities.





The
holders are entitled to receive a cumulative 10% dividend based on the stated
value of $1,000 per share, payable on the calendar quarter in cash or in shares
of its common stock with certain discounts, at the Company’s
option.




Upon any
liquidation, dissolution or winding-up of the Company, the Series A shareholders
shall be entitled to receive out of the assets, whether capital or surplus, of
the Company an amount equal to 120% of the stated value, plus any accrued and
unpaid dividends thereon and any other fees or liquidated damages owing thereon,
for each Series A share before any distribution or payment shall be made to the
holders of any other securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed to the Series A shareholders shall be ratably distributed among the
Series A shareholders in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full. The
liquidation value as of December 31, 2007 was $9,840,000 plus accrued dividends
of $9,111.




In
December 2007, the Company issued 8,200 Series A shares at $1,000 per share to
accredited investors in a private placement. The Company received $8,200,000
less issuance costs totaling $1,312,534. Net cash proceeds at December 31, 2007
were $ 7,342,500. The balance of the costs includes an accrual paid in January
and the value of a fee warrant issued in conjunction with the financing. The
issuance costs have been recorded as a reduction in the 'Shares subject to
redemption'.





Under the
terms of the Series A Stock Certificate of Designation, the Company may be
required to redeem the Series A shares for cash in an amount equal to the Series
A stated value, plus accrued and unpaid dividends , upon the occurrence
of  certain events , including the change in control of the
Company.





As a
result of this obligation, the Company has determined the Series A shares
includes  redemption features that have the potential to be outside
the control of the Company, and accordingly, the Company has classified the
Series A  shares  outside of shareholders’ equity in
accordance with Emerging Issues Task Force (“EITF”) Topic D-98, Classification
and Measurement of Redeemable Securities (“EITF Topic D-98”). In accordance with
EITF Topic D-98, the fair value allocated to the Preferred Stock at the date of
issuance was recorded outside of common shareholders’ equity in the accompanying
consolidated balance sheet.


F-20


NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
6 - REDEEMABLE SECURITIES (continued)




Series
A – 10% Convertible Preferred Stock (continued)





In
accordance with Emerging Issues Task Force (“EITF”) No.00-27, “ Application of EITF Issue
No. 98-5, ‘Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Rates’, to Certain Convertible
Instruments ”, a
portion of the proceeds were allocated to the warrants based on their fair
value, which totaled $4,802,973 using the Black Scholes option pricing
model. Further, we attributed a beneficial conversion feature of $2,817,710
to the Series A preferred shares based upon the difference between the
effective conversion price of those shares and the fair value of our common
shares on the date of issuance. The assumptions used in the Black Scholes model
are as follows:  (1) dividend yield of 0%; (2) expected
volatility of 121.06%, (3) risk-free interest rate of 3.37% to
3.64%, and (4) expected life of 1 to 5 years. The amount attributable
to the beneficial conversion feature has been recoded as a dividend to the
preferred shareholders. Since the redemption feature of the preferred stock is
contingent on the occurrence of future events, we will not accrete the carrying
value of the preferred stock to redemption value until the occurrence of those
future events becomes probable.




The
Company’s Series A Shares are redeemable under certain conditions,
including:




●
            The
      Company effecting a merger or consolidation with another
      entity●
            The
      Company sells all or substantially all of the Company’s
    assets


●
            The
      Company’s shareholders approve a render or exchange offer,
    or●
            The
      Company’s holders of the common stock exchange their shares for securities
      or cash




The
redemption feature of the Series A Shares is contingent on the occurrence of any
of the above events and the Company believes the occurrence of
any these events not to be probable. Accordingly, upon the occurrence
of one of the events, the Series A shares will become redeemable and the
Company will accrete the carrying value of the Series A Shares to
redemption value.




Registration
Rights Agreement




In
connection with the December 27, 2007 private placement, the Company entered
into a registration rights agreement with the purchasers of the Series A shares,
which, as amended, requires the Company to obtain an effective registration
statement with the SEC covering the sale of the common stock issuable upon
conversion of the Series A shares on or before August 31, 2008. If the Company
is unable to obtain an effective registration statement by that date, the
Company will have to pay liquidated damages in cash to the holders of the Series
A shares beginning on September 1, 2008.  The amount of liquidated
damages that may be due is calculated by the following formula: up to a maximum
of 20% of the aggregate subscription amount paid by each purchaser of the Series
A shares on the percentage of the total Series A shares purchased by each
purchaser that the SEC will allow us to register under Rule 415.  The
Company estimates that percentage to be 33% of the total outstanding shares held
by non-affiliates of the Company, or 4,112,753 shares of common
stock.  Based on this formula the Company may be obligated to pay up
to $781,423 in liquidated damages. The Company has filed a registration
statement with the SEC for the sale of the common stock underlying the Series A
shares. However, the registration statement is currently the subject of an SEC
review and, to date, has not been declared effective.




The
Company has not recorded a liability in connection with the registration rights
agreement because, in accordance with SFAS No. 5,Accounting for
Contingencies, management has concluded that it is not probable that the
Company will make any payments under the liquidated damages provisions of the
registration rights agreement.





The
Company, after the effective date of the registration, and with certain market
conditions, can force redemption of the Series A 10% Convertible Preferred
Stock.


F-21


NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
6 - REDEEMABLE SECURITIES (continued)




Registration
Rights Agreement (continued)





As
additional consideration for the purchase of the Series A shares, the Company
granted to the holders of the Series A shares warrants entitling it to purchase
5,178,947 common shares of the Company’s common stock at the price of $1.14 per
share expiring five years from issuance, and exercisable after one year on a net
cashless basis. 5,157,895 J Warrants were also issued at $1.235 per share
expiring one year from issuance. In addition, J-A Warrants totaling 3,094,737
are issuable at $1.425 share, contingent on the exercise of the J
Warrants. For accounting purposes they have the one-year life as they are
linked to the J Warrants. If the J Warrants are exercised, these warrants become
5-year warrants with a net cashless provision. None of the warrants have
registration rights. The Company estimated the fair value at date of issue of
the stock purchase warrants issued in connection with the private placement to
be $4,802,973 using the Black-Scholes formula assuming no dividends, a risk-free
interest rate of 3.37% to 3.64 %, expected volatility of 121.06%, and expected
warrant life of one to five years. Since the Company may be obligated to settle
the warrants in cash, pursuant to EITF 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock”, the Company has recorded the fair value of the warrants as a derivative
liability. The net value of the warrants at the date of issuance was recorded as
a warrant liability on the balance sheet in the amount of $ 4,802,973 and a
reduction in value of shares subject to redemption.  Any change in fair
value was recorded as non-operating, non-cash income or expense at each
reporting date.





NOTE
7- WARRANT LIABILITY





As
described in Note 6 above, the Company issued warrants in conjunction with the
sale of Series A Preferred stock.  These warrants contain a
“fundamental transaction” clause that if while the warrant(s) are outstanding,
the Company effects any merger or consolidation of the Company with or into
another Person, or other similar transactions as defined in the warrant
agreement, the warrant holders can demand net cash settlement.





As the
contracts contain a provision that could require cash settlement , pursuant
to  EITF 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock”, the warrants were recorded as a derivative liability and valued
at fair market value until the Company meets the criteria under EITF 00-19 for
permanent equity. The fair value of the warrants were determined using a
Black-Scholes option pricing model, and is affected by changes in inputs to that
model including our stock price, expected stock price volatility and contractual
term. The net value of the warrants at the date of issuance was recorded as a
warrant liability on the balance sheet in the amount of $4,802,973 (see Note
6) and charged as a reduction of the preferred stock carrying
value. Subsequent to the initial issuance date, the Company will be
required to adjust to fair value the warrant as an adjustment to current period
operations.





As of the
date of the financial statements, the Company believes an event that would
create an obligation to settle the stock purchase warrants in cash or other
current assets are remote and has classified the obligation as a long term
liability.


F-22


NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
8 – STOCKHOLDERS EQUITY





Series
A – Convertible Preferred Stock





At the
time of its founding in September 2004, NewCardio Technologies issued 4,563,206
shares of Series A Convertible Preferred Stock, par value $0.0001 per share, to
certain persons for costs incurred and services rendered.  The shares
of Series A Preferred Stock were valued at $0.01 per share at the time of
issuance.  In December 2007, in conjunction with the Share Exchange,
the Series A Preferred Stock was converted on a one share-to-one share basis
into 4,563,206 shares of common stock.





Common
Stock





The
Company is authorized to issue 99,000,000 shares of common stock with a par
value of $0.001 per share.





In
September 2004, the Company issued 3,436,794 shares of its common stock to
founders and consultants in exchange for services and intellectual property at
$0.001 per share.





In
November 2004, the Company issued 300,000 shares of its common stock in exchange
for options exercised at $0.001 per share.





In March
2006, the Company issued 278,375 shares of its common stock for services
rendered at $0.10 per share. All valuations of common stock issued for services
were based upon value of the services rendered, which did not differ materially
from the fair value of the Company’s common stock during the period the services
were rendered.





In
October 2006, the Company issued 75,000 shares of its common stock for services
rendered at $0.10 per share. All valuations of common stock issued for services
were based upon value of the services rendered, which did not differ materially
from the fair value of the Company’s common stock during the period the services
were rendered.




In June
2007, the Company sold 4,200,000 shares of common stock valued at $0.10 per
share for $0.02 per share, or $84,000. The remaining $0.08 per share value was
issued as compensation for services valued at $336,000. The valuation of common
stock issued for services was based on the value of the services rendered, which
did not differ materially from the fair value of the common stock during the
period the services were rendered.  The difference between cash received
for the sale of the common stock and the estimated fair value of $0.08 per share
was recorded as stock-based compensation.





In
September 2007, the Company sold 1,475,631 shares of common stock valued at
$0.10 per share, for $0.02 per share, or $29,513. The remaining $0.08 per share
was issued as compensation for services rendered. The difference between cash
received for the sale of the common stock and the estimated fair value of $0.08
per share was recorded as stock-based compensation, which did not differ
materially from the fair value of the common stock during the period the
services were rendered. 25% of the shares were fully vested at the time of sale.
The remaining shares are subject to a repurchase right that diminishes over a
36-month period.


F-23




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
9 -STOCK OPTIONS AND WARRANTS




Warrants




The
following table summarizes the changes in warrants outstanding and related
prices for the shares of the Company’s common stock issued to shareholders at
December 31, 2007:




Warrants
              Outstanding
            
            
            
            
            
            
            
            
            Warrants
              ExercisableWeighted
              AverageNumber
            
            
            Remaining
              Contractual
            
            
            Weighted
              Average
            
            
            Number
            
            
            Weighted
              AverageExercise
      Price
            
            
            Outstanding
            
            
            Life
      (years)
            
            
            Exercise
      price
            
            
            Exercisable
            
            
            Exercise
      Price$
            0.10
            
            
            
            2,592,000
            
            
            
            2.47
            
            
            $
            0.10
            
            
            
            2,592,000
            
            
            $
            0.100.50
            
            
            
            25,000
            
            
            
            3.65
            
            
            
            0.50
            
            
            
            22,500
            
            
            
            0.500.95
            
            
            
            604,211
            
            
            
            4.99
            
            
            
            0.95
            
            
            
            604,211
            
            
            
            0.950.96
            
            
            
            592,131
            
            
            
            4.50
            
            
            
            0.96
            
            
            
            592,131
            
            
            
            0.961.14
            
            
            
            5,178,947
            
            
            
            4.99
            
            
            
            1.14
            
            
            
            5,178,947
            
            
            
            1.141.15
            
            
            
            473,705
            
            
            
            4.50
            
            
            
            1.15
            
            
            
            473,705
            
            
            
            1.151.235
            
            
            
            5,157,895
            
            
            
            .99
            
            
            
            1.235
            
            
            
            5,157,895
            
            
            
            1.2351.425
            
            
            
            3,094,737
            
            
            
            .99
            
            
            
            1.425
            
            
            
            -
            
            
            
            1.425




Transactions
involving the Company’s warrant issuance are summarized as follows:




Number
              of
      Shares
            
            
            Weighted
              Average
              Price
              Per
      ShareOutstanding
      at December 31, 2005
            
            
            2,592,000
            
            
            $
            0.10Granted
            
            
            20,000
            
            
            
            0.50Exercised
            
            
            -
            
            
            
            -Canceled
      or expired
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2006
            
            
            2,612,000
            
            
            
            0.11Granted
            
            
            15,106,626
            
            
            
            1.22Exercised
            
            
            -
            
            
            
            -Canceled
      or expired
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2007
            
            
            17,718,626
            
            
            $
            1.06





Warrants
granted during the period ended December 31, 2005 totaling 2,592,000 were issued
in connection with the issuance of Series A-2 preferred stock. The warrants are
exercisable until five years after the date of issuance at a purchase price of
$0.10 per share. The warrants were valued using the Black Scholes option pricing
method with the following assumptions:  dividend yield $0; volatility
141.5%; risk free interest rate: 3.84%.  The fair value of the
warrants of $232,502 was charged to operations in the year ended December 31,
2005.





For the
year ended December 31, 2006, warrants totaling 20,000 were issued in connection
with debt financing. The warrants are exercisable until five years after date of
issuance with a purchase price of $0.50 per share.  The warrants were
valued using the Black Scholes option pricing method with the following
assumptions:  dividend yield $-0-, volatility of 145.49% and risk free
rate of 4.90%.  The Company recorded a debt discount related to the
debt financing of $1,572 in the year ended December 31, 2006.


F-24








NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
9 -STOCK OPTIONS AND WARRANTS (continued)





For the
year ended December 31, 2007, warrants totaling 5,000 issued in connection with
debt financing. The warrants are exercisable until five years after date of
issuance with a purchase price of $0.50 per share.  The warrants were
valued using the Black Scholes option pricing method with the following
assumptions:  dividend yield $-0-, volatility of 77.81% and risk free
rate of 4.81%.  The Company recorded a debt discount related to the
debt financing of $86 in the year ended December 31, 2007.





For the
year ended December 31, 2007, warrants totaling 1,065,836 issued in connection
with convertible debentures. The warrants are exercisable until June 27, 2012
with 592,131 warrants with a purchase price of $0.96 per share and 473,705
warrants at $1.15 per share.  The warrants were valued using the Black
Scholes option pricing method with the following
assumptions:  dividend yield $-0-, volatility of 121.06% and risk free
rate of 3.64%.  The Company recorded a debt discount related to the
debt financing of $598,692 in the year ended December 31, 2007.





For the
year ended December 31, 2007, warrants totaling 604,211 issued in connection
with services rendered. The warrants are exercisable five years from the date of
issuance with a purchase price of $0.95 per share.  The warrants were
valued using the Black Scholes option pricing method with the following
assumptions:  dividend yield $-0-, volatility of 121.06% and risk free
rate of 3.64%.  The Company recorded a charge to operations of
$355,034 in the year ended December 31, 2007.




For the
year ended December 31, 2007, warrants totaling 13,431,579 issued in connection
with the issuance of the Series A – 10% convertible preferred stock. The general
descriptions and the methods and assumptions of fair value are described
below:





Series
      A
              Warrants
            
            
            Series
      J
              Warrants
            
            
            Series
      J-A
              WarrantsNumber
      of warrants
            
            
            5,178,947
            
            
            
            5,157,895
            
            
            
            3,094,737Exercise
      price
            
            $
            1.14
            
            
            $
            1.235
            
            
            $
            1.425Term
            
            5
      years
            
            
            1
      year
            
            
            1
      year (a)Black
      Scholes Assumptions:Dividend
      yield:
            
            
            0%
            
            
            
            0%
            
            
            
            0%Volatility
            
            
            121.06%
            
            
            
            121.06%
            
            
            
            121.06%Risk
      free rate:
            
            
            3.64%
            
            
            
            3.37%
            
            
            
            3.37%




(a)
            In
      the event that Series J warrants are exercised, the Series J-A warrants
      will not expire until December 27,
2012.





The
Company reduced the value of the shares subject to redemption by $4,802,973 in
conjunction in the year ended December 31, 2007.




Non-Employee
Stock Options





The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to non employees of
the December 31, 2007:




Options
      Outstanding
            
            
            
            
            
            Options
      ExercisableWeighted
              Average
            
            
            Weighted
            
            
            
            
            
            WeightedRemaining
            
            
            Average
            
            
            
            
            
            AverageExercise
            
            
            Number
            
            
            Contractual
      Life
            
            
            Exercise
            
            
            Number
            
            
            ExercisePrices
            
            
            Outstanding
            
            
            (Years)
            
            
            Price
            
            
            Exercisable
            
            
            Price$
            0.001
            
            
            
            10,000
            
            
            
            6.74
            
            
            $
            0.001
            
            
            
            10,000
            
            
            $
            0.0010.01
            
            
            
            571,959
            
            
            
            8.26
            
            
            
            0.01
            
            
            
            300,188
            
            
            
            0.010.22
            
            
            
            215,000
            
            
            
            9.86
            
            
            
            0.22
            
            
            
            107,708
            
            
            
            0.22


F-25




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
9 -STOCK OPTIONS AND WARRANTS (continued)





Transactions
involving stock options issued to non employees are summarized as
follows:





Number
              of
      Shares
            
            
            Weighted
              Average
              Price
      Per ShareOutstanding
      at December 31, 2005:
            
            
            913,106
            
            
            $
            0.006Granted
            
            
            439,500
            
            
            
            0.01Exercised
            
            
            -
            
            
            
            -Canceled
      or expired
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2006:
            
            
            1,352,606
            
            
            
            0.007Granted
            
            
            480,000
            
            
            
            0.16Exercised
            
            
            (821,500
            )
            
            
            (0.05
            )Canceled
      or expired
            
            
            (214,147
            )
            
            
            (0.06
            )Outstanding
      at December 31, 2007:
            
            
            796,959
            
            
            $
            0.07





During
the year December 31, 2007, the Company granted 50,000 non employee stock
options in connection with the issuance of convertible debentures with an
exercise price of $0.02 per share expiring on November 30, 2007.  The
fair value (determined based on the underlying security) of $4,055 is reflected
as a debt discount and amortized over the term of the underlying debenture (See
Note 5 above).





During
the year December 31, 2007, the Company granted an aggregate of 430,000 non
employee stock options in connection services rendered with exercise prices of
i) 155,000 at $0.01 per share ii) 50,000 at $0.02 per share and iii) 275,000 at
$0.22 per share.  The fair values of the vested options were
determined using the Black Scholes option pricing model with the following
assumptions:




Dividend
      yield:
            -0-%Volatility
            116.36%
      to 140.79%Risk
      free rate:
            4.04%
      to 5.03%




The fair
value of all non-employee options vesting in the year ended December 31, 2007 of
$31,397 was charged to current period operations.





During
the year December 31, 2006, the Company granted an aggregate of 439,500 non
employee stock options in connection services rendered with exercise prices of
$0.01 per share.  The fair values of the vested options were
determined using the Black Scholes option pricing model with the following
assumptions:




Dividend
      yield:
            -0-%Volatility
            145.49%Risk
      free rate:
            4.69%




The fair
value of all non-employee options vesting in the year ended December 31, 2006 of
$49,948 was charged to current period operations.


F-26


NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
9 -STOCK OPTIONS AND WARRANTS (continued)





Employee
Stock Options





The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to employees of the
Company under a non-qualified employee stock option plan at December 31,
2007:




Options
      Outstanding
            
            
            
            
            
            Options
      ExercisableWeighted
      Average
            
            
            Weighted
            
            
            
            
            
            WeightedRemaining
            
            
            Average
            
            
            
            
            
            AverageExercise
            
            
            Number
            
            
            Contractual
      Life
            
            
            Exercise
            
            
            Number
            
            
            ExercisePrices
            
            
            Outstanding
            
            
            (Years)
            
            
            Price
            
            
            Exercisable
            
            
            Price$
            0.001
            
            
            
            100,000
            
            
            
            6.73
            
            
            $
            0.001
            
            
            
            81,250
            
            
            $
            0.0010.01
            
            
            
            270,000
            
            
            
            8.53
            
            
            
            0.01
            
            
            
            37,709
            
            
            
            0.010.02
            
            
            
            880,000
            
            
            
            9.19
            
            
            
            0.02
            
            
            
            880,000
            
            
            
            0.020.22
            
            
            
            1,750,000
            
            
            
            9.90
            
            
            
            0.22
            
            
            
            97,223
            
            
            
            0.22




Transactions
involving stock options issued to employees are summarized as
follows:





Number
              of
      Shares
            
            
            Weighted
              Average
              Price
      Per ShareOutstanding
      at December 31, 2005:
            
            
            100,000
            
            
            $
            0.001Granted
            
            
            350,000
            
            
            
            0.01Exercised
            
            
            -
            
            
            
            -Canceled
      or expired
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2006:
            
            
            450,000
            
            
            
            0.004Granted
            
            
            2,630,000
            
            
            
            0.22Exercised
            
            
            (80,000
            )
            
            
            0.01Canceled
      or expired
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2007:
            
            
            3,000,000
            
            
            $
            0.14





During
the year ended December 31, 2007, the Company granted 2,630,000 stock options
with an exercise price of $0.02 to $0.22 per share expiring ten years from
issuance.  The fair value was determined using the Black Scholes
option pricing model with the following assumptions:




Dividend
      yield:
            -0-%Volatility
            116.36%
      to 125.34%Risk
      free rate:
            3.94%
      to 4.59%




The fair
value of all employee options vesting in the year ended December 31, 2007 of
$170,027 was charged to current period operations.





During
the year ended December 31, 2006, the Company granted 350,000 employee stock
options with an exercise price of $0.01 per share expiring ten years from
issuance.  The fair value was determined using the Black Scholes
option pricing model with the following assumptions:




Dividend
      yield:
            -0-%Volatility
            145.49%Risk
      free rate:
            4.69%





The fair
value of all employee options vesting in the year ended December 31, 2006 of
$26,870 was charged to current period operations.


F-27




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE 10 – INCOME
TAXES




In June
2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109
("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, treatment of interest and penalties, and
disclosure of such positions. Effective January 1, 2007, the Company
adopted the provisions of FIN 48, as required. As a result of implementing FIN
48, there has been no adjustment to the Company’s financial statements and the
adoption of FIN 48 did not have a material effect on the Company’s consolidated
financial statements for the year ending December 31, 2007.




Income
tax expense for the years ended December 31, 2007 and 2006 are comprised of
State taxes which primarily are not based on earnings.  No other
income taxes were recorded on the earnings in 2007 as a result of the
utilization of the carry forwards.  All or portion of the remaining
valuation allowance may be reduced in future years based on an assessment of
earnings sufficient to fully utilize these potential tax benefits.





At
December 31, 2007, the significant components of the deferred tax assets
(liabilities) are summarized below:




Net
      operating loss carry forwards
            
            $
            7,000,000Subtotal
            
            
            7,000,000Less
      valuation allowance
            
            
            (7,000,000
            )Balance
            
            $
            —





NOTE
11 -COMMITMENTS AND CONTINGENCIES




Consulting
Agreements





The
Company has consulting agreements with independent contractors, certain of whom
are also Company stockholders. Of those two are former directors of the Company.
We incurred $376,000 ($40,000 in cash compensation, plus the fair value of
equity) and $137,000 in fees and expenses to these individuals for the years
ended December 31, 2007 and 2006 respectively, in a consulting
role.  They were involved in business development (2007) and R&D
(clinical trials) (2006). The Agreements are generally short term and milestones
based and include cash compensation, equity compensation or a combination
thereof.





Operating
Lease Commitments





The
Company leases office space on a month to month basis at $2,400 at per
month.





Litigation




The
Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business.  Although occasional adverse
decisions or settlements may occur, the Company believes that the final
disposition of such matters should not have a material adverse effect on its
financial position, results of operations or liquidity.  There was no
outstanding litigation as of December 31, 2007.


F-28




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
12 – SUBSEQUENT EVENTS





Effective
January 23, 2008, Richard D. Brounstein was appointed as the company’s Chief
Financial Officer and Secretary and on March 18, 2008 he was also appointed
Executive Vice President.




On
February 6, 2008, the Company entered into an amendment to the Securities
Purchase Agreement, dated as of December 27, 2007 (the “Securities Purchase
Agreement”), with certain of the purchaser signatories thereto, pursuant to
which the Company clarified that only purchasers who invested at least
$2,000,000 in Series A Preferred Stock (the “Series A Preferred”) pursuant to
the Securities Purchase Agreement have a right to receive Series J Common Stock
Purchase Warrants (the “Series J Warrants”) and Series J-A Common Stock Purchase
Warrants (the “Series J-A Warrants”).  The total number of Series J
Warrants and Series J-A Warrants issued pursuant to the Securities Purchase
Agreement did not change.




On
February 6, 2008, the Company entered into an amendment to the Registration
Rights Agreement, dated as of December 27, 2007 (the "Rights Agreement"), with
certain of the purchaser signatories thereto, pursuant to which the Company
remain obligated to register the Series A Preferred only.  The Company
is no longer obligated to register the Series A Common Stock Purchase Warrants
issued pursuant to the Securities Purchase Agreement, the Series J Warrants or
the Series J-A Warrants.





Effective
March 18, 2008, Mark Kroll, PhD was elected as a member and chairman of the
board of directors and Patrick Maguire, M.D., Ph.D. was elected as a member of
the board of directors.


F-29




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
13 – RESTATEMENT





The
accompanying consolidated financial statements as of December 31, 2007; for the
year ended December 31, 2007 and for the period from September 7, 2004 (date of
inception) through December 31, 2007 have been restated to correct the
accounting treatment of  the issuance of Series A Redeemable Preferred
Stock, warrants issued in connection with the Series A Redeemable Preferred
Stock and related fees and warrants issued in connection with the
issuance.





The
effect of these adjustments is a decrease in net loss of $3,297,797 for the
period from September 7, 2004 (date of inception) through December 31, 2007 and
for the year ended December 31, 2007.  There was no effect on cash
flows from operating, investing or financing for either period.





The
following tables summarize the effects of these adjustments on the Company’s
consolidated balance sheet as of December 31, 2007, consolidated statements of
operations for the year ended December 31, 2007 and from September 7, 2004 (date
of inception) through December 31, 2007 and the consolidated statements of cash
flows for the year ended December 31, 2007 and from September 7, 2004 (date of
inception) through December 31, 2007.




Consolidated
Balance Sheet


December
31, 2007




As
      PreviouslyReported
            
            
            Adjustment
            
            
            Reference
            
            
            As
      RestatedCash
            
            $
            1,476,625
            
            
            $
            
            
            
            
            
            
            
            $
            1,476,625Short
      term investment
            
            
            5,000,000
            
            
            
            
            
            
            
            
            
            
            
            5,000,000Property,
      plant and equipment
            
            
            7,687
            
            
            
            
            
            
            
            
            
            
            
            7,6876,484,312
            
            
            
            -
            
            
            
            
            
            
            
            6,484,312Accounts
      payable and accrued liabilities
            
            
            871,246
            
            
            
            
            
            
            
            
            
            
            
            871,246Note
      payable, related party, current portion
            
            
            10,316
            
            
            
            
            
            
            
            
            
            
            
            10,316Shares
      subject to redemption
            
            
            8,200,000
            
            
            
            (8,200,000
            )
            
            
            a
            
            
            
            -Warrant
      liability
            
            
            4,802,973
            
            
            
            
            
            
            
            
            
            
            
            4,802,973Total
      liabilities:
            
            
            13,884,535
            
            
            
            (8,200,000
            )
            
            
            
            
            
            
            5,684,535Shares
      subject to redemption
            
            
            -
            
            
            
            2,084,493
            
            
            
            b
            
            
            
            2,084,493Common
      stock
            
            
            20,238
            
            
            
            
            
            
            
            
            
            
            
            20,238Additional
      paid in Capital
            
            
            3,035,444
            
            
            
            2,817,710
            
            
            
            c
            
            
            
            5,853,154Deficit
      accumulated during development stage
            
            
            (10,455,905
            )
            
            
            3,297,797
            
            
            
            d
            
            
            
            (7,158,108
            )Total  deficiency
      in stockholders' equity
            
            
            (7,400,223
            )
            
            
            6,115,507
            
            
            
            
            
            
            
            (1,284,716
            )$
            6,484,312
            
            
            $
            -
            
            
            
            
            
            
            $
            6,484,312


F-30


NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
13 – RESTATEMENT (continued)


Consolidated
Statement of Operations


For the
Year Ended December 31, 2007




As
      PreviouslyReported
            
            
            Adjustment
            
            
            Reference
            
            
            As
      RestatedOperating
      expenses:Selling,
      general and administrative
            
            $
            1,729,901
            
            
            $
            
            
            
            
            
            
            
            $
            1,729,901Depreciation
            
            
            594
            
            
            
            
            
            
            
            
            
            
            
            594Research
      and development
            
            
            369,674
            
            
            
            
            
            
            
            
            
            
            
            369,674Total
      operating expenses
            
            
            2,100,169
            
            
            
            -
            
            
            
            
            
            
            
            2,100,169Net
      loss from operations
            
            
            (2,100,169
            )
            
            
            -
            
            
            
            
            
            
            
            (2,100,169
            )Other
      income (expense)Interest
            
            
            (7,200,479
            )
            
            
            6,115,507
            
            
            
            e
            
            
            
            (1,084,972
            )Net
      loss before income taxes
            
            
            (9,300,648
            )
            
            
            6,115,507
            
            
            
            
            
            
            
            (3,185,141
            )Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            -Net
      loss
            
            
            (9,300,648
            )
            
            
            6,115,507
            
            
            
            
            
            
            
            (3,185,141
            )Preferred
      Stock dividend
            
            
            -
            
            
            
            (2,817,710
            )
            
            
            f
            
            
            
            (2,817,710
            )NET
      LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
            
            $
            (9,300,648
            )
            
            $
            3,297,797
            
            
            
            
            
            
            $
            (6,002,851
            )Net
      loss per share, basic and diluted
            
            $
            (0.85
            )
            
            $
            0.30
            
            
            
            
            
            
            $
            (0.55
            )





Consolidated
Statement of Operations


From
September 7, 2004 (date of inception) through December 31, 2007




As
      PreviouslyReported
            
            
            Adjustment
            
            
            Reference
            
            
            As
      RestatedOperating
      expenses:Selling,
      general and administrative
            
            $
            2,086,154
            
            
            $
            
            
            
            
            
            
            
            $
            2,086,154Depreciation
            
            
            594
            
            
            
            
            
            
            
            
            
            
            
            594Research
      and development
            
            
            1,159,026
            
            
            
            
            
            
            
            
            
            
            
            1,159,026Total
      operating expenses
            
            
            3,245,774
            
            
            
            -
            
            
            
            
            
            
            
            3,245,774Net
      loss from operations
            
            
            (3,245,774
            )
            
            
            -
            
            
            
            
            
            
            
            (3,245,774
            )Other
      income (expense)Interest
            
            
            (7,210,131
            )
            
            
            6,115,507
            
            
            
            e
            
            
            
            (1,094,624
            )Net
      loss before income taxes
            
            
            (10,455,905
            )
            
            
            6,115,507
            
            
            
            
            
            
            
            (4,340,398
            )Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            -Net
      loss
            
            
            (10,455,905
            )
            
            
            6,115,507
            
            
            
            
            
            
            
            (4,340,398
            )Preferred
      Stock dividend
            
            
            -
            
            
            
            (2,817,710
            )
            
            
            f
            
            
            
            (2,817,710
            )NET
      LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
            
            $
            (10,455,905
            )
            
            $
            3,297,797
            
            
            
            
            
            
            $
            (7,158,108
            )


F-31





NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
13 – RESTATEMENT (continued)




Consolidated
Statement of Cash Flows


For the
Year Ended December 31, 2007




As
      PreviouslyReported
            
            
            Adjustment
            
            
            Reference
            
            
            As
      RestatedCash
      flows from operating activities:Net
      loss for the period
            
            $
            (9,300,648
            )
            
            $
            6,115,507
            
            
            
            e
            
            
            $
            (3,185,141
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
            
            
            594
            
            
            
            
            
            
            
            
            
            
            
            594Financing
      costs paid in conjunction with issuance of preferred stock
            
            
            857,500
            
            
            
            (857,500
            )
            
            
            g
            
            
            
            -Common
      stock issued for services rendered
            
            
            454,050
            
            
            
            
            
            
            
            
            
            
            
            454,050Common
      stock issued as beneficial conversion feature in conjunction with
      settlement of convertible debentures
            
            
            426,334
            
            
            
            
            
            
            
            
            
            
            
            426,334Fair
      value of options issued for services rendered
            
            
            201,424
            
            
            
            
            
            
            
            
            
            
            
            201,424Fair
      value of warrants issued as compensation for financing
            
            
            355,034
            
            
            
            (355,034
            )
            
            
            g
            
            
            
            -Fair
      value of warrants issued in conjunction with issuance of Series A
      redeemable preferred stock
            
            
            4,802,973
            
            
            
            (4,802,973
            )
            
            
            h
            
            
            
            -Fair
      value of warrants issued in settlement of convertible
      debentures
            
            
            598,692
            
            
            
            
            
            
            
            
            
            
            
            598,692Amortization
      of debt discount attributable to subordinated convertible
    debt
            
            
            5,058
            
            
            
            
            
            
            
            
            
            
            
            5,058Increase
      (decrease) in:Accounts
      payable and accrued liabilities
            
            
            464,454
            
            
            
            (100,000
            )
            
            
            i
            
            
            
            364,454Net
      cash used in operating activities
            
            
            (1,134,535
            )
            
            
            -
            
            
            
            
            
            
            
            (1,134,535
            )Cash
      flows from investing activities:Purchase
      of property, plant and equipment
            
            
            (8,281
            )
            
            
            
            
            
            
            
            
            
            
            (8,281
            )Purchase
      of short term investment
            
            
            (5,000,000
            )
            
            
            
            
            
            
            
            
            
            
            (5,000,000
            )Net
      cash used in investing activities
            
            
            (5,008,281
            )
            
            
            -
            
            
            
            
            
            
            
            (5,008,281
            )Cash
      flows from financing activities:Proceeds
      from exercise of common stock options
            
            
            5,916
            
            
            
            
            
            
            
            
            
            
            
            5,916Proceeds
      from sale of Series A preferred stock
            
            
            7,342,500
            
            
            
            
            
            
            
            
            
            
            
            7,342,500Proceeds
      from sale of common stock
            
            
            113,513
            
            
            
            
            
            
            
            
            
            
            
            113,513Proceeds
      from convertible debt, net
            
            
            157,500
            
            
            
            
            
            
            
            
            
            
            
            157,500Net
      cash provided by financing activities
            
            
            7,619,429
            
            
            
            -
            
            
            
            
            
            
            
            7,619,429Net
      increase in cash
            
            
            1,476,613
            
            
            
            -
            
            
            
            
            
            
            
            1,476,613Cash
      at beginning of period
            
            
            12
            
            
            
            
            
            
            
            
            
            
            
            12Cash
      at end of period
            
            $
            1,476,625
            
            
            $
            -
            
            
            
            
            
            
            $
            1,476,625


F-32




EWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
13 – RESTATEMENT (continued)




Consolidated
Statement of Cash Flows


From
September 7, 2004 (date of inception) through December 31, 2007




As
      PreviouslyReported
            
            
            Adjustment
            
            
            Reference
            
            
            As
      RestatedCash
      flows from operating activities:Net
      loss for the period
            
            $
            (10,455,905
            )
            
            $
            6,115,507
            
            
            
            e
            
            
            $
            (4,340,398
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
            
            
            594
            
            
            
            
            
            
            
            
            
            
            
            594Financing
      costs paid in conjunction with issuance of preferred stock
            
            
            857,500
            
            
            
            (857,500
            )
            
            
            g
            
            
            
            -Common
      stock issued to founders for services rendered
            
            
            3,177
            
            
            
            
            
            
            
            
            
            
            
            3,177Common
      stock issued for intellectual property
            
            
            260
            
            
            
            
            
            
            
            
            
            
            
            260Common
      stock issued for services rendered
            
            
            489,388
            
            
            
            
            
            
            
            
            
            
            
            489,388Common
      stock issued as beneficial conversion feature in conjunction with
      settlement of convertible debentures
            
            
            426,334
            
            
            
            
            
            
            
            
            
            
            
            426,334Series
      A Preferred stock issued to founders for services rendered
            
            
            45,632
            
            
            
            
            
            
            
            
            
            
            
            45,632Series
      A-2 Preferred stock issued for services rendered
            
            
            180,121
            
            
            
            
            
            
            
            
            
            
            
            180,121Notes
      payable issued for services rendered
            
            
            10,316
            
            
            
            
            
            
            
            
            
            
            
            10,316Fair
      value of options issued for services rendered
            
            
            323,062
            
            
            
            
            
            
            
            
            
            
            
            323,062Fair
      value of warrants issued as compensation for financing
            
            
            355,034
            
            
            
            (355,034
            )
            
            
            g
            
            
            
            -Fair
      value of warrants issued in conjunction with issuance of Series
      A-2  preferred stock
            
            
            232,502
            
            
            
            
            
            
            
            
            
            
            
            232,502Fair
      value of warrants issued in conjunction with issuance of Series A
      redeemable preferred stock
            
            
            4,802,973
            
            
            
            (4,802,973
            )
            
            
            h
            
            
            
            -Fair
      value of warrants issued in settlement of convertible
      debentures
            
            
            598,692
            
            
            
            
            
            
            
            
            
            
            
            598,692Amortization
      of debt discount attributable to subordinated convertible
    debt
            
            
            5,713
            
            
            
            
            
            
            
            
            
            
            
            5,713Increase
      (decrease) in:Accounts
      payable and accrued liabilities
            
            
            890,705
            
            
            
            (100,000
            )
            
            
            i
            
            
            
            790,705Net
      cash used in operating activities
            
            
            (1,233,902
            )
            
            
            -
            
            
            
            
            
            
            
            (1,233,902
            )Cash
      flows from investing activities:Purchase
      of property, plant and equipment
            
            
            (8,281
            )
            
            
            
            
            
            
            
            
            
            
            (8,281
            )Purchase
      of short term investment
            
            
            (5,000,000
            )
            
            
            
            
            
            
            
            
            
            
            (5,000,000
            )Net
      cash used in investing activities
            
            
            (5,008,281
            )
            
            
            -
            
            
            
            
            
            
            
            (5,008,281
            )Cash
      flows from financing activities:Proceeds
      from exercise of common stock options
            
            
            6,216
            
            
            
            
            
            
            
            
            
            
            
            6,216Proceeds
      from sale of Series A-2 preferred stock
            
            
            79,079
            
            
            
            
            
            
            
            
            
            
            
            79,079Proceeds
      from sale of Series A preferred stock
            
            
            7,342,500
            
            
            
            
            
            
            
            
            
            
            
            7,342,500Proceeds
      from sale of common stock
            
            
            113,513
            
            
            
            
            
            
            
            
            
            
            
            113,513Proceeds
      from convertible debt, net
            
            
            177,500
            
            
            
            
            
            
            
            
            
            
            
            177,500Net
      cash provided by financing activities
            
            
            7,718,808
            
            
            
            -
            
            
            
            
            
            
            
            7,718,808Net
      increase in cash
            
            
            1,476,625
            
            
            
            -
            
            
            
            
            
            
            
            1,476,625Cash
      at beginning of period
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            -Cash
      at end of period
            
            $
            1,476,625
            
            
            $
            -
            
            
            
            
            
            
            $
            1,476,625


F-33


NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
13 – RESTATEMENT (continued)





(a)  In
December 2007, the Company issued 8,200 Series A shares at $1,000 per share to
accredited investors in a private placement. The Company initially recorded the
issuance as a current liability at the full face amount of $8,200,000 and
recorded the issuance costs totally $1,312,534 interest expense in the current
period.





Under the
terms of the Series A Stock Certificate of Designation, the Company may be
required to redeem the Series A shares for cash in an amount equal to the Series
A stated value, plus accrued and unpaid dividends , upon the occurrence
of  certain events , including a change in control. The Company has
determined the Series A shares includes redemption features that have the
potential to be outside the control of the Company, and accordingly, the Company
has classified the Series A shares outside of shareholders’ equity in
accordance with Emerging Issues Task Force (“EITF”) Topic D-98, Classification
and Measurement of Redeemable Securities (“EITF Topic D-98”). In accordance with
EITF Topic D-98, the fair value allocated to the Preferred Stock at the date of
issuance was recorded outside of common shareholders’ equity in the accompanying
consolidated balance sheet.




(b)   As
described above, the Company initially recorded the issuance of the Series A
Preferred Stock at face amount of $8,200,000. By considering a beneficial
conversion feature present as defined under Emerging Issues Task Force (“EITF”)
No.00-27, “Application
of EITF Issue No. 98-5, ‘Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Rates’, to Certain
Convertible Instruments”  , $4,802,973 has
now been allocated to the warrants based on their fair value using the Black
Scholes option pricing model. Further, the Company attributed a beneficial
conversion feature of $2,817,710 to the Series A preferred shares
based upon the difference between the effective conversion price of those shares
and the fair value of the common shares on the date of issuance. The assumptions
used in the Black Scholes model are as follows:  (1) dividend
yield of 0%; (2) expected volatility of 121.06%, (3) risk-free
interest rate of 3.37% to 3.64%, and (4) expected life of 1 to 5
years. The amount attributable to the beneficial conversion feature has been
recoded as a dividend to the preferred shareholders. Since the redemption
feature of the preferred stock is contingent on the occurrence of future events,
the Company will not accrete the carrying value of the preferred stock to
redemption value until the occurrence of those future events becomes
probable.





Shares
subject to redemption is summarized as follows:




Face
      amount of Preferred Stock:
            
            $
            8,200,000Less:
      fair value of warrants
            
            
            (4,802,973
            )Less:
      issuance costs
            
            
            (1,312,534
            )Net
      carrying value:
            
            $
            2,084,493




(c
)  To record a $2,817,710 dividend to the Series A preferred
shareholders (see (b) above).




(d)  The
effect in deficit accumulated during development stage is as
follows:





Reclassification
      of initial fair value of warrants from current period interest expense to
      a reduction in carrying value of Series A Preferred Stock
            
            $
            4,802,973Reclassification
      of the issuance costs from current period interest expense to a reduction
      in the carrying value of Series A Preferred Stock
            
            
            1,312,534Less:
      The value of the beneficial conversion feature
            
            
            (2,817,710
            )Net
      change
            
            $
            3,297,797


F-34




NEWCARDIO,
INC.


(a
development stage company)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2007 AND 2006





NOTE
13 – RESTATEMENT (continued)





(e)  As
described in (b) and (d) above, the initial fair value of the warrants and the
issuance costs were reclassified from current period interest expense to a
reduction in carrying value of the Series A Preferred Stock (Shares subject to
redemption).





(f)  As
described in (b) above, the beneficial conversion feature is shown on the
current period earnings as a increase in Net Loss Attributable to Common
Shareholders.





(g) As
described in (b) above, the issuance costs related to the Series A Preferred
Stock was reclassified from current period expense to a reduction in the
carrying value of the Preferred Stock (Shares subject to
redemption).





(h)  As
described in (b) above, the initial fair value of the warrants issued in
connection with the issuance of the Series A Preferred Stock was reclassified
from current period expense to a reduction in the carrying value of the
Preferred Stock (Shares subject to redemption).





(i)  $100,000
of the issuance costs were accrued and not paid until January 2008.